Look back in history
The importance of this judicial resolution is such that it is only the second time that the Russian Constitutional Court has decided to address the issues of private arbitration. The first time the court addressed these issues was 12 years ago (in resolution No. 10-P of 26 May 2011). Just as today, back then the Constitutional Court — using an occasion to address the issue of the right of a private arbitration court to hear disputes over real property — addressed the fundamental problems of arbitration: its constitutionality, its place in the judicial system, its competence, the limits of arbitrability and public policy. Revisiting these issues has become relevant again as they have become more acute after the radical arbitration reform of 2015-2016.Therefore, the range of issues addressed in the resolution is much broader than one would perceive from just reading the title of the judicial act.
Most Important Issues
To a large extent, Resolution 46-P repeats the postulates that were formulated in 2011. At the same time, it touches upon a number of new issues. Among the most material issues for the practice are the following ones:- It is the first time that the Constitutional Court has applied the notion of “integrated relations” to certain (as a rule, the most complex) categories of disputes that private arbitration courts deal with. In the first place, this is relevant for investment disputes, especially investment disputes arising out of concession agreements and PPP agreements (these may also include disputes not named by the Constitutional Court such as disputes arising out of special investment contracts, disputes over product sharing agreements, disputes over membership in free economic zones and other “investment” zones, etc). The Constitutional Court divides all relations between the relevant entities into civil and public. Just as the legislator has done, the Constitutional Court explicitly points out that the latter cannot be considered by a private arbitration court. At the same time, the Constitutional Court emphasises the duty of a state court to correctly qualify the relations that have become the subject of a private arbitration and for these purposes the Constitutional Court invokes (not without certain reservations) the concept of “concentration of public elements” and exceeding its limits, which at one time caused a lot of controversy.
- When analysing the category of “public policy”, the Constitutional Court identified it with the notions of the “foundations of the legal order” and “fundamental principles of law”. In this context the Constitutional Court specifically pointed out that creating the visibility of a private law dispute with the aim of having a formal ground for registering title to real property in circumvention of the requirements of the law should be regarded as a breach of public policy.
- Resolution 46-P pays special attention to the concept of “good faith”. The Constitutional Court considers the concept of good faith to be one of the elements of public policy of the Russian Federation; therefore, its violation by one of the parties to the arbitration is an unconditional ground for setting aside an arbitral award rendered in favour of the dishonest party. At the same time, it should be noted that the Constitutional Court warns against the arbitrary use of this category. It is emphasised that a state court is in any case obliged to justify its findings of the relevant person’s bad faith conduct in an exhaustive manner.
Unresolved issue
One of the “perennial” issues that Resolution 46-P touches upon is that of third-party rights for persons who are not parties to the private arbitration.It appears to us that in its clarifications the Constitutional Court has chosen quite a controversial approach that can (and is most likely to) cause new problems. According to the Constitutional Court, persons who are not parties to the arbitration proceedings but have claims over the property in relation to which the private arbitration court made an award may on their own bring a separate lawsuit against the party in whose favour the award was made.
We regard this approach as controversial because as a result of such approach two conflicting and enforceable judgements may be passed. Let’s for example take a situation when a private arbitration court recognises that title to property belongs to company A, this judgement is then enforced based on a writ of execution obtained from a state court and afterwards title is registered in the name of company A. If company B, not a party to the arbitration, then brings a lawsuit against company A and such lawsuit is upheld, there will be two conflicting judgements none of which has been repealed (a violation of the res judicata principle).
A more efficient solution to the problem would be either to grant the third party the right to challenge the award of the private arbitration in which the third party did not take part (as has already been tested in practice) or to legally give the arbitral award a praejudicium effect.
