Russia's prime court decides that business conflicts are not subject to arbitration, assuming jurisdiction instead
In a significant development for Russian corporate law, the Novolipetsk Steel v. Maximov case has broadened the concept of non-arbitrability regarding corporate disputes.
Background
The case involved Novolipetsk Steel (NLMK), one of Russia’s largest steel producers, and Maximov, a former shareholder or company insider. The dispute centred around corporate governance issues, shareholder rights, and potentially challenges to company decisions or claims related to corporate control.
Key Legal Issue: Non-Arbitrability of Corporate Disputes
In Russia, some disputes cannot be resolved through arbitration courts and must instead go to state courts. These disputes are termed non-arbitrable. Traditionally, corporate disputes—especially those involving shareholders and company control—have had some gray areas regarding whether they can be arbitrated. The Novolipetsk Steel v. Maximov case marked a notable ruling that expanded the scope of corporate matters deemed non-arbitrable.
What Happened:
The Russian courts ruled that certain disputes involving corporate governance, shareholders’ rights, and company internal affairs fall outside the jurisdiction of arbitration courts. This decision expanded the class of corporate disputes that must be resolved by state courts rather than arbitration tribunals. The ruling underscored the Russian judiciary’s cautious approach to arbitration in sensitive shareholder disputes, emphasizing the need for state court oversight.
Implications:
- For Companies and Shareholders: The ruling increases the likelihood that shareholder disputes, especially those involving fundamental company governance issues, cannot be settled in arbitration, potentially leading to longer, more public litigation in state courts.
- For Arbitration Practice: The scope of arbitration in Russian corporate law becomes more limited, signalling companies to carefully consider dispute resolution clauses and the nature of potential disputes.
- For Legal Strategy: Legal practitioners must carefully assess non-arbitrability clauses and anticipate that crucial corporate disputes may have to be litigated in state courts.
Summary:
The Novolipetsk Steel v. Maximov case reinforces and expands the principle that certain corporate disputes are non-arbitrable in Russia, marking an important shift towards broader state court jurisdiction in matters of internal corporate conflicts and shareholder disputes.
This ruling serves as a reminder for companies and individuals to understand the implications of their Terms of Service (TOS) and arbitration clauses, and to carefully consider the potential for state court involvement in corporate disputes.
In light of the Novolipetsk Steel v. Maximov case, it has become essential for businesses and finance sectors in Russia to incorporate dispute resolution methods that incorporate state court proceedings, due to the expanded definition of non-arbitrable corporate disputes. This development may influence the future drafting of financial agreements and terms of service, requiring a more extensive consideration of the potential for state court involvement in business-related disputes.
