English Commercial Court Applies Russian Law to Join Non-Signatory Parent Entity to Arbitration Proceedings

Baker Botts LLP's Ideas blog has a feature on a rather odd ruling from the English High Court:

In Egiazaryan and Gogokhiya v. OJSC OEK Finance and The City of Moscow, [2015] EWHC 3532 (Comm), Mr. Justice Burton held that under Article 105 of the Russian Civil Code, the parent of a Russian company is subject to arbitration under an arbitration agreement between its Russian subsidiary and a third party. This holding, which rested on the arbitral tribunal’s findings and, apparently, a concession made by the parent in the litigation, applies Russian law in a novel way. Parties with interests in Russia should be aware of this ruling and its limitations.

Baker Botts expressed some surprise at the ruling:

The result of this case appears to be inconsistent with existing Russian law. As an initial matter, Article 105 (which has been replaced by Article 67.3 since September 1, 2014) would seem to have no relevance to the dispute at all. That provision addresses the parent-subsidiary relationship between two for-profit business entities, such as joint-stock companies, limited liability companies or partnerships. Article 105 does not apply to non-commercial entities, such as the City of Moscow.

But even if Article 105 could apply to the City of Moscow, Russian courts have taken a strict approach to Article 105, requiring that (i) the right of the parent to give mandatory instructions to the subsidiary be formally envisaged in the subsidiary’s charter or in a contract between the subsidiary and the parent, and (ii) the transaction in question have been concluded as a result of those mandatory instructions. It is not evident from the High Court's judgment whether both elements were addressed or proven, as would be required by the Russian courts.

The post raises a cautionary note:

[This case] appears to be based on an unprecedented reading of Article 105 of the Russian Civil Code. Unless overturned on appeal, it is likely to be cited by claimants in future arbitrations as a vehicle to try to extend arbitral jurisdiction over parents of Russian companies. While such reliance would appear to be unjustified under the ordinary application of Article 105, understanding the proper scope and application of this provision (now Article 67.3 of the Russian Civil Code) remains important for commercial parent entities of Russian subsidiaries and those subsidiaries' counterparties.

The entire piece, which can be found here, is worth reading: "English Commercial Court Applies Russian Law To Join Non-Signatory Parent Entity To Arbitration Proceedings."