A steppe towards the West

Russia’s Supreme Commercial Court is on the verge of taking a more liberal stance on foreign arbitral awards

Yaruslav Klimov

The public policy exception is known to be widely used in Russia to refuse recognition and enforcement of foreign arbitral awards. A recent example is Stena RoRo v Baltiysky Zavod, in which the court of first instance refused to recognise and enforce the award inter alia on the grounds that it would cause the debtor’s bankruptcy and therefore contradict Russian public policy.

Fortunately, the Supreme Commercial Court of the Russian Federation ruled that the award should be recognised and enforced.

Of great importance in this connection is a draft review developed by the Supreme Commercial Court concerning Russian court practice on the application of the public policy exception to the recognition and enforcement of foreign arbitral judgments.

Based on cases previously decided by commercial courts, the review indicates situations in which recognition and enforcement will and will not violate public policy.

On a positive note, the Supreme Commercial Court states that awards for the recovery of liquidated damages and compound interest should be recognised and enforced, as generally they do not contradict public policy. Also, the recovery of sums exceeding the possible or actual losses of a party, unless of a punitive nature, does not indicate that enforcement will contradict public policy. Currently, Russian courts may refuse recognition and enforcement of awards as contradicting public policy unless the recovered sum is purely compensatory.

On the other hand, the review includes a case where recognition and enforcement of the award was refused on the grounds that the arbitrator appointed by the respondent had not, due to illness, participated in the discussion and issue of the award, notwithstanding that the rules of many prominent arbitration institutions authorise arbitrators to go ahead and deliver awards in truncated tribunals.

It should be noted that the review was not adopted at the session of the Supreme Commercial Court held on 20 December last year as it turned out there was no consent on many key points. The criteria by which courts should decide whether the recovered sum is punitive will be subject to further discussion.

Moreover, since the position of the Supreme Commercial Court regarding awards rendered by truncated tribunals was criticised as not being in compliance with international practice, it is hoped that the court will adopt a more liberal position. Nevertheless, the very inclusion of this in the draft review shows there remains a risk awards rendered by truncated tribunals will be refused enforcement.

The date for the next session (even indicative) is not yet known. Once the review is adopted the lower courts’ practice must adhere to the approach set down by the Supreme Commercial Court. It is hoped that the Supreme Commercial Court will take a step towards more favourable treatment for the recognition and enforcement of foreign arbitral awards in Russia.

Litigation and dispute resolution associate Ekaterina Merkulova assisted with this article