⚖️ An arbitral tribunal’s failure to take into account a set-off claim does not constitute grounds for setting aside the award where the applicable rules require a set-off to be asserted only by way of a counterclaim

LLC “GAMMA” (the Applicant), as the supplier, and JSC “NIKIMT-Atomstroy” (the Interested Party), as the purchaser, entered into a contract for the supply of generator units to the construction site of the El Dabaa Nuclear Power Plant in the Arab Republic of Egypt (the Contract). The Contract contained an arbitration clause providing for arbitration by the Arbitration Center at the Russian Union of Industrialists and Entrepreneurs (RSPP).

Due to the delayed payment for the goods, the Applicant commenced arbitration pursuant to the arbitration clause, seeking payment from the Interested Party of approximately RUB 20 million in outstanding amounts for the goods supplied, contractual penalties, and arbitration costs.

In the course of the arbitration, the Interested Party asserted a set-off of mutual claims arising from the Applicant’s failure to deliver the full quantity of goods and its delivery of incomplete equipment.

Under the Contract, the Applicant was required to pay the Interested Party a contractual penalty equal to 10% of the value of the incomplete goods.

The Interested Party stated that it had previously sent the Applicant a claim demanding payment of the contractual penalty, but the Applicant had failed to satisfy the claim.

The arbitral tribunal granted the Applicant’s claims in full. At the same time, the arbitrators rejected the Interested Party’s set-off argument, stating that under the applicable arbitration rules, a set-off had to be asserted in the form of a counterclaim, whereas the Interested Party had not filed a counterclaim.

As the Interested Party failed to comply with the arbitral award voluntarily, the Applicant applied to the Arbitrazh Court of the Republic of Bashkortostan for the issuance of a writ of execution for the compulsory enforcement of the arbitral award.

The Interested Party filed a counter-application seeking partial setting aside of the arbitral award on the grounds that the arbitral tribunal had refused to consider its set-off claim. According to the Interested Party, enforcement of an arbitral award rendered without taking into account the set-off/netting of mutual obligations would violate the public policy of the Russian Federation, the principles of proportionality of civil liability, and the Interested Party’s right to a comprehensive and objective consideration of the case.

The Arbitrazh Court of the Republic of Bashkortostan rejected the Interested Party’s arguments.

🔘The court held that the Interested Party’s arguments were aimed at having the arbitral award reviewed on the merits, which is impermissible.

🔘The Interested Party had failed to provide evidence of the exceptional statutory grounds required for setting aside an arbitral award.

Accordingly, the court issued a writ of execution for the compulsory enforcement of the arbitral award.

📎The full text of the ruling is available here.

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