United States: A Man Of Many Claims: Recent Decisions On Challenging Or Resisting Enforcement Of Arbitral Award

During 2015 the Commercial Court handed down four judgments in cases arising out of London-seated arbitrations concerning the complicated business affairs of Ashot Egiazaryan (or Yegiazaryan) – a Russian banker, politician and former member of Russia's parliament. In this article, I have discussed the legal principles in the four cases, but have also tried to say something about the factual context, so far as this can be derived from publically available sources, in the hope that it might make the judgments somewhat easier to follow.

Overview

Mr. Yegiazaryan has been involved in (at least) three recent London-seated LCIA arbitrations. In one he was respondent and two he was a claimant. In the arbitration where Mr. Yegiazaryan was the respondent it was claimed that he had carried out a "corporate raid" in order to steal from a former business partner called Vitaly Smagin an interest in a Moscow shopping mall called "Europark". The arbitral tribunal made an award ordering Mr. Yegiazaryan and a company called "Kalken Holdings" to pay Mr. Smagin a sum in excess of $79m. This arbitration award against Mr. Yegiazaryan and Kalken Holdings has been the subject of at least three English court judgments. The three judgments are anonymised, but an unredacted version of the 233 paragraph award (Final Award 11 November 2014 Case No. 101721) has become public, and it is obvious that this is what the judgments relate to.

In the other two arbitrations Mr. Yegiazaryan was the claimant. He claimed that, at the very same time that he was taking Mr. Smagin's interest in Europark, another (more powerful) oligarch called Suleyman Kerimov was in turn conspiring to steal Yegiazaryan's own interest in a Moscow hotel development called the "Hotel Moskva". It has been reported in the press that, in the first of the two "Hotel Moskva" arbitrations, Mr. Kerimov was ordered to pay Mr. Yegiazaryan $250m – but that award has not been the subject of any English court judgment and has not been made public.

The second of the "Hotel Moskva" arbitrations concerns claims by Mr. Yegiazaryan and his assistant Mr. Gogokhiya. The respondents are the City of Moscow and its subsidiary "OEC Finance", said by the claimants to have been Mr. Kerimov's co-conspirators. The tribunal in that arbitration made an award finding that it lacked jurisdiction to hear the claims against the City of Moscow and OEC Finance. The 629 paragraph award has (so far) been the subject of at least one court judgment, but the award itself has not become public.

The English court judgments are:

(a) Y v S [2015] EWHC 612 (Comm) (Eder J) (13 March 2015). Mr. Yegiazaryan issued a challenge to the "Europark" award, alleging that the tribunal had lacked jurisdiction. This first judgment concerned a dispute as to whether, and to what extent, Mr. Smagin should be prevented from taking steps to enforce the award pending determination of Mr. Yegiazaryan's challenge. The judgment concerns a narrow (albeit important) point of procedure, and so is only discussed briefly below.

(b) A v B [2015] EWHC 1944 (Teare J) (9 July 2015). In this judgment, the court dismissed Mr. Yegiazaryan's challenge to the "Europark" award. The A v B decision is the least interesting since it really turns on its own facts - whether Mr. Yegiazaryan's signature on the contract containing the arbitration clause was genuine, and the construction of the specific arbitration clause.

(c) K v S [2015] EWHC 1945 (Teare J) (9 July 2015). Kalken Holdings had also issued a challenge to the "Europark" award, alleging that the Tribunal lacked jurisdiction. In this judgment, the court dismissed Kalken Holdings' challenge on the grounds that it had been brought outside the statutory time limit. The K v S decision has a slightly wider application, in that it illustrates how the statutory time limit for challenging an award operates when a party has sought a correction or clarification from the tribunal. It also provides a reminder of the factors which are to be taken into account when considering an application to extend that time limit, and the kind of evidence that will be required.

(d) Ashot Egiazaryan and Vitaly Gogokhiya v OJSC OEK Finance and The City of Moscow [2015] EWHC 3532 (Burton J) (4 December 2015). This concerns the award on jurisdiction in the second of the "Hotel Moskva" arbitrations. The court found that the tribunal did have jurisdiction over the claims against OEK Finance and the City of Moscow, and remitted the case to the tribunal. This judgment is the most interesting of the four. In the past decade only a handful of cases about arbitration law (six in fact) have gone all the way to the Supreme Court / House of Lords, and the issues in Egiazaryan are reminiscent of two of those cases, namely: Dallah Real Estate and Tourism Holding Company v The Ministry of Religious Affairs, Government of Pakistan [2010] UKSC 46; and Premium Nafta Products Limited and others v Fili Shipping Company Limited and others [2007] UKHL 40 (also known as "Fiona Trust v Privalov"). The Egiazaryan v OEK Finance judgment, however, contains frustratingly very little detail about the factual background, with several references to people, places, contracts and events which are never defined or explained.

Europark

In early 2000 a Russian businessman called Vitaly Smagin, together with two business partners, started to develop a shopping complex in Moscow called "Europark". They developed the complex through a company called "Centurion". In 2002 Smagin's partners wished to withdraw from the project, and new investors – Mr. Yegiazaryan and a Mr. Garkusha – came onboard. Mr. Smagin, Mr. Garkusha and Mr. Yegiazaryan entered a contract (known as the "2003 Agreement") which, Mr. Smagin would later argue, regulated how profits from the Europark development were to be divided, and entitled Mr. Smagin to 20% of those profits. The 2003 Agreement did not contain any arbitration clause. Europark was completed in 2005 and opened in January 2006.

Deutsche Bank loan

In 2006 Mr. Yegiazaryan approached Mr. Smagin and asked to be allowed to use the Europark property as security for a loan from Deutsche Bank which Mr. Yegiazaryan wanted to invest in the redevelopment of the Hotel Moskva. Mr. Smagin agreed. It was envisaged that, once the shopping centre part of the Hotel had been completed, it would take the place of Europark as security for the Deutsche Bank loan.

In order to obtain the loan, the ownership structure of Europark was changed. Ownership of Centurion (which owned Europark) was transferred to a Cyprus company called "Doralin". Doralin was owned by a BVI company called "Tufts". Tufts was owned 73% by "Kalken Holdings" (a company controlled by Mr. Yegiazaryan), 20% by Mr. Smagin and 7% by Mr. Garkusha.

Kalken Holdings, Mr. Smagin and Mr. Garkusha entered into a "Shareholders' Agreement". This required Kalken Holdings' shares in Tufts to be placed in escrow, on terms that they would be transferred to Mr. Smagin if the Deutsche Bank loan was not repaid. Mr. Smagin could then sell those Tufts shares and use the monies realised to repay the Deutsche Bank loan. Any excess realised from the sale of the shares would be repaid to Kalken Holdings, and Kalken Holdings also stood the risk of any shortfall. The terms on which the shares would be held in escrow were defined in a further contract (to which Deutsche Bank was also a party) called the "Escrow Agreement". The purpose of this arrangement was to protect Mr. Smagin's investment in Europark. The Shareholders' Agreement and Escrow Agreement contained arbitration clauses, providing for LCIA arbitration in London.

2008 Agreement

Kalken Holdings did not put its Tufts shares into escrow as the Shareholders' Agreement required and, come 2008, the Deutsche Bank loan had not been repaid and was still secured on Europark. Mr. Smagin raised these concerns with Mr. Yegiazaryan. As a result, Mr. Smagin and Mr. Yegiazaryan entered an agreement which (in effect) required Mr. Yegiazaryan to procure that the Shareholders Agreement and Escrow Agreement be performed, and the Tufts shares be transferred into escrow. The 2008 Agreement contained an unusually worded arbitration clause, discussed further below.

Corporate raid on Tufts

Kalken Holdings still did not put its 73% shareholding in Tufts into escrow. Instead, on 23 November 2009 Kalken Holdings unilaterally amended Tufts' Articles of Association to reduce the voting threshold required to remove a director from 75% to 50%. It then voted to remove Mr. Smagin as a director (without informing him). Kalken Holdings then appointed an entity called "MPH Law", which was controlled by Mr. Yegiazaryan, as Tufts' sole director. MPH Law caused Tuft's shares in Doralin (the company which owned Centurion and so, ultimately, Europark) to be transferred to two other companies, one controlled by Mr. Yegiazaryan and the other by Tashir Group (a Russian real estate investor owned by Samvel Karapetyan - another oligarch - to whom Mr. Yegiazaryan had apparently agreed to sell Europark).

Europark arbitration

In October 2010 Mr. Smagin commenced an LCIA arbitration against Kalken Holdings and Mr. Yegiazaryan seeking to recover damages in respect of the interest in Europark, which Mr. Yegiazaryan had taken from him in that corporate raid. The arbitrators were Michael Lee, Per Runeland and Dr Kaj Hobér. The award is now in the public domain.

In the Europark arbitration, Mr. Yegiazaryan argued that the 2008 Agreement was a forgery which he had never actually signed. The Tribunal held it was not a forgery. Mr. Yegiazaryan argued that, if he had signed the 2008 Agreement, it was of the nature of a draft or "letter of intent", and was not binding. Again, the arbitrators rejected this.

Mr. Yegiazaryan argued that, on its proper construction, the 2008 Agreement did not contain an arbitration agreement. The 2008 Agreement had provided:

"2.10 If Partner 2 [Mr. Yegiazaryan] fails to perform his obligations set forth in clauses 2.1.-2.4, Partner 1 [Mr. Smagin] will seek to enforce his rights under the Shareholders'' Agreement by filing a claim against Partner 2 with the London Court of International Arbitration and require, among other things, enforcement of Clause 9.1.5 of the Shareholders'' Agreement, limitation of restrictions on use of his property (shares in TUFTS, MTC, Europark), and indemnification for losses."

Of this, the arbitrators said (paragraphs 172 and 174 of the award):

"Even though the language of Article 2.10 is somewhat unorthodox, the ultimate meaning of it is traditional and clear: if [Mr. Smagin] alleges that [Mr. Yegiazaryan] has failed to perform certain obligations, such disputes are to be referred to arbitration. Whether [Mr. Yegiazaryan] has in fact failed to perform the obligation in question as well as the legal consequences thereof, is to be determined in the arbitration.

The Tribunal finds that the language of Article 2.10 and of Articles 2.1-2.4, as well as of the Shareholders'' Agreement, to which reference is made, is broad enough to give the Tribunal jurisdiction over the claims raised by [Mr. Smagin], insofar as they are based on the Shareholders'' Agreement, the Escrow Agreement and the 2008 Agreement."

With respect to the Shareholders' Agreement and the Escrow Agreement, Kalken Holdings argued that it had entered these not as principal, but only as agent for Mr. Yegiazaryan, and was not personally liable under them. The tribunal did not accept this, and so found that it had jurisdiction to determine claims against Kalken Holdings.

The arbitrators accepted Mr. Smagin's argument that it was an implied term of the 2008 Agreement and of the Shareholders' and Escrow Agreements that the ownership structure of Europark would be maintained - if the ownership structure was not maintained, then placing the Tufts shares into escrow would not afford any protection. In failing to put the shares, or procure that they be put, into escrow, and in changing the ownership structure to make the Tufts shares worthless, Mr. Yegiazaryan and Kalken Holdings had breached their obligations under those agreements.

In an award dated 11 November 2014, the Tribunal ordered Mr. Yegiazaryan and Kalken Holdings jointly and severally to pay Mr. Smagin approximately $79.8m, £2.8m and R2.9m in damages, interest and legal costs.

Mr. Smagin also sought to make a claim before the arbitrators for breach of the 2003 Agreement (the agreement concerning distribution of Europark's profits). The tribunal held it had no jurisdiction with respect to this claim, as the 2003 Agreement did not contain an arbitration clause. Mr. Smagin's argument that the arbitration agreement in the 2008 Agreement was intended to extend to disputes under the 2003 Agreement was rejected.

Enforcing the Europark award

The Europark award was issued on 11 November 2014. Mr. Smagin commenced proceedings in Cyprus and California seeking to preserve assets for the purpose of enforcing the award against Mr. Yegiazaryan and Kalken Holdings. Mr. Smagin did not take any steps to try and enforce the award in England, because there was no evidence of Mr. Yegiazaryan having assets in England.

Mr. Yegiazaryan's challenge to the Europark award

On 9 December 2014 (28 days after the Europark award) Mr. Yegiazaryan issued a challenge under ss.67 of the Arbitration Act 1996, alleging that the award had been made without jurisdiction – either because he had not signed the 2008 Agreement, or because, on its proper construction, the 2008 Agreement did not contain an arbitration agreement.

Orders regarding enforcement and security

On 10 December 2014 Mr. Yegiazaryan made a without notice application, and was granted an order which included the following:

"2. No steps to be taken by [Mr. Smagin] to enforce the Award prior to the determination of [Mr. Yegiazaryan's] challenge to the Award in these proceedings under section 67 of the Arbitration Act 1996"

On 22 December 2014 Mr. Smagin in turn made a without notice application seeking to have this order discharged or varied. The court declined to discharge paragraph 2, but made a further order clarifying that: (i) Mr. Smagin had permission to take steps to enforce the award in jurisdictions other than England and Wales; (ii) Mr. Smagin was not prevented from taking any step to enforce the award against Kalken Holdings; and (iii) paragraph 2 was to be treated as discharged unless Mr. Egiazaryan, within 7 days, gave a cross-undertaking in damages, and gave security for that cross-undertaking.

Subsequently there was a with-notice hearing of Mr. Smagin's application to have paragraph 2 of the original order discharged, and Mr. Smagin also applied for a final order under section 66 of the Arbitration Act 1996 granting leave to enforce the Europark award in the same manner as a judgment or order of the court i.e. before the disposal of Mr. Yegiazaryan's pending s67 challenge.

On 13 March 2015 the court gave the Y v S judgment, which dealt with these applications. In the result, the court granted an order discharging paragraph 2 of the original order, and ordering instead that:

"1. Permission be given to [Mr. Smagin] to enter judgment in the terms of the Award pursuant to s66(2) of the 1996 Act.

2. No steps be taken to enforce the Award in this jurisdiction prior to final disposal of the s67 challenge."

The court declined to order that Mr. Yegiazaryan provide security for the amount in dispute. The law on this issue is to be found in section 66 of the Arbitration Act 1996 and in CPR 62.18. Section 66 provides:

"66. Enforcement of the award

(1) An award made by the tribunal pursuant to an arbitration agreement may, by leave of the court, be enforced in the same manner as a judgment or order of the court to the same effect.

(2) Where leave is so given, judgment may be entered in terms of the award.

(3) Leave to enforce an award shall not be given where, or to the extent that, the person against whom it is sought to be enforced shows that the tribunal lacked substantive jurisdiction to make the award."

CPR 62.18 includes:

"62.18

(1) An application for permission under –

(a) section 66 of the 1996 Act ...

... to enforce an award in the same manner as a judgment or order may be made without notice in an arbitration claim form.

...

(9) Within 14 days after service of the order or, if the order is to be served out of the jurisdiction, within such other period as the court may set –

(a) the defendant may apply to set aside the order; and

(b) the award must not be enforced until after –

(i) the end of that period; or

(ii) any application made by the defendant within that period has been finally disposed of."

It was also argued on behalf of Mr. Smagin that if the court has a discretion to refuse enforcement in section 66 then, presumably, it can grant leave to enforce on terms – i.e. subject to the provision of security. Counsel for Mr. Smagin relied on the decision of Eder J said that he could "see much force in this argument" but was not clear how it would fit with CPR 62.18:

"My tentative view is that CPR 62.18(9) speaks for itself i.e. in principle, a successful party is prima facie entitled to an order nisi granting leave to enforce an arbitration award as prescribed by CPR 62.18(9) but if an application to set aside such order is issued then (subject possibly to a counter strike-out application) the award must not be enforced until such application is disposed of. There is nothing in CPR 62.18 which contemplates that such temporary prohibition against enforcement may be made subject to an order for the provision of security.

Even if that is wrong, it seems to me that the approach of the court to that question i.e. whether or not to order the provision of security for the amount in dispute, should in principle be similar under s66 as it is under s70(7). As to the latter, I would refer to my recent judgment in Konkola Copper Mines Plc v U&M Mining Zambia Ltd [2014] EWHC 2146 (Comm) at [37]-[44] where I considered, and followed, the earlier authorities in the context of s70(7)."

Section 70(7) provides that the court has power to order that security be provided pending determination of an application under section 67. In the Konkola case, Eder J had held that a threshold requirement for the ordering of security was that the challenge to jurisdiction be "flimsy or otherwise lacks substance". Eder J held that Mr. Yegiazaryan's challenge was not "flimsy", so even if the court did have power to order the security sought, he would not have done so.

The Y v S judgment is puzzling. Why did Mr. Smagin apply to the court under s.66 for permission to enforce the award in the same manner as a judgment if Mr. Yegiazaryan had no assets in England? And why seek to argue that there was an implicit right to order security in section 66, rather than rely on the express right in section 70(7)? Whatever Mr. Smagin's motives, the case illustrates the court's (understandable) reluctance to make challenges to awards conditional upon security being provided.

Decision on Mr. Yegiazaryan's challenge to the Europark award

On 9 July 2015, in the A v B judgment, Teare J found that Mr. Yegiazaryan had, in fact, signed the 2008 Agreement. The court agreed with the tribunal's construction of Clause 2.10 as giving the tribunal jurisdiction over Mr. Smagin's claims, insofar as those claims were based on the Shareholders' Agreement, Escrow Agreement and 2008 Agreement. Mr. Yegiazaryan's challenge to the award was therefore dismissed. It is understood that Mr. Yegiazaryan is presently taking the matter to the Court of Appeal, and that his appeal will be heard no sooner than May 2016. Mr. Yegiazaryan is also thought to be resisting enforcement of the Europark award in California.

Kalken Holdings' challenge to the Europark award

Unlike Mr. Yegiazaryan, Kalken Holdings did not issue a challenge to the award on 9 December 2014, 28 days after the date of the award. Instead, on 11 November 2014, Kalken Holdings applied to the Tribunal (under article 27 of the LCIA Rules) seeking a correction to the award. Essentially, the Tribunal had said in one part of the award that Kalken Holdings had not objected to the jurisdiction of the Tribunal, but had referred elsewhere to Kalken Holdings having done so (arguing that it entered the contracts containing the arbitration clauses not on its own account, but only as Mr. Yegiazaryan's agent).

The tribunal issued a correction on 9 January 2015, making clear that Kalken Holdings had objected to jurisdiction. 28 days after that, on 6 February 2015, Kalken Holdings issued a challenge to the tribunal's jurisdiction. Mr. Smagin applied to have Kalken Holdings' challenge struck out, relying on s.70(3) of the Arbitration Act 1996:

"70. Challenge or appeal: supplementary provisions.

(1) The following provisions apply to an application or appeal under section 67, 68 or 69.

(2) An application or appeal may not be brought if the applicant or appellant has not first exhausted-

(a) any available arbitral process of appeal or review, and

(b) any available recourse under section 57 (correction of award or additional award).

(3) Any application or appeal must be brought within 28 days of the date of the award or, if there has been any arbitral process of appeal or review, of the date when the applicant or appellant was notified of the result of that process."

Mr. Smagin argued that the date of the award was 11 November 2014, and any application under section 67 therefore had to be made on or before 9 December 2014. It was accepted on behalf of Mr. Smagin that where there was a "material" application for clarification of an award under section 57 of the Act (or under an agreed arbitral provision to the same or similar effect, such as article 27 of the LCIA rules) then, as a matter of construction of section 70, the 28 day period ran from the date of the award, as corrected. But counsel submitted that the application for corrections was not "material" because Kalken Holdings was able to issue its application challenging the award without waiting for the response from the arbitral tribunal to the application for corrections.

Kalken Holdings argued that its application for a correction was "material" because, if the position was as described in the passages which Kalken Holdings sought clarification of award (i.e. that Kalken Holdings had not challenged the jurisdiction of the arbitral tribunal), Kalken Holdings would have been barred from pursuing its challenge by operation of section 73(1) of the Act, which provides:

"73. Loss of right to object.

(1) If a party to arbitral proceedings takes part, or continues to take part , in the proceedings without making, either forthwith or within such time as is allowed by the arbitration agreement or the tribunal or by any provision of this Part, any objection-

(a) that the tribunal lacks substantive jurisdiction,

...

he may not raise that objection later, before the tribunal or the court ..."

The court rejected Kalken Holdings' argument:

"the application for correction must be such that until the award is corrected the challenge cannot be made. If it is material in that sense then it is appropriate to construe section 70(3) as providing that the 28 day limit runs from the date of the corrected award. If is it not material in that sense then it is not appropriate to construe section 70(3) in that way and section 70(2) cannot prevent a party from bringing its challenge until it has first sought and obtained a correction to the award.

It is unrealistic to suggest that had paragraphs 15 and 152 remained uncorrected they would have provided a basis on which [Kalken Holdings] could have been barred from pursuing a jurisdiction-based challenge to the Award. Notwithstanding those two paragraphs it is clear from the tribunal's consideration of its jurisdiction in respect of the 2003 Agreement (held, no jurisdiction), the Shareholders' Agreement and Escrow Agreement (held, there was jurisdiction) and the 2008 Agreement (unnecessary to decide) that [Kalken Holdings] had made submissions which challenged the tribunal's jurisdiction. Indeed, it must be [Kalken Holdings'] case that it did object to the tribunal's jurisdiction; otherwise section 73 would bar its jurisdiction challenge."

Section 79(1) of the Arbitration Act 1996 provides that "Unless the parties agree otherwise, the court may by order extend any time limit ... specified in any provision of this Part ...". Kalken Holdings applied for an order extending the 28 day time limit for bringing a challenge under section 67.

At paragraph 32 of the judgment, the court set out and proceeded to discuss in some detail a useful passage from Terna Bahrain Holding Co. WWL v Al Shamsi [2013] 1 Lloyd's Rep. 87 (Popplewell J) concerning the test for the exercise of this discretion.

In summary, the short window for bringing a challenge "reflects the principle of speedy finality which underpins the Act" and the party seeking an extension must show "that the interests of justice require an exceptional departure" from this timetable. The relevant factors are: (i) the length of the delay; (ii) whether the party who permitted the time limit to expire and subsequently delayed was acting reasonably in the circumstances in doing so; (iii) whether the respondent to the application or the arbitrator caused or contributed to the delay. These are "the primary factors".

Other factors are: (iv) whether the respondent to the application would by reason of the delay suffer irremediable prejudice in addition to the mere loss of time if the application were permitted to proceed; (v) whether the arbitration has continued during the period of delay and, if so, what impact on the progress of the arbitration, or the costs incurred in respect of the arbitration, the determination of the application by the court might now have; (vi) the strength of the application; (vii) whether in the broadest sense it would be unfair to the applicant for him to be denied the opportunity of having the application determined.

Teare J further observed that :

"factor (ii) involves an investigation into the reasons for the delay. In seeking relief from the court, it is normally incumbent upon the applicant to adduce evidence which explains his conduct, unless circumstances make it impossible. In the absence of such explanation, the court will give little weight to counsel's arguments that the evidence discloses potential reasons for delay and that the applicant "would have assumed" this or "would have thought" that. It will not normally be legitimate, for example, for counsel to argue that an applicant was unaware of the time limit if he has not said so, expressly or by necessary implication, in his evidence. Moreover where the evidence is consistent with laxity, incompetence or honest mistake on the one hand, and a deliberate informed choice on the other, an applicant's failure to adduce evidence that the true explanation is the former can legitimately give rise to the inference that it is the latter."

Applying this to Kalken Holdings' case, the court noted that Kalken Holdings had delayed by approximately 2 months - a substantial delay compared to the 28 day limit. This might have been attributable to a mistaken belief on the part of Kalken Holdings' lawyers that, where there had been an application for a correction to an award, the time limit would run from the issue of the correction. But there was no evidence that this was the reason, and there had in fact been a letter sent by Kalken Holdings' solicitors stating that a challenge would be issued as soon as the correction was received. The implication was that Kalken Holdings simply chose to delay matters, by waiting a further 28 days after the correction was received.

Kalken Holdings' challenge to the award was therefore struck out. The case illustrates the strict approach which the court takes to procedural time limits in the context of arbitrations, and the ease with which a right to challenge an award can be lost through what was (at least on Kalken Holdings' case) a lawyer's error. The case also illustrates how important it is to have direct evidence of the reasons for delay when making such applications, and not to rely on inference / submissions alone.

A further arbitration arising out of Europark?

It will be recalled that, in addition to Mr. Smagin, there was also another minority investor in Europark, Mr. Garkusha, who had a 7% interest, and was also party to the Shareholders' Agreement and the Escrow Agreement with Kalken Holdings. He was not a party to Mr. Smagin's claim, but it has been reported that he will bring his own arbitration claim against Kalken Holdings.

Hotel Moskva

The details of Mr. Yegiazaryan's investment in Hotel Moskva are more opaque than is the case with Europark.

As for the Hotel Moskva itself, the building has an interesting history. In 1930 the leading Soviet architect Alexey Schusev had been commissioned to design a grand hotel in central Moscow. The story goes that Schusev came up with two alternative designs for the building's wings. For comparison he produced a single drawing, showing the building's facade with one wing in each style, and submitted this for Stalin to choose which he preferred. Stalin apparently did not realise a choice was required, and simply signed the drawing. Fearful of pointing out Stalin's mistake, the building was duly constructed with one wing in each style, and became something of an icon of Soviet-era architecture, appearing on stamps and postcards. A line drawing of the distinctly asymmetric hotel still appears on the labels of "Stolichnaya" brand vodka.

In 2004 the original Hotel Moskva was demolished and work began on a new building. The outside was to be a reproduction of Schusev's original facade, but the inside was to be a modern building, still incorporating a hotel but also extensive underground parking, a shopping complex and offices.

Yegiazaryan's investment in Hotel Moskva

Mr. Yegiazaryan reportedly used his loan from Deutsche Bank (secured on Europark) to obtain a 25% interest in the Hotel Moskva project, but the Egiazaryan judgment contains frustratingly little detail.

The claimants in the arbitration were Mr. Yegiazaryan and Vitaly Gogokhiya. There is no further information about either of them in the judgment, but Mr. Gogokhiya is generally referred to in the press as having been Mr. Yegiazaryan's "aide" or "assistant". Mr. Yegiazaryan's case before the arbitrators seems to have been that Mr. Gogokhiya held the relevant interests on Mr. Yegiazaryan's behalf.

The respondents in the arbitration were OJSC OEK Finance and the City of Moscow. OEK Finance was a Russian company. It was owned by the City of Moscow (though this is never actually stated in the judgment). All we are told regarding the factual background (paragraph 2) is:

"The two Agreements containing the relevant arbitration clauses, which related to the control and management of a BVI company initially owned by [Vitaly Gogokhiya], Konk Select Partners Inc ("Konk"), were the Konk Shareholders' Agreement the ("Konk SHA") and the Konk Share Purchase Agreement the ("Konk SPA", or "the First Konk SPA" to differentiate it from that in June 2009). [Mr. Gogokhiya], [OEC Finance] and Konk were the parties to the Konk SHA, and they were also parties to the Konk SPA, in addition to a Cyprus company, Falmiro Trading Ltd ("Falmiro"), beneficially owned by [Mr. Yegiazaryan] and others, being the borrower under a loan from Deutsche Bank AG, which was being acquired by Konk. Recital J of the Konk SHA recorded that the shareholders ([Mr. Gogokhiya] and [OEC Finance]) were entering into that agreement to set out the terms governing both their relationship as shareholders of Konk and the management and operations of Konk and of Tribalin Trading Ltd ("Tribalin"), CJSC Decorum ("Decorum"), OJSC DecMos ("DecMos") and what was defined as the "complex", of which DecMos was the lessee, being the plot on which the Project was being constructed. The governing law of both Agreements was English law."

The June 2009 SPA is also referred to elsewhere in the judgment as the "Cyprus Agreement". Neither Falmiro nor Tribalin are referred to anywhere else in the judgment. The roles of Falmiro, Tribalin, Decorum and DecMos are not further explained.

Although the precise structure is not clear, it seems that an underlying asset (a leasehold interest in the Hotel Moskva site) was owned by DecMos, and that DecMos was indirectly owned or controlled (at least in part) by Konk. Konk was owned by OEC Finance and Mr. Gogokhiya. And OEC Finance and Mr. Gogokhiya were party to two contracts (the SHA and SPA) concerning the management and operations of Konk. Each contract contained an arbitration clause, providing:

"Any dispute, controversy or claim arising out of, relating to or in connection with this Agreement, including any question regarding its existence, validity or termination, or regarding a breach of this Agreement (a "Dispute"), shall be referred to, and finally settled by arbitration under and in accordance with the Rules of the LCIA ..."

The place of arbitration was to be London, and there was a provision for related arbitrations to be considered by the same tribunal.

Corporate raid on Konk

The claimants' case in the arbitration is that OEC Finance and the City of Moscow conspired with a "Mr. Kerimov" to devise and orchestrate a corporate raid and deprive the claimants of their interests in the project.

It is not explained in the judgment, but "Mr. Kerimov" is Suleyman Kerimov, a member of Russia's upper house of parliament and the billionaire oligarch who owns Nafta Moskva (which started life as Soviet Russia's monopoly oil trader, but has since divested from oil and is a holding company for a wide range of investments).

The details of the corporate raid are, again, rather unclear. For example, it is alleged that:

"On 22 January 2009, [the City of Moscow], without telling [Mr. Yegiazaryan], in order that it would be a fait accompli, acted together with Mr Goloschapov and Ms Pavlyuchenko to remove C1's General Director of DecMos (Mr Lapshov) and replace him with a Kerimov associate (Ms Kotandzhyan), thus giving Mr. Kerimov operational control of the Project and leverage to implement further pressure and intimidation tactics, including forcing [Mr. Yegiazaryan] to sign the Framework Agreements."

It is not explained who Mr Goloschapov and Ms Pavlyuchenko are, or what the "Framework Agreements" are. It is said that:

"[The City of Moscow] procured a breach of [OEC Finance]'s obligations toward Claimants under the Konk Agreements, including Claimants' first refusal rights over [OEC Finance]'s sale of its Konk shares to Mr. Kerimov."

So presumably OEC Finance sold its own interest in Konk to Mr. Kerimov, though this is not stated expressly. It is alleged that:

"[The City of Moscow] made fraudulent requests on behalf of [OEC Finance] to commence criminal proceedings against [Mr. Yegiazaryan]. These requests resulted in the commencement of bogus criminal proceedings on order against [Mr. Gogokhiya] on 1 June 2009.

[The City of Moscow] commenced hopeless and vexatious legal proceedings against Claimants (and others) concerning purported breaches of the Investment Agreement."

The "Investment Agreement" is not further defined or explained. It is alleged that:

"Respondents, together with their co-conspirator Mr. Kerimov, arranged theatrical raids at Claimants' offices by masked police with automatic weapons, distressing searches at the homes of Claimants' associates ... and intensive and baseless interrogations of Claimants' associates ... all of which were designed to intimidate Claimants.

This culminated in the unlawful taking of [Mr. Gogokhiya]'s shares in Konk which held the stake in the Project. The Respondents caused harm to [Mr. Gogokhiya] by assisting in the seizure of the Konk Shares which culminated in [Mr. Yegiazaryan] being forced to sign the Second Konk SPA signing away his valuable interests in Konk to Mr Rotenberg for US$2.

Following consummation of the raid, Respondents acted with their co-conspirators, Messrs Kerimov, Rotenberg and Goloschapov, to permit the transfer of ownership of the Project out of Limerick [in whose shares [Mr. Yegiazaryan] had a substantial interest] and Konk and into new layers of off-shore companies designed to place their interests in the Project out of reach."

It is not explained who Mr Rotenberg is, what the "Limerick" shares represent, or Limerick's role in the story. This Second Konk SPA is referred to elsewhere in the judgment as the "Cyprus Agreement", and it is described as a contract "between [Mr. Yegiazaryan] and Sparklon Holdings Ltd, [not Mr Rotenberg] by which he transferred his remaining interest in the Konk shares for $2". Sparklon Holdings is not referred to anywhere else.

The two Hotel Moskva arbitrations

In 2010 Mr. Yegiazaryan commenced an LCIA arbitration against Mr. Kerimov personally, and against a Cyprus company called Denoro Investments Limited. Gabrielle Kaufman-Kohler, Peter Nobel and Gary Born were appointed as arbitrators. In September 2010 Mr. Yegiazaryan obtained an interim freezing injunction against Mr. Kerimov in Cyprus in support of the pending arbitration, but this was set aside in February 2011.

This arbitration claim against Mr. Kerimov has not been the subject of any English judgment, but it has been reported in the legal press that Mr. Yegiazaryan was successful in the arbitration, and was awarded $250m in damages in a 2015 award. It has also been reported that, in seeking to enforce his Europark award, Mr. Smagin has sought to attach any damages which Mr. Yegiazaryan recovers from Mr. Kerimov. In April 2015 Mr. Yegiazaryan obtained a freezing injunction in Cyprus over Mr. Kerimov's assets, in support of proceedings to enforce the $250m award.

In addition to the claim against Mr. Kerimov, Mr. Yegiazaryan and Mr Gogkhiya also pursued a second LCIA arbitration in London against OEC Finance and the City of Moscow. This relied on the arbitration clauses in the Konk SHA and SPA, seeking to recover damages in respect of their interests in the Hotel Moskva project which had allegedly been taken from them in that corporate raid. The arbitrators were Andrew Foyle, Dominic Kendrick QC and Dr Geog von Segessor. It is that arbitration which is the subject of the December 2015 Egiazaryan court judgment.

Shortly after he began his two arbitration claims, the Russian Duma voted to strip Mr. Yegiazaryan of his parliamentary immunity and Mr. Yegiazaryan and Mr. Gogokhiya were both indicted in Russia. Both had fled to the US and claimed political asylum there.

The claim in the Hotel Moskva arbitration

In the Hotel Moskva arbitration, Mr. Gogokhiya and Mr. Yegiazaryan allege that OEC Finance and the City of Moscow committed a tort under Russian law. Specifically they rely on Article 1064 of the Russian Civil Code:

"harm caused to the personality or property of [a citizen or legal entity] shall be subject to compensation in full by the person who has caused the harm."

The claim faced some obvious obstacles:

(a) On the face of the Konk SHA and SPA (the contracts containing the arbitration agreements) only Mr. Gogokhiya and OEC Finance are party to those contracts. How, then, does an arbitral tribunal have jurisdiction to hear claims by Mr. Yegiazaryan, or claims against the City of Moscow?

(b) The Konk SHA and SPA provide for LCIA arbitration of "any dispute, controversy or claim arising out of, relating to or in connection with this Agreement". Can a tort claim under Article 1064 of the Russian Civil Code be said to "arise out of" those contracts?

Claims by Mr. Yegiazaryan

Mr. Yegiazaryan sought to argue that Mr. Gogokhiya had entered the Konk SPA and Konk SHA as Mr. Yegiazaryan's agent. The Tribunal held that Mr. Yegiazaryan was not the principal, and that Mr. Gogokhiya owned the shares in his own right, and was party to the Konk Agreements in his own right. The tribunal, therefore, did not have jurisdiction to hear Mr. Yegiazaryan's claim. This finding by the tribunal was not the subject of any s.67 challenge.

Liability of a parent for contracts entered by a subsidiary in Russian law

There was an issue before the Tribunal as to the effect of Article 105 of the Russian Civil Code. Article 105 (which is not set out in the court judgment) apparently provides (unofficial translation from russian-civil-code.com):

"1. The economic company shall be recognized as subsidiary, if the other (the parent) economic company or partnership, on account of its prevalent participation in its authorized capital, or in conformity with the agreement, signed between them, or in any other way, can exert a decisive impact on the decisions, adopted by such a company.

2. The parent company ... which has the right to issue to the subsidiary company, including by an agreement signed with it, the instructions that are obligatory for it, shall bear joint responsibility with the subsidiary company [for] the deals, effected by the latter in execution of such instructions."

The arbitrators' decision on parent liability

The arbitrators determined, having heard evidence from Russian law experts, that the meaning of Article 105 was as follows:

"The provision makes a parent jointly and severally liable on the relevant contract as a whole. To the Arbitral Tribunal's mind, this includes liability to perform the Arbitration Agreement. The parent is as liable to arbitrate disputes as it is to perform the primary obligations under the relevant contract."

The arbitrators held, however, that since the Konk SHA and SPA were governed by English law, Article 105 had no effect:

"Article 105 ... is legally irrelevant to the construction of the Arbitration Agreements and forms no proper basis by which [The City of Moscow] could be held to be party to an English law contract or arbitration clause. If Claimants wish to invoke rights against [The City of Moscow] under Article 105, they would need to do so in judicial proceedings in Russia."

The court's decision on parent liability

Counsel for the claimants pointed the courts to a number of examples of situations where, in English law, a party which was not a signatory to the arbitration agreement may, nonetheless, be bound by it or entitled to rely on it. For example, where the signatory was the party's agent, where the signatory validly assigned the contract, where the signatory company is the subject of a merger and its successor is bound by the arbitration agreement, where the signatory is a sham and the corporate veil is lifted, where an estoppel arises which prevents the non-signatory denying the arbitrators' jurisdiction or where the non-signatory takes part in an arbitration without raising a challenge to jurisdiction as required by section 77 of the Arbitration Act 1996. A non-signatory may also be entitled to take advantage of an arbitration agreement which was entered for its benefit, by relying on the Contracts (Rights of Third Parties) Act 1999.

Although the contract (and the arbitration agreement it contains) may be governed by English law, a different system of law might apply to determine whether a non-signatory is bound by the arbitration agreement, or entitled to rely on it. For example, where it is alleged that the signatory was a company's agent, the question of whether that agent had actual authority would be determined according to the laws of the place where the company was incorporated (note that, by contrast, an issue as to apparent authority is determined by the law which governs the contract - see e.g. Rimpacific Navigation v Daehan Shipbuilding [2011] EWHC 2618 (Comm) at paragraph 10). Similarly, whether a merged company is bound by an arbitration agreement entered by its predecessor would depend on the company law of the place of incorporation (Eurosteel Ltd v Stinnes AG [2000] 1 All ER (Comm) 964). Where an issue arises as to whether a company had capacity to enter an arbitration agreement, the relevant choice of law rule would - again - look to the law of the place of incorporation.

Counsel for the claimants submitted that, when a question arises as to whether a parent is liable to perform an agreement entered into by its subsidiary, English law requires that question to be determined according to the law of the place of incorporation of the signatory.

The court accepted this. The tribunal had been correct that English law applies to determine who the parties to the arbitration agreement were. But that was not the issue. The issue was whether the City of Moscow, despite not being a party to the arbitration agreement, was nonetheless subject to the jurisdiction of the arbitrators, by operation of the law of Russia, the country where its subsidiary, OEC Finance, was incorporated.

The decision can usefully be compared with those in two other cases: Peterson Farms and Dallah, which raised similar issues.

Peterson Farms

Peterson Farms Inc v C & M Farming Ltd [2004] 1 Lloyd's Rep 603 is a first instance decision. An Indian company ("C&M") bought live poultry from an Arkansas company ("Peterson"). The contract provided that it was to be subject to the law of Arkansas, with disputes to be resolved by way of arbitration in London.

The birds C&M bought from Peterson were male "grandparent" birds. C&M would mate the "grandparent" birds to produce "parent" males. 60% of these would be sold on to other companies in the C&M company group, with 40% being sold to other buyers. Those companies would use the "parent" males to breed with "parent" females to produce broiler chicks, which they would sell on.

The "grandparent" birds purchased from Peterson proved to be infected with a virus, resulting in high mortality both of the "grandparent" birds and of the "parent" offspring which C&M sold on.

C&M brought an arbitration claim seeking to recover not just its own losses, but also those which had been suffered by the other C&M Group companies. The Tribunal held:

"The Tribunal does not consider that it is legally precluded from considering C&M's damages claims to cover and embrace the damages of all C&M Group companies. The group of companies doctrine provides that an arbitration agreement signed by one company in a group of companies entitles (or obligates) affiliate non-signatory companies, if the circumstances surrounding negotiation, execution, and termination of the agreement show that the mutual intention of all the parties was to bind the non-signatories."

The court (Langley J) disagreed. This "group of companies" / "common intention" doctrine was not part of the law of Arkansas (the substantive law of the Contract), and neither is it part of the law of England (the law of the seat):

"The predicate ... of the tribunal's approach was that the Agreement contained no choice of law with regard to the arbitration agreement ... Yet, as the tribunal also and rightly recognised, the issue raised a question of interpretation of the Agreement and such questions were expressly subject to Arkansas law ... The identification of the parties to an agreement is a question of substantive not procedural law.

There was, therefore, no basis for the tribunal to apply any other law whether supposedly derived from "the common intent of the parties" or not. The common intent was indeed expressed in the Agreement: that is both English and Arkansas law ... The "law" the tribunal derived from its approach was not the proper law of the Agreement nor even the law of the chosen place of the arbitration but, in effect, the group of companies doctrine itself."

As such, Peterson was entitled to have that part of the Award which awarded damages in respect of losses by other C&M group entities set aside for want of jurisdiction.

In Egiazaryan, Counsel for the City of Moscow had placed considerable reliance on Langley J's statement that "The identification of the parties to an agreement is a question of substantive ... law". But this was of little assistance, because the issue in Egiazaryan was not whether the City of Moscow was a party to the contract, but whether it was liable to be joined in the arbitration - which is different.

Peterson Farms differs in other ways - most obviously that in Peterson Farms the "group of companies" doctrine did not actually represent the law of any of the countries connected with the case. It was not part of the laws of Arkansas (the governing law of the contract, and also the place where Peterson was incorporated), or England (the seat), or even India (where the C&M group entities were incorporated).

By way of an aside it should be noted that the Peterson Farms case is, in any case, a difficult one because it should have been a case about third party loss rather than a case about arbitrators' jurisdiction. The issue was whether C&M, which was undoubtedly a party to the contract and to the arbitration clause, was entitled, as a matter of the Arkansas law of contract damages, to recover damages to represent losses suffered by third parties caused by Peterson's breach of contract. For example, was there any Arkansas law analogous to The Albazero / Linden Gardens / Harmon v CFEM Facades line of authorities in English law, which might allow C&M itself to claim for losses suffered by other group companies? It seems surprising that the issue instead came to be expressed in terms of whether the tribunal had jurisdiction to hear claims being brought against Peterson by those other companies.

Dallah

Dallah Real Estate and Tourism Holding Company v The Ministry of Religious Affairs, Government of Pakistan arose out of a contract which, on its face, was between Dallah and the Awami Hajj Trust. The contract provided for disputes to be resolved by way of ICC Arbitration in Paris. Dallah brought arbitration proceedings against the Government of Pakistan, alleging that the Government had been an unnamed party to that same contract.

A tribunal was appointed and ultimately made an award against the Government. Dallah sought to enforce the award in England. The Government resisted enforcement on the ground that "the arbitration agreement was not valid ... under the law of the country where the award was made" (Arbitration Act 1996, s.103(2)(b), reflecting Article V(I)(a) of the New York Convention). The Government argued that, under French law, there was no arbitration agreement at all between the Government and Dallah.

It was common ground that: "Under French law, in order to determine whether an arbitration clause upon which the jurisdiction of an arbitral tribunal is founded extends to a person who is neither a named party nor a signatory to the underlying agreement containing that clause, it is necessary to find out whether all the parties to the arbitration proceedings, including that person, had the common intention (whether express or implied) to be bound by the said agreement and, as a result, by the arbitration clause therein. The existence of a common intention of the parties is determined in the light of the facts of the case. To this effect, the courts will consider the involvement and behaviour of all the parties during the negotiation, performance and, if applicable, termination of the underlying agreement". Their Lordships held that there had, in fact, been no such "common intention", and so the award could not be enforced in England.

The issue in Dallah was whether the Government was "an unnamed party" to the contract containing the arbitration agreement. The case is, thus, unlike Egiazaryan, where it was not being suggested that the City of Moscow was a party to the arbitration agreement, but rather that it was subject to the arbitrator's jurisdiction despite being a non-signatory. It was accepted in Dallah that the question of whether the Government had been a party to the contract fell to be determined according to the applicable law of the contract (i.e. French law).

Lord Collins said in Dallah that:

"105. One of the most controversial issues in international commercial arbitration is the effect of arbitration agreements on non-signatories ...

106. The issue has arisen frequently in two contexts: the first is the context of groups of companies where non-signatories in the group may seek to take advantage of the arbitration agreement, or where the other party may seek to bind them to it. The second context is where a state-owned entity with separate legal personality is the signatory and it is sought to bind the state to the arbitration agreement. Arbitration is a consensual process, and in each type of case the result will depend on a combination of (a) the applicable law; (b) the legal principle which that law uses to supply the answer (which may include agency, alter ego, estoppel, third-party beneficiary); and (c) the facts of the individual case."

In Egiazaryan, it was argued on behalf of the City of Moscow that Lord Collins reference to "the applicable law" meant only the proper law of the agreement (i.e. French law in Dallah, and English law in Egiazaryan). But the court in Egiazaryan, found that this could not be the case, given the choice of law rules for issues of agency, merger/succession and capacity.

The court's decision on the tort claim in Egiazaryan

The court's task was to decide whether the tort claim could be said to be a "claim arising out of, relating to or in connection with this Agreement".

The leading authority on the approach to be taken to such questions is the decision of the House of Lords in Premium Nafta Products Limited and others v Fili Shipping Company Limited and others [2007] UKHL 40 (also known as Fiona Trust v Privalov). That concerned charterparties, each providing that "any dispute arising out of this charter" to be referred to arbitration. The shipowners alleged that the contracts had been procured by bribery and sought to have them rescinded. Did a claim for rescission for bribery "arise out of this charter"?

Lord Hoffmann said (paragraphs 12 and 15):

"... the construction of an arbitration clause should start from the assumption that the parties, as rational businessmen, are likely to have intended any dispute arising out of the relationship into which they have entered or purported to enter to be decided by the same tribunal. The clause should be construed in accordance with this presumption unless the language makes it clear that certain questions were intended to be excluded from the arbitrator's jurisdiction. As Longmore LJ remarked, at para 17 [of the Court of Appeal judgment in the same case]: "if any businessman did want to exclude disputes about the validity of a contract, it would be comparatively easy to say so."

If one adopts this approach, the language of [the arbitration clause] contains nothing to exclude disputes about the validity of the contract, whether on the grounds that it was procured by fraud, bribery, misrepresentation or anything else. In my opinion it therefore applies to the present dispute."

The arbitrators had decided that the tort claim fell outside the arbitration clause. The court in Egiazaryan was critical of the arbitrators' reasoning.

The arbitrators' reasoning included that: "the only real claim in this arbitration is Claimants' Tort Claim. It is, in the experience of the Arbitral Tribunal, uncommon for none of the principal claims to be contract related". The Arbitration Act 1996 defines an arbitration agreement as "an agreement to submit to arbitration present or future disputes (whether they are contractual or not)", so the fact that a claim is a tort claim does not prevent its being subject to arbitration. In any case, as Burton J put it: "it seems to me that what effectively the tort constitutes is 'mal-performance' of the Konk Agreements; i.e. [the Claimants] began with a substantial interest in the Project through the Konk shares in November 2008 and allegedly by the acts of [OEC Finance / the City of Moscow] ended up with a worthless residual interest in June 2009, which he transferred for $2". As such, the tribunal's conclusion that "the claim advanced is insufficiently connected with the relationship created by the Konk Agreements to fall within the arbitration clause" was not justified.

Having noted that the only claim was in tort, the tribunal had gone on to say: "this unusual feature is combined with a claim for the tort of conspiracy but involves third parties as key conspirators", "no English court case was cited with these two unusual features" and "major participants in the Tort Claim are not parties to the Arbitration Agreements. The Arbitral Tribunal has in mind Messrs Kerimov, Rotenberg and Goloschapov". The Respondents also relied on a passage in Merkin (a leading arbitration textbook) that "most forms of ... wording will be sufficient to ensure that the arbitration will encompass the following categories of claims" before listing contractual claims, tortious claims for misrepresentation, restitutionary claims and "related claims based on conspiracy, provided that all the proposed respondents are parties to the arbitration agreement". The court was not persuaded by this. The tort claim was not for conspiracy. There was no authority for the view expressed in Merkin and, as the judge put it: "the suggestion really is that no conspiracy claim can be brought within an arbitration agreement, because a conspiracy always needs more than one party. It is my experience that the fact that there may be outstanding claims against other parties arising out of the same facts is not an objection to the bringing of a claim which falls within the terms of an arbitration clause".

A further feature which the arbitrators took as contra-indicating the tort claim falling within the scope of the arbitration agreement was the fact that there were other agreements, some containing dispute resolution provisions, between Mr. Yegiazaryan and OEC Finance. But, by the time of the court hearing it was only Mr. Gogokhiya's claims which were being pursued, and the only contract to which both Mr. Gogokhiya and OEC Finance were party were the Konk SPA and SHA.

The arbitrators had also said that the tort claim made "little mention of the Konk Agreement", that the claimants "merely seek damages for the loss of the Limerick shares, to which the Konk Agreements have no association" and that "were the Konk Agreements truly pivotal in this dispute one would have expected Claimants to seek damages for the value of their interest in Konk". This, said Burton J, was a misunderstanding of the Claimants' case: that the Konk shares represented a substantial interest in the project and, as a result of the tort, ceased to do so.

For these reasons, the court concluded that the claim did fall within the scope of the arbitration agreement, and the case has been remitted to the arbitrators.

Conclusions

The results in each of these cases seem reasonable. Mr. Yegiazaryan was able to pursue his challenge to the arbitrators' jurisdiction in the Europark case without having to put up security pending the determination of the challenge. On Mr. Yegiazaryan's case, the tribunal had no jurisdiction over him and statute ultimately makes it a question for the court to determine whether that was correct. Why, as a precondition to exercising his right to have a court determine that question, should he be required to provide security?

If the court habitually ordered security in such cases, there would undoubtedly be respondents who, despite having legitimate arguments to make as to whether the tribunal had jurisdiction, would not raise them.

A threshold requirement that the ground for challenge must be "flimsy" before security will be ordered therefore seems appropriate. Though the practical effect of a finding that a challenge is "flimsy" will probably be that no security is provided and the challenge is not pursued. After all, if a judge has told you that he thinks your challenge is "flimsy" and orders that you provide security before hearing that challenge, you would probably conclude that the risk of losing whatever monies you pay into court is too high - much better to leave your assets elsewhere, and dispute the tribunal's jurisdiction in enforcement proceedings before the local courts wherever the assets are located.

As for the Egiazaryan decision, that too seems a fair result. A Russian entity created a Russian subsidiary, and caused that subsidiary to enter a contract containing an arbitration clause in circumstances where Russian law will make a parent liable to be joined to an arbitration under such a clause. In those circumstances, it seems entirely fair that the parent should be held to the Russian law position, and that Mr. Egiazaryan's claims against it arising out of that contract should be subject to the arbitrators' jurisdiction.

Of course, one cannot help but also be conscious of the fact that Mr. Gogokhiya's claims were against Russian state entities, alleging a conspiracy on a grand scale, including that the respondents had procured armed raids by the police and unfounded criminal prosecutions in order to force him to part with his interest in the project and to flee the country. Also that the alleged beneficiary of this supposed conspiracy, Mr. Kerimov, is not only one of the richest men in Russia, but someone whose investment business is widely speculated (e.g. by a number of senior western bankers quoted in a Financial Times article of 10 February 2012) to be a front for the Kremlin's own investments (though Kerimov denies this).

If the arbitrators could not hear Gogokhiya's claims then only the Russian courts would have jurisdiction to hear them. Strictly, any consideration as to whether Mr. Gogokhiya would receive a fair hearing in the Russian courts is irrelevant to the question of whether the dispute fell within the arbitration agreement. For this reason there was no evidence as to whether Mr. Gogokhiya would receive a fair hearing in Russia. At the same time, though, there must have been a suspicion that in practice the court was really being asked to decide between the claims either being heard in London by independent arbitrators appointed by the parties, or never being heard at all.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.