Don’t mess with multi-trier clauses: lesson from the Supreme Court

The concept of public order in Russia is traditionally very broad. According to the Supreme Court of Russian Federation, failure to comply with multi-trier clause is a clear demonstration of bad faith, which forms a breach of public order.

Gruz-Logistikia Limited Liability company and individual entrepreneur Olga Ivanovna Kulikova entered into agreement for transportation of cargo by motor transport. Under Clause 7.1 of the said agreement, the parties agreed on the mandatory pre-arbitration procedure. As a result of failure of the Carrier, in the opinion of the Company, to comply with the above mentioned agreement, the Company gave a complaint to the Individual Enterpreneur, but have not received a reply and applied to the First Arbitration Institution. The arbitration institution did not pay any attention to the facts above and, as a result of the proceeding, granted an award in favor of Claimant.

The problems arose when the Claimant tried to enforce the award, but the application was denied by the Commercial Court of the Republic of Mari-El and the Commercial Court of Volga-Viatka Circuit. The Supreme Court reviewed this case and came to the  conclusion that the Claimant discharged its obligation to folow the pre-arbitral procedure and such a bad faith conduct resulted in a breach of the complusory principles of effetive laws, is in breach of the public order of the Russian Federation and limited the Individual Entrepreneur’s right to protect its legitimate interest through participation in the pre-arbitration procedures of dispute resolution. The Supreme court highlighted that public order means the fundamental legal principless, including the prohibitions to take actions which are expressly prohibited by the supra-imperative rules of the laws of the Russain Federation:

The fundamental principles of the public order in Russian Federation can include the principle of peaceful (pre-arbitration) dispute resolution, minimizing the costs of the parties to resolve it, saving time needed to resolve the conflict, to avoid deep conflict, to maintain favorable relations between the parties, can be referred to the foundations of public order of the Russain Federation. One of the elements of this principle is the pre-trial procedure of the dispute resolution. 

Although Russian legislation does not include any specific provisions regarding pre-arbitration dispute resolution, the Supreme Court in its decision applied Articles 128 and 129 of the Commercial Procedure Code and Article 222 of  Civil Procedure Code, which regulate the limitation of the access to justice, arguing that failure to comply with the principle leads to limitation of access to justice.

Overall, this decision demonstrates the importance of the pre-arbitration procedures. Although it leaves an opened question how could the arbitration institution start arbitration ignoring multi-trier clause, parties should pay attention to such clauses not to waste time being involved in costly and long-term arbitration ending up with nothing.


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