Russian Federation: Enforcement Of International Arbitration Awards In Russia

Last Updated: 21 June 2007
Article by Maxim Kulkov

Foreign arbitration awards are recognized and enforced in Russia by virtue of international treaties to which Russia is an assignee or according to the principle of reciprocity. Since the vast majority of countries have joined the New York Convention, the most common way to enforce a foreign award in Russia is under the said convention.

The Russian Arbitration Code provides for application for recognition and enforcement of a foreign arbitration award to be filed with an arbitrage court at the place of the debtor’s domicile or, if unknown, at the place where the debtor’s assets are located. Unfortunately, the law does not clarify what to do if the debtor’s domicile is abroad. If such is the case, in some instances courts have denied enforcement because the law does not stipulate which court has jurisdiction.

A request for enforcement of an award should be submitted within three years of the date when such a final award was rendered.

A court ruling on enforcement may be appealed in the court of cassation, which can uphold the original ruling, render a new decision or remand the case back to the initial court. The ruling of the court of cassation is final and comes into force immediately. It should be noted that there is also the possibility of challenging the ruling before the Supreme Arbitration Court of Russia, but the Supreme Court accepts cases for reconsideration only in exceptional circumstances.

When a ruling on judgment recognition and enforcement is obtained, the court issues a writ of execution. If the debtor does not voluntarily execute the judgment, the claiming party initiates an execution procedure, which is equivalent to one for execution of domestic judgments. This is done through the bailiff service as set forth in the Law on Execution Procedure. Bailiffs are responsible for searching for, attaching and selling the debtor’s assets.

On average, it might take from six to 20 months from submission of the request for enforcement to the time the claimant actually receives money, depending on the number of court instances the claimant passes through and the condition of the debtor’s assets.

Interim Measures

If interim relief is sought in the course of arbitration that has a seat in Russia, the plaintiff may file a request with the arbitration court at the seat of arbitration or the location of the defendant or its assets. The court procedure is the same as for litigating parties. Unfortunately, Russian law does not provide for the possibility of securing interim measures through courts during arbitration with its seat abroad. Moreover, an order on interim measures issued by arbitrators (the seat of arbitration is irrelevant in this case) cannot be enforced through the courts since such an order is not considered by Russian courts as a final award.

Consequently, it is impossible to obtain interim measures in Russia during the course of arbitration with its seat abroad. In order to avoid this risk, the party entering into an arbitration agreement should insist that the seat of arbitration be Russia if the issue of interim relief is of great importance to said party.

Denial Of Enforcement On The Grounds Of Contravention Of Public Policy

Russian courts are sometimes reluctant to recognize and enforce international commercial arbitration awards. Since the grounds for refusing enforcement is limited by the New York Convention, contravention of public policy often serves as the ultima ratio for rejecting enforcement. In some instances, public policy is understood by the courts too vaguely. One notorious court case illustrating this point is United World Ltd. vs. Krasny Yakor (Red Ancor). In this case, the court denied enforcement of an arbitration award of less than $40,000 on the grounds that its enforcement would lead to Red Ancor’s bankruptcy and would consequently cause serious damage to the regional economy where the debtor was domiciled and to the economy of Russia; such damages thus were in contravention of Russian public policy. In many other cases, public policy has not been understood in such a strange way, but some courts tend to consider contravention of mandatory Russian rules as contravention of Russian public policy. To avoid said risk, the contractual provisions, even if governed by a foreign law, should be reviewed for compliance with mandatory Russian laws.

Denial Of Enforcement On The Grounds Of Procedural Violations

In general, Russian courts take a very formal approach to evidence. The judges are quite reluctant to accept e-mails, copies of documents not notarized, witness evidence, etc. For example, in Forever Maritime vs. Mashimport, the court denied enforcement of the award on the grounds that the defendant was not notified properly of the time and place of the hearing. The court rejected copies of correspondence between the parties proving the fact of proper notification because the translation of those letters into Russian was not notarized. In another case, Sophocles Star Shipping Inc. vs. Technopromexport, a mistake in the name of the claimant contained in the award and in the time-charter contract (Sophocles Star Shipping Co. Ltd.) was used as grounds to deny enforcement by the Moscow court and the Moscow Court of Cassation. The courts held that the contract containing the arbitration clause was concluded with Sophocles Star Shipping Co. Ltd., while the request for enforcement was brought by Sophocles Star Shipping Inc. Since the latter was not a party to the arbitration agreement, the agreement was deemed invalid. Only when the case came to the Supreme Court, the court held that the question of the agreement’s validity was beyond the scope of consideration during an enforcement procedure under the New York Convention.

To avoid such problems, it is advisable to focus considerable attention on formalities when entering into an arbitration agreement and during the course of arbitration (e.g., to make sure that the documents contain the right names of the parties and the arbitration tribunal, and to duplicate procedural notifications by registered post).

Denial Of Enforcement On The Grounds Of Invalidation Of Contracts Containing An Arbitration Clause

It is a quite common tactic for defendants to use a third party to invalidate a contract containing an arbitration clause through the arbitration court. By Russian law, in some instances, a third party whose rights are violated by somebody’s contract can challenge this contact in court. In Uralskiye Zavody (Ural Plants) vs. Quality Steel and Bummash, the claimant – a shareholder in Bummash – challenged the contract between Quality Steel and Bummash as a transaction violating the Ural Plants shareholder’s rights. Quality Steel’s argument that the contract contained an arbitration clause and could not, therefore, be litigated was rejected because Ural Plants was not a party to the agreement. Such invalidation of a contract may in some cases be used later on as grounds for refusing enforcement of an arbitration award, since referral of the dispute to arbitration was made in the invalid contact.

Slow Execution

One problem arising during execution is lack of cooperation on the part of the bailiffs in collecting information about the debtor’s assets and selling the assets. To speed up the process, the collecting party should always monitor the procedure and assist the bailiffs in searching for the debtor’s property (e.g., check that all procedural formalities made by the bailiffs are correct in order to avoid any appeals by the debtor; hire detectives to find the property).

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.

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