Russian Federation: Legal Aspects Of The Enforcement Of Foreign Court Awards In The Russian Federation

Current Russian legislation does not provide for a wholesome legal framework that deals with enforcement of foreign awards in Russia. The issue is governed by a multitude of legislative acts triggering issues of interpretation vis-à-vis the essence of the case in question. There is quite a deal of confusion as regards this issue since Russia has not enacted a single universal law on legal co-operation, and neither the Russian Arbitration Procedural Code nor the Russian Civil Procedural Code provides for clear procedures to be followed. The issue of enforcing awards of foreign courts has only been addressed, and only partially at that, by an 1988 Edict of the Presidium of the Supreme Soviet of the USSR. However, the legislation of the USSR is applicable in Russia only to the extent that it is not at variance with the legislation of the Russian Federation. The Edict referred to above, contradicts significantly, international treaties of the Russian Federation. Bearing in mind that these international treaties form a part of the legislation of the state, they are the key to understanding the subject matter being examined.

Russia's international treaties can be divided into three groups: (i) universal, general treaties; (ii) regional international treaties; and (iii) bilateral agreements, i.e. agreements on legal cooperation.

Russia has signed approximately 34 bilateral agreements to date. These treaties do not stipulate a competent court with regard to the enforcement of awards of foreign courts, but merely state that awards of foreign courts shall be enforced by a "competent court". The conclusion that can be made here is that the issue of determining which court has jurisdiction over the enforcement of a particular foreign court award - is at the discretion of current legislation in force . The treaties do stipulate, however, that "the authority via which awards of foreign courts should be transmitted to the Russian Federation" is the Russian Ministry of Justice.

This complex situation highlights the first problematic issue. For a foreign court award to reach the courts for enforcement, it must first pass through the Russian Ministry of Justice in accordance with the procedures established by the treaties. However, at this point in time, the Ministry has decided to abandon its function of processing foreign court awards. The Ministry has motivated its decision by the fact that because the courts have now been removed from under the Ministry's control, the Ministry is no longer interested in how foreign awards are enforced in Russia. The new draft Law Concerning the Ministry of Justice, contains no provisions on the Ministry's function of processing foreign court awards in Russia.

In practice also, the Ministry has abandoned its obligations. The only option open to the party seeking enforcement of a foreign court award is for the party to translate the ruling of the award, legalize it, and take it to the Ministry for vetting. In other words, provided the party undertakes the organizational side, the Ministry will vet the document, thereby enabling its submission to a court. This is the reality today, despite the fact that in accordance with international treaties, the Ministry is obliged to carry out the functions mentioned above. The Ministry's line on this abandonment of its function is that it no longer has a budget to support it, that it has no more money for translators, notaries, etc. Thus, the problem remains unresolved.

Within the context of regional treaties this issue is somewhat less complicated, at least as far as CIS agreements are concerned. Two regional treaties currently exist: (i) the 1992 Treaty on the Resolution of Business Disputes, and (ii) the Minsk Convention of 1993. The 1992 treaty (the Kiev Accord) simplifies the implementation of CIS rulings by eliminating the requirements on legalisation. In accordance with the Kiev Accord, CIS court awards are transmitted directly to the competent court, i.e. the arbitration court for business disputes, and a court of general jurisdiction for all other issues, and the court enforces the award as though it had issued it itself. This system eliminates the intermediary role of the Ministry of Justice. The Minsk Convention, however, was unfortunately drafted by the Ministry of Justice, and as a result it is not as advanced. The Minsk Convention covers family law and inheritance issues. It envisages the performance of legalization procedures by the Ministry and enforcement by a competent court, i.e. a court of general jurisdiction. The problem here is the same as that encountered with bilateral treaties: the Ministry refuses to deal with the organizational side i.e. legalization.

There exists a third regional treaty, the Brussels-Lugano Convention, which functions quite well. The Brussels-Lugano Convention is similar to the Kiev Accord insofar as it enables the submission of foreign court rulings to the competent court of the country in question without the need to fulfill legalization procedures beforehand. The competent court then enforces the award as though it had issued the ruling itself. The European Union countries are all signatories to the Brussels Convention, and its Lugano Protocol enables any country in the world to accede to the Convention. In view of the fact that the Russian Federation is party to an agreement on partnership and cooperation with the European Union, the President of the Russian Federation has been requested to initiate proceedings on accession to the Lugano Protocol. The work on drafting the conditions of accession has only just begun, and it is impossible at this stage to predict how it will progress.

A fourth convention is currently in the pipeline: the Hague Convention. The Hague Convention is a universal, global convention on the implementation of court awards arising from trade and commercial disputes. Russia has attended the final hearings on the Convention in The Hague in September of last year. The Hague Convention also eliminates organizational issues. The plaintiff, having obtained an award from a foreign court, submits the ruling on the award to a competent court without undergoing legalization procedures, and the award is enforced in accordance with the justice system of the country in which the enforcing court is located. The Hague Convention appears to have good prospects, with many countries already lining up to sign it. The United States government has already indicated its willingness to sign the convention. If and when Russia signs it, there will have a mechanism for the immediate enforcement of court awards obtained in any country in the world. The first step is the easiest: ratifying the Brussels-Lugano Convention. Once that Convention has been ratified, we will address the issue of the Hague Convention.

The issue with regard to regards arbitration awards, i.e. awards issued by foreign arbitrators, is simplified somewhat thanks to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. What in Russia are termed "arbitration tribunals" are referred to as arbitration courts in the West. State commercial courts in Russia are referred to as "arbitration courts", whereas arbitration in the Western sense of the term is provided by "arbitration tribunals". On the face of it this would appear to be an insignificant confusion of terms, but in reality it gives rise to serious difficulties with regard to both foreign and Russian arbitral awards. The 1958 Convention does not apply to judicial arbitration awards, but very often lawyers seek the enforcement of foreign judicial awards, i.e. awards issued by foreign courts, on the basis thereof. The term "court" applies only to state institutions, while the term "arbitration" applies only to the non-judicial settlement of disputes. Thus, arbitration is an out-of-court approach to settling business disputes.

An important aspect of the subject matter under discussion is that of control over foreign court and arbitration awards. There are three options of such control. The first option concerns arbitral awards only and involves verifying the validity of the arbitration statement. This is an extremely complex and time-consuming task, the scale of which appears to be little understood by most lawyers representing foreign companies. The standard argument is that "the statement has been filed and one does not have the right to determine whether or not the case falls under the jurisdiction of the arbitrators". However, this is an erroneous position. If one refuses to verify and pronounce upon the validity of a statement when requested to do so by the other party, this means denying that party access to the justice system and refusing that party the legal remedies afforded by the State. Such a situation cannot be countenanced: to deny a party access to the justice system is the gravest crime a judge can commit. It would also mean that any ruling issued by a judge on such an issue would be overturned in Strasbourg. Therefore judges are obliged to consider every case as it arises and ensure that the parties really did consent to the statement, that no undue pressure was exerted, etc. Whenever a determination is made that the statement is bona fide, Article 85 of the Russian Arbitration Procedural Code obliges to turn down any claim for the matter to be considered in court.

The new Hague Convention takes a radically different approach to this issue, on the basis of the principle that it is inadmissible to refuse access to justice. The Hague Convention's approach involves suspending court litigation until such time as arbitration proceedings are completed.

In cases involving litigation in a foreign court, there is scope for a court of another state to carry out control functions. Very few cases fall under the exclusive jurisdiction of a single country, with the exception of those involving airliners, ships, actions of state bodies, and transportation. Transportation cases generally fall under the exclusive jurisdiction of the country of registration of the head office of the company concerned. It is difficult to point out other cases that give rise to exclusive jurisdiction issues. Thus, state cases may also be filed in foreign courts if they fall under the exclusive jurisdiction of Russia. Such situations can arise when this relationship vis-à-vis arbitration tribunals coincides with the relationship vis-à-vis foreign courts of law. This is where prorogation agreements come into play. In certain cases the parties to an agreement are free to choose any foreign forum for the resolution of a dispute, unless the dispute is subject to exclusive jurisdiction provisions. In cases where the parties opt for arbitration, the clause is referred to as an "arbitration clause" or "arbitration statement". In cases where the parties opt to refer the case to a foreign court of law, the arrangement is governed by a "prorogation agreement".

Parties are free to opt for any forum, even in instances where the legal relationship that is the subject of the litigation has no link with the jurisdiction selected. This standard applies to continental Europe. Courts in the United States operate on the basis of a somewhat different doctrine: that of forum non conveniens. Under the said doctrine, an American court will first decide whether or not the legal relationship that is the subject of the litigation is linked with the jurisdiction of choice or not. If it is deemed that the litigation may proceed and that jurisdiction may be secured over all parties, then the court will accept the case. If, however, it is deemed that the clause does not apply, then the court will invoke the forum non conveniens proviso and dismiss the case.

The second form of control relates to arbitral awards. This takes place when one of the parties to a litigation, disputes an arbitral award and appeals against the award in a competent court. Generally a competent court is a court of the country in which the arbitration took place. The court has the capacity to overturn an arbitral award. Based on the cases that dealt with, the conclusion can be made that the greatest problem as regards overturning arbitration awards is posed by the provisions of Article 5 of the 1958 New York Convention, the articles of the European Convention on Trade Arbitration, and all similar articles of treaties on legal cooperation, all of which can be treated as extending beyond the scope of arbitration statements or prorogation agreements.

Thus, the enforcing court must consider whether or not the court in question acted within the limits established by the statement concerning the consideration of the dispute and whether or not it had full jurisdiction over all the parties. The enforcing court must also consider the scope of the court's jurisdiction, the nature of the legal relations, and the extent to which the legal relations may or may not fall outside the scope of the jurisdiction. There is nothing in the Russian statute books that establishes that an arbitral award may not be enforced or be overturned if the terms of the arbitration clause have been exceeded. Therefore, Russia needs to establish legislation to that effect: that an arbitration statement may not go beyond the scope of the arbitration clause, and that the court is always bound by that scope. Only a state court of justice may take a broader view and extend consideration to any aspects which lie beyond. This should be the axiom governing the consideration of commercial disputes. Any other court should be bound to the scope of the clause. Otherwise the result is complete chaos. It should also be borne in mind, and this is established in all laws, that there is no link between material agreement and procedural agreement insofar as an arbitration statement is concerned: even if a material agreement is deemed null and void, the associated procedural agreement remains in force. Procedural agreement is thus autonomous.

Another basis for overturning an award relates to the absence of jurisdiction, as this can be covered by exclusive jurisdiction, by prorogation agreement, and in continental Europe, by the highly developed system used to determine the competent court. This is another area in which Russian legal procedure may deviate from those applied in the United States. One such case has already taken place whereby a Russian court accepted a case with regard to which a United States court also issued an award claiming jurisdiction over the case. This came about because the representative office in question is located in Russia and the plaintiff lives in Russia. A ruling was issued on the basis of the Russian Arbitration Procedural Code. On the other hand, in the USA, it was decided that it was the US that had jurisdiction since the legal relations implicated in the case concerned the purchase of American dollars on an American currency exchange, and also issued a ruling.

The Convention provides for a solution in such cases: in the absence of exclusive jurisdiction and in the absence of a prorogation agreement, when issues of jurisdictional conflict arise the valid ruling is deemed that ruling that was issued first. In the case in question, the US court was the first to issue a ruling. Other problems can arise with regard to refusal to enforce when procedural rights are violated due to the inability of one of the parties to participate in the litigation. Cases of this type provide sufficient grounds for refusal to enforce an award. Another widely applied basis for refusal to enforce an award is the clause on public order. This arises when the enforcement of an award leads to serious social consequences that are not consistent with the interest of maintaining public order. The new Hague Convention addresses this issue by stipulating that in cases whereby the enforcing court deems that the foreign court has awarded unreasonably high compensation, the enforcing court may apply the national legislation to reduce the award to a reasonable level. This is a mechanism that currently functions in Russia. Another provision that should be removed from Russia's legal cooperation agreements stipulates that awards issued by foreign courts must be enforced within a three year period. Western countries allow a 30-year period for enforcement. Other deadlines in Russia also need to be extended: claims may only be filed within a one-year period, cases are examined in Russia within a maximum two-month period, awards are enforceable for a three-year period only. The purported motivation behind these deadlines is to speed up procedure. This may be a good thing insofar as speed is concerned, but for stable legal relations it is detrimental. Another issue is that appeals may be filed on the same grounds as those used to apply for an award to be overturned. But the problem is that Russia has no appeals procedure in place as yet.