Recent developments in international arbitration show that the conclusion of an arbitration agreement does not always mean that the arbitration institution indicated by the parties will be competent to hear the dispute.

Is the choice of arbitration institution always binding?

This is a type of problem currently faced by European companies operating on the gas market, such as the Czech energy group CEZ, the German concern Uniper, or the Dutch BBL Company, which has concluded gas supply agreements with the Russian company Gazprom SA. The Polish company Europol GAZ SA, whose sole owner is Orlen SA is also facing the same problem.

According to information from both Polish and foreign press, with the outbreak of the war in Ukraine, Gazprom stopped fulfilling, wholly or partially, its obligations regarding gas supplies arising from agreements concluded with European companies.[1]

The parties to these agreements agreed that all the disputes arising from or in connection with the agreements, as well as all disputes related to gas supplies, shall be finally settled by the Court of Arbitration administered by the International Chamber of Commerce in Switzerland (ICC Switzerland) in Geneva.

New Challenges for European companies

In connection with the above, European companies have filed arbitration summons. Gazprom has not remained passive and since the end of 2023 has filed counterclaims in eleven cases, but not to the institution indicated by the parties, but to the International Arbitration Court in St. Petersburg.

Gazprom argued for changing the arbitration institution that in countries the Russian Federation deemed hostile, the proceedings would not be conducted fairly. The Arbitration Court in St. Petersburg shared this argument, particularly emphasizing that in these cases, due to the imposed sanctions, Russian lawyers could receive decisions refusing to issue them visas, and their electronic equipment could be confiscated.

Can European companies count on impartial arbitration?

Notably, the Arbitration Court in St. Petersburg has already ruled on most of the cases filed by Gazprom, including the one concerning the Polish company Europol GAZ SA. Namely, a ruling was issued according to which the Polish company shall be obliged to pay 1.57 billion USD if it continues to pursue its claims (in the amount of 1.51 billion USD) in the arbitration proceedings conducted in Geneva.

On the other hand, there are rulings from European institutions that were initially designated as competent to resolve disputes with Gazprom, and in which proceedings were initially initiated. For example, in the case of German company Uniper v. Gazprom, the Arbitration Court at the Swedish Chamber of Commerce (SCC) ruled in favor of Uniper, awarding the company 13.96 billion USD. In another case, proceeded in London, the German banks Deutsche Bank and Commerzbank obtained a favorable ruling in a case against another Russian company—RusKhimAlyans, owned 50% by the Russian Gazprom.

In turn, on July 26, 2024, the Russian Supreme Court overturned the arbitration award issued in the case of a German company against a company based in the Russian Federation due to a violation of the public order clause. The Supreme Court in Moscow stated that the arbitrators, coming from Ukraine, Denmark, and the United Kingdom, do not meet the requirements of “impartiality and neutrality,” particularly because these countries were designated in the Russian Federation as “hostile.” Interestingly, in the first and second instance proceedings, Russian courts ruled in favor of the German company, recognizing the arbitration award, and granting it an enforceability clause[2].

How does the changing reality affect arbitration?

Currently, European companies cannot be certain about the further fate of the proceedings, particularly whether they will be effective, and whether the enforcement of judgments issued in their favor will not turn out to be pure fiction. It seems that in these cases, international politics, and specifically, the direction chosen by the Russian Federation, will play a key role.

It should be emphasized that the situation described is precedential and should not affect the effectiveness of international arbitration in other cases (unless conducted with other Russian companies, in which the adjudicating arbitrators are citizens of countries other than the Russian Federation). Furthermore, it will not affect Polish arbitration between Polish entrepreneurs.

It could also be expected that similar problems for European companies would arise in “traditional” court proceedings. If they were conducted in countries considered “hostile” by the Russian Federation, it can be assumed that the enforcement of judgments would be also questionable. It is, however, currently difficult to imagine the possibility of conducting such disputes before Russian state courts.

Conclusions from the dispute

As seen, due to the war in Ukraine, the parties to arbitration proceedings may encounter difficulties in obtaining a judgment and its enforcement. Therefore, it should be remembered that although a scrupulous analysis of arbitration agreements before their conclusion should always be done, if the parties to the dispute are entities from the territory of or associated with the Russian Federation, the issues of the jurisdiction of the arbitration court and the possibility of enforcing judgments may become significantly complicated.

At Jabłoński Koźmiński & Partners, we are fully aware of the challenges posed by international arbitration, particularly in complex and precedent-setting cases. This is why our Arbitration Practice provides support at every stage of the proceedings – from advising on the drafting of arbitration clauses, through representation before arbitral tribunals, to actions in post-arbitration proceedings. Thanks to our experience and collaboration with experts from various fields, we are able to effectively safeguard our Clients’ interests, regardless of the complexity or nature of the dispute. We believe that well-prepared arbitration can be an effective tool for resolving conflicts, even in the most difficult circumstances.

[1] European court tells Gazprom not to run away from its responsibility for halting gas supplies | Upstream (upstreamonline.com); Gazprom chciał wykiwać Polaków w arbitrażu, ale się nie udało – BiznesAlert.pl; FACTBOX Gazprom’s legal battles with European companies | Reuters.

[2] https://chambers.com/articles/arbitration-russian-supreme-court-rules-that-foreign-arbitrators-may-be-impartial-2.