The ruling of Chamber for Commercial Disputes of the Supreme Court of the Russian Federation dated August 16, 2016 overturned a ruling of the lower courts (state arbitrazh courts) that had dismissed the claim of the public joint-stock company National Bank ”TRUST“ in a case brought against the Cyprus company Phosint Limited. The case concerned the validity of an arbitration clause in respect to a securities purchase agreement.

The lower courts had originally dismissed the bank’s claim because it had determined that the state arbitrazh court did not have the power to adjudicate in a lawsuit concerning an agreement containing an arbitration clause.

The Supreme Court of the Russian Federation returned the case to the state arbitrazh court of first instance. The main  ground for this decision of the Supreme Court was the court practice of the Constitutional Court of the Russian Federation, according to which current legislation does not allow the transfer of disputes to the arbitration courts, including public law disputes, during bankruptcy proceedings which are based on public law. The Supreme Court of the Russian Federation ruled that in the case in question, termination of the function of the state corporation “Deposit Insurance Agency“ (DIA) as a temporary administrator of the National Bank ”TRUST“ did not mean that sanitation procedures of that bank had terminated (bankruptcy prevention measures and measures to restore the debtor’s solvency). Since the financial activities undertaken by the state represented by DIA on the implementation of bankruptcy prevention measures of a credit institution are state activities and are based on public law, the dispute was not allowed to be transferred to an arbitration court.

Different countries have various legislation and practices regarding the enforce-ability of the arbitration clause in the event of bankruptcy of one of the parties, as well as the definition of requirements to which it is applicable. In this situation, the decision of the Supreme Court of the Russian Federation may have an important precedential value.