## Facts

- A Soviet foreign trade organization (SNE) and a Bermuda oil trader (Joc Oil) executed an oil supply contract in Paris in 1976 for large-volume deliveries on FOB and CIF terms.
- The contract contained a clause requiring arbitration before the Foreign Trade Arbitration Commission (FTAC) in Moscow.
- Under applicable Soviet rules for foreign-trade contracts executed abroad, the Soviet party was required to execute the contract with two authorized signatures; the contract was signed only by SNE’s chairman.
- SNE made deliveries; Joc Oil complained about scheduling but failed to pay for multiple shipments, and SNE suspended further deliveries.
- SNE commenced FTAC arbitration; Joc Oil objected that the contract was void under Soviet law and that, if the contract was void or non-existent, no arbitration agreement could exist.
- The FTAC held the main contract invalid for lack of the second Soviet signature but treated the arbitration clause as valid and issued an award in SNE’s favor.
- SNE sought enforcement in Bermuda under Bermuda’s foreign awards legislation implementing the New York Convention; the Bermuda Supreme Court refused enforcement, and SNE appealed.

## Issues

1. Whether enforcement could be refused under the New York Convention because the arbitration agreement was not shown to be valid under the law governing it (Soviet law).
2. Whether, given the contract’s defective execution under Soviet law, the arbitration clause could be treated as legally separate and enforceable.
3. Which party bore the burden of proving the validity (including separability) of the arbitration agreement under foreign law in enforcement proceedings.

## Decision

- The Bermuda Court of Appeal affirmed the refusal to enforce the FTAC award.
- The court held that SNE did not sufficiently prove, as a matter of Soviet law, that the arbitration clause was legally separable and remained valid despite the invalidity of the main contract.
- Because a valid arbitration agreement was not established under the applicable law, the court treated refusal of enforcement as permitted under the New York Convention framework.

## Legal Principles

- In New York Convention enforcement proceedings, the enforcing court may examine whether an arbitration agreement was valid under the law applicable to that agreement.
- The party seeking enforcement bears the burden of proving relevant foreign law necessary to establish the arbitration agreement’s validity when validity is put in issue.
- Separability is not presumed as a universal rule; where validity depends on foreign law, the court may require proof that the governing law treats an arbitration clause as independent of a contract that is void or treated as never formed.
- An arbitral tribunal’s determination of its own jurisdiction does not bind the enforcing court on the separate Convention question whether a valid arbitration agreement existed under the governing law.

## Conclusion

The Bermuda Court of Appeal declined to enforce a Soviet arbitral award because the claimant failed to prove that Soviet law recognized the arbitration clause as valid and separate from a main contract rendered invalid by mandatory execution requirements, allowing refusal of enforcement under the New York Convention regime.


Sojuznefteexport (SNE) (U.S.S.R.) v. Joc Oil Ltd., 15 Y.B. Com. Arb. 384 (Berm. Ct. App. 1990)