Arbitration Recognition of foreign judgments 3. November 20233. November 2023 What are the chances of a foreign claimant to succeed in a Russian court? Maria Buchneva Photo published on Vecteezy Recently, during the 12th Asia Pacific International Legal Forum, the Chairman of the Supreme Court of the Russian Federation Vyacheslav Lebedev reported that the total number of economic disputes involving foreign parties has increased by 60%, to 10.6 thousand in the first half of 2023. Whereas 93% of disputes were resolved in favour of foreign participants. (Resource: https://vsrf.ru/press_center/mass_media/33005/) As for recognition and enforcement of foreign judgments the statistics claim that in the first half of 2023, 68% of cases were approved by Russian courts. According to the official statistics for 2022, Russian courts satisfied 62% out of 209 claims regarding recognition and enforcement of foreign judgements and foreign arbitral awards in 2022. (Resource: https://stat.xn—-7sbqk8achja.xn--p1ai/stats/arb/t/42/s/1). These figures are in line with previous years before the war against Ukraine. For example, in 2018, 61% of foreign awards were recognised in Russia (Resource: Statistik Boës DRRZ 2018, p. 147). This, however, is a steep drop compared to the years before the occupation of Crimea, when more than 95% of foreign arbitral awards were recognised in Russia (Statistik Boës DRRZ 2018, p. 147,150). The New York Convention 1958 to which Russia is a party stipulates that the recognition and enforcement of a foreign arbitral award is a general rule if the written form requirement for arbitration agreements is observed. “Each Contracting State shall recognize arbitral awards as binding and enforce them in accordance with the rules of procedure of the territory where the award is relied upon, under the conditions laid down in the following articles.” (Article III, United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, New York, 10 June 1958). The contrary (i.e.refusal) must be proven “at the request of the party against whom it is invoked” (p.1 Art. IV). Similarly, the Convention on Legal Aid and Legal Relations in Civil, Family and Criminal Cases (The Minsk Convention 1993) such as Kiev Convention on Settling Disputes Related to Commercial Activities 1992, provide for quasi automatic recognition of state court judgements rendered in the member states, so the recognition and enforcement of decisions from the member states of these conventions (CIS states) should also be the rule, not the exception. Given that recognition should be the rule and refusal to recognise the exception, a recognition figure of 62% is not very high in any case and we must take into consideration that most of the successful cases concern disputes from CIS member states.Russian courts are much more willing to enforce judgements and arbitral awards rendered by courts and tribunals from CIS countries, especially Belarus, Kazakhstan, Uzbekistan or Armenia. As for example: Case А40-78940/2023, Award of the Judicial Collegium for Economic Cases of the Tashkent Regional Court of the Republic of Uzbekistan dated 09.01.2023 on the recovery of the principal debt,AO “Uzmetkombinat” vs. OOO “MetPromProekt”. (Case: https://kad.arbitr.ru/Document/Pdf/ae6af8a9-b292-44b9-b0b3-80d2119882a6/83910d94-c5a4-446d-96b4-b32a39b43342/A40-78940-2023_20230804_Opredelenie.pdf?isAddStamp=True). Case А40-160374/2023, Award of the Commercial Court of the Gomel region of the Republic of Belarus – LLC „IT Pro Class” vs. Grachev Alexey, Ambalov Alexey, Gomel. It was decided to enforce the award due to a large amount of a claim which is 160 662 334 RUB.(Case: https://kad.arbitr.ru/Document/Pdf/944fb93c-d3f5-4109-a556-b5f99e338066/664e30ea-eb4c-4a29-ba93-4df6f1bc00e1/A40-160374-2023_20230927_Opredelenie.pdf?isAddStamp=True). Case А76-9745/202, Award of the Eurasian Commercial Arbitration, formed by the Association of Expert Communities LLC (Republic of Kazakhstan), between two Russian citizen and Russian individual enterpreneuer (Case: https://ras.arbitr.ru/Document/Pdf/a93679b3-2a00-4fa2-8743-fb19fc25f2c6/973575b4-0900-4ee1-a3e1-b9f76f7cdf76/%D0%9076-9745-2023__20230622.pdf?isAddStamp=True). The Moscow Arbitrazh court refused to recognise and enforce the judgement of the Minsk Commercial Court, referring to the violation of public policy. The court motivated its refusal by the fact that: “…case number 19-22/2022 was not considered, and the Judicial Order of 21.07.2022 on case number 19-22/2022 was never issued by the Commercial Court of Minsk. Cases involving Dianov Daniil Mikhailovich have not been considered by the Commercial Court of Minsk, as cases on wage recovery are not under the jurisdiction of commercial courts.” (Case А40-251968/22; https://ras.arbitr.ru/Document/Pdf/0548e35c-21e3-4244-a103-f1bb2c2a03c3/13bcf8ec-a980-4c00-a904-47ad921d726f/%D0%9040-251968-2022__20230601.pdf?isAddStamp=True). It seems to us that the court incorrectly refers to the public policy in this case since the lack of jurisdiction does not amount to a violation of public policy but is rather an independent reason (named in Art 244 p. 1 (3) of the Arbitrazh procedural code) to refuse the recognition of a judgement, without the need to invoke a violation of public policy. Russian courts just simply use violation of public policy in their judgements as an excuse for not giving precise and detailed explanation for the refusal. As for the cases where one party comes from an “unfriendly” state or where there is an arbitral award or a judgement from a court or tribunal located in an “unfriendly” state, Russian courts refer to the violation of public policy as a ground for refusal quite frequently. Thus, the Arbitrazh court in Moscow refused to enforce an arbitral award of the ICC due to the violation of public policy on the claim of Czech company IFSI investicni fond. In justifying its refusal, the court refers to art. 248.1 APC RF about the lack of jurisdiction due to the exclusive competence of the Arbitrazh Court of the Russian Federation as well as to art. 244 p.1 (7) APC RF regarding the violation of public policy. In the ruling dated on 13.10.2023 it was established that the EU and USA sanctions were imposed on the Respondent “Stroitransgaz”. This fact is a clear impediment to the Claimantt’s ability to exercise due process in arbitration (obstruction of access to justice), considering the place of arbitration (Zurich, Switzerland), and is an unconditional ground for granting the application and imposing an injunction against the continuation of proceedings in international arbitration. (Ruiling rendered by the Moscow Arbitrazh court dated 14.10.2023). Further, the court invites the Claimant to apply to a Russian court to challenge the award rendered by the ICC, i.e. to bring the dispute under its state jurisdiction. In the ruling it is stated that only the Russian court has exclusive jurisdiction over the case matter. “The Court also stated that the refusal to grant an application of further international arbitration proceedings on the ground that such proceedings have been terminated and an award on the merits has been rendered does not deprive the Claimant of the possibility of challenging the award of the ICC on the grounds that it lacked jurisdiction to hear the dispute due to the exclusive competence of the arbitrazh court of the Russian Federation (Art. 248.1 of the APC RF), as well as to object to the Claimant’s claims to enforce the international arbitration award in the territory of the Russian Federation (Article 248.1 of the APC RF) under the rules of Art. 241 of the APC RF”.Eventually the Court arguments its final decision using the public policy clause. It even cited the definition of “public policy” which involves fundamental legal principles with the highest imperative, universality, special social and public significance, and form the basis for the construction of the economic, political and legal system of the state. As well, actions that damage the sovereignty of the state and affect the interests of large social groups, violate the constitutional rights and freedoms of private persons. (According to the informational letter of №156 dated 26.02.2013 by Presidium of the Supreme Arbitrazh Court of the Russian Federation “Review of the practice of consideration by arbitration courts of cases of application of the public policy clause as a ground for refusal to recognize and enforce foreign judicial and arbitral awards”).However, the court does not specify any negative facts coming from the reference of public policy in his award except mentioning sanctions against the Respondent. In this case we see no connection between “lack of jurisdiction” and “public policy” stated in the court`s ruling as grounds for refusal. According to the Art. 244 p. 1 and p.7 they are two separate grounds for refusal. The court should have chosen one of them by giving exact argumentation while making such judgement. Presumablythe court simply wants to prevent the Russian national affiliated company from recovering the funds as the result of not profitable ICC´s award in the absence of legal means due to sanctions and seeks to resolve the dispute on its territory in all possible ways.(Case: А40-116183/2023; https://kad.arbitr.ru/Document/Pdf/f9107fff-c1d1-47e2-a5b3-ca02b8b67f0c/ac9256fe-a0b1-4dd0-a2b5-c39dd3e9b02c/A40-116183-2023_20230914_Opredelenie.pdf?isAddStamp=True ). In other cases, Russian courts make use of the “anti suit” or “anti arbitration” clauses provided for in the Russian arbitrazh procedural code: A Russian party can claim that due to sanctions imposed by foreign states, it cannot participate in arbitral or state court proceedings abroad and thus, the matter has to be heard in a Russian Court. Decisions based on these provisions are becoming more frequent: In the legal proceedings between RZD (Russian Railways) and Siemens Mobility GmbH the Supreme court of the Russian Federation has prohibited Siemens Mobility GmbH the initiation of any legal proceedings – first of all in Kammergericht Berlin – in other foreign courts and arbitration tribunals, international commercial arbitrations for all disputes arising out of the contract dated 17.12.2014 No. CDIBSH. The court argues that sanctions and economic relations against RZD and its main shareholders will result in an unlawful judgement against Russian party in dispute. Basically, Russian authorities fear that a Russian entity (especially when it is a state-owned enterprise) will be deprived of its absolute right to fair trial at international or foreign courts and will be prevented from access to justice, so the Russian courts prohibit the recourse to the agreed (foreign) jurisdiction or arbitral tribunal. (Case: № А40-29793/23; https://ras.arbitr.ru/Document/Pdf/4a761838-b554-4d06-91d9-960514885af3/6224bd76-c8cb-4eac-a885-012ba92612e5/%D0%9040-262826-2022__20231018.pdf?isAddStamp=True) Based on this case we can conclude that arbitral clause cannot guarantee that the dispute between Russian and foreign counterparty will be considered in a tribunal stated in the contract. Russian courts tend to turn a blind eye on arbitration clauses while deciding on major economic disputes. Close connection as an alternative solution The statement of Mr. Lebedev suggests that foreign claimants should trust in Russian jurisdiction and – conveniently – the Russian courts offer an option to assume jurisdiction in Russia, even if the contract provides for foreign arbitration or jurisdiction outside Russia: Сlose connection of a law case with the territory of the Russian Federation may be a reason for the dispute to be heard in a Russian court, bypassing foreign instances and the recognition procedure in Russia. Lately the Russian Supreme Court overturned judgements of the Arbitrazh court in Krasnodar region and Arbitrazh court in the North Caucasus Region in the case between Chinese insurer “Sunshine Property and Casualty Insurance Co” and Russian company “Transformer Group” on the lack of jurisdiction. The Supreme Court found a close connection and ruled that the case would be heard further in Russia as the following facts are present: 1) Chinese insurer has a representative office in the Russian Federation; 2) the place of execution of the insurance contract is the Russian Federation; 3) the insurer‘s will to provide his services in Russia and in favour of the Respondent incorporated there; 4) insured cargo arrived in a Russian port; 5) evidence conforming insured event is located in Russia. (In accordance with Art. 71(4) and (7), Art. 85(1)(6) and Art. 247 of the Arbitrzh Procedural Code). This alternative way may not guarantee the resolution of the dispute in favour of the foreign person, but it significantly simplifies the way to proceedings. (Resource; Case A32-57787/2022; https://ras.arbitr.ru/Document/Pdf/7c5e496e-2a43-4ad7-aac6-cef73021b911/13c5ff4e-0cee-46d5-9368-0d657399892e/%D0%9032-57787-2022__20231006.pdf?isAddStamp=True). Conclusion The appeal of Vyacheslav Lebedev to go to Russian courts with one of the lowest enforcement level worldwide is unreasonable. Refusal of recognition is contrary to the parties´ autonomy of will and their right to choose a judicial forum based on the arbitration clause. Russian courts are reluctant to recognise and enforce foreign arbitral awards both from “unfriendly” states or from neighbouring “friendly” states. As chances of successfully enforcing foreign judgements and arbitral awards in Russia are dubious, foreign parties may either put their faith in the Russian judicial system or avoid litigation with Russian parties altogether, either by not doing any business with Russian parties anymore or by insisting on 100% advance payments or guarantees from third parties outside Russia. These options, obviously, can only help the ever-decreasing new business with Russian parties, for existing contracts, disputes must be resolved by the agreed means or, if that doesn’t work due to non-recognition in Russia, by Russian courts.