Just a few days ago, we published a post with an optimistic outlook on Russian court practice in respect of recognition and enforcement of foreign arbitral awards in Russia. I called this the light at the end of the tunnel out of Russian court’s rather hostile attitude towards arbitration.
Now the Arbitrage Court of the Northwestern Region issued a judgement which casts serious doubts on the conclusion that Russian courts might become more arbitration-friendly in the wake of the plenary decision of the Supreme Court No. 53 of 10 December 2019.
Background to the case
On 19 November 2020, the Arbitrage Court of the Northwestern Region decided on an appel against the judgement of the arbitrage court of St. Petersburg and Leningrad Region of 25 August 2020. The full details of the case can be found on the website of the arbitrage court system.
In brief, the matter concerned the recognition and enforcement of a German DIS award rendered in Hamburg. The tribunal found that a Russian and a Singapore-based debtor jointly and severally owe the claimant an amount of USD 1,421,359.64, EUR 226,275.25 and KWR 198,040,653 plus interests. The source of this debt was a sale-purchase contract of scrap metal. The contract was subject to German law and contained an arbitration clause in favour of DIS-rules with a seat of arbitration in Hamburg.
The debtor had already tried to have the award lifted by the Higher Regional Court of Hamburg (case no. 6 Sch 15/19), but without success.
Violation of public policy
In the first instance, the arbitrage court of St. Petersburg and Leningrad Region had recognised and declared enforceable the award. It held that the attacks of the debtor against the award were unfounded and only attacked the decision itself, without stating any violation of fundamental rights or public policy.
With the cassation appeal, the debtor successfully invoked a violation of public policy. The cassation court quoted the provision of art. 170 of the Russian Arbitrage procedure codex which contains provisions about the minimum content of court decisions. In particular, this provision requires that the facts of the case are established in the judgement and that the evidence the court relied on and the arguments leading to the decision are quoted and several more formal requirements contained in the law.
The cassation court then quotes an overview of court practice of the Supreme Court (No. 3 from 2015) which confirms the requirements for (state-court) judgements.
The cassation court then finds that the first instance’ courts summary findings that the arguments of the debtor “boil down to disagreement with the arbitral award” do not show that the first instance court had considered the arguments of the debtor.
The cassation courts sent back the matter to the court of first instance and instructs the court of first instance to consider the debtor’s arguments, in particular that it would violate public policy that the debtor is ordered to jointly and severally reimburse a payment that he himself had not received, that the arbitral award did not justify joint and several liability, that the claim was time-barred and that “law that should have been applied had not been applied”.
It is obviously difficult to judge whether this decision is correct or not, however, comparing the summary findings contained in the cassation judgement and the text of the first instance judgement and analysing the arguments of both courts, the first instance judgement is much better reasoned: It quotes the definition of public policy and reasons that none of the arguments brought forward by the debtor could amount to a violation of public policy as defined by the Russian Supreme court.
To the contrary, the provisions that the court of first instance will have to check for a violation of public policy (the question whether or not the debtor should have been held jointly and severally liable and whether the claim was time-barred under German law) can hardly belong to the “fundamental principles” of Russian law.
So, basically, the cassation court formally invites the court of first instance to do what the latter had refused when it was seized with the matter in the first place: The cassation court ordered to undertake a complete révison au fond (a bit of a déjà-vue) and most likely, when the court of first instance will have the second chance to consider this matter, they will follow the guidance of the cassation court and find a violation of public policy.