Public Policy Challenge to Arbitral Awards in Russian Courts
A December 2019 Resolution of the Plenum of the Russian Supreme Court1 sought to provide a uniform definition of the scope of “public policy” grounds for refusing to recognize and enforce foreign arbitral awards (the “Resolution”). This Resolution was the latest in a series of steps towards ensuring uniformity in Russian court decisions on enforcement and bringing Russian court practice in line with global practice.
According to a review of 472 Russian court rulings issued in 2008-2017 and dealing with applications for recognition and enforcement of arbitral awards under the New York Convention, the violation of public policy (Article V2(b) of the New York Convention and Article 36(1)(2) of the Russian International Arbitration Law) was the most commonly raised defense (in 42 of 472 cases).2 Although the review showed that 80-97% of all applications were granted each year, inconsistency in how Russian courts interpreted the “public policy” grounds for refusal created uncertainty for foreign entities doing business with Russian counterparties.
In February 2013, the Presidium of the Higher Arbitrazh Court of the Russian Federation (HAC) issued guidance for all arbitrazh courts in applying the “public policy” grounds for refusal to recognize and enforce foreign judgments and arbitral awards.3 Russia’s Arbitration Law was then amended in late 2015.4 Finally, just a year before the formal Resolution, the Presidium of the Supreme Court of the Russian Federation (SC) offered guidance on the role of Russian courts in international commercial arbitration.5
At paragraph 51 of the Resolution, the Supreme Court clarified that “public policy” under Article 36(1)(2) of the Russian Federation Law No. 5338-I on International Commercial Arbitration (which codifies Article V(2)(b) of the New York Convention) is understood to encompass fundamental legal principles that are imperative, universal, have a particular social and public importance, and form the basis of Russia’s economic, political or legal systems.6
The Court went on to set out a two-part test allowing a Russian court to refuse recognition and enforcement of a foreign arbitral award only when: (a) the award must violate fundamental principles of Russia’s economic, political or legal system and (b) such violation may (i) undermine the sovereignty or security of the Russian state, (ii) affect the interests of large social groups, or (iii) infringe on the constitutional rights and freedoms of individuals or legal entities.
While the Court did not provide examples to illustrate when the test would be satisfied, it specified that refusal to recognize and enforce an award would not be justified, without more, by the following circumstances:
- application by the arbitral tribunal of foreign legal norms that do not have analogous Russian counterparts;
- non-participation of the defendant in the arbitral proceedings; or
- an award-debtor’s failure to object to enforcement.
Finally, the Supreme Court noted that recognition and enforcement should be denied only in exceptional circumstances solidifying the intention to bring Russian court practice in line with the global approach.
The Arbitrazh Court of Moscow has referred to the two-part test on multiple occasions, including, by way of example, in a 25 February 2020 decision in Case No. А40-309754/19-3-2109. There, the Arbitrazh Court of Moscow refused to recognize and enforce an award of the International Commercial Arbitration Court of the Ukrainian Chamber of Commerce and Industry.7 The defendant argued that enforcement would violate Russia’s “public policy” because the defendant had not been properly notified of the proceedings and the tribunal had applied the CISG Convention rather than the law of Ukraine. Noting the two-part test in the Resolution, the Court considered it was not necessary to make a decision on “public policy” grounds. Instead, the Court refused recognition and enforcement under Article 36(1)(1) of the Russian International Arbitration Law on the basis that the applicant had failed to show that the defendant was given proper notice of the proceedings. On appeal, the Arbitrazh Court of Moscow District found that the defendant did, in fact, have notice and remanded the case to the lower court.8 In its 16 September 2020 decision, the Arbitrazh Court of Moscow again applied the two-part test and refused recognition and enforcement, this time based on its conclusion that applying the CISG rather than the laws of Ukraine rendered the award contrary to the “public policy” of the Russian Federation.9
The impact of recent amendments to Article 79 of the Russian Constitution on the scope of the “public policy” challenge to foreign arbitral awards as described by the Resolution remains to be seen.
Vinson & Elkins CCL team in Dubai are well versed in arbitration disputes, as well as enforcement proceedings in many global jurisdictions. For more information, please contact Vinson & Elkins lawyers Amir Ghaffari, Joseph Chedrawe, or Zoya Bozhko.
1 See Resolution No. 53 of the Plenum of the Supreme Court of the Russian Federation, dated 10 December 2019, available at http://www.supcourt.ru/documents/own/28587/ (last accessed on 11 October 2020).
2 See Russian Arbitration Association’s Press Release, dated 21 November 2018, available at https://arbitration.ru/en/press-centr/news/application-of-the-new-york-convention-in-russia/ (last accessed on 11 October 2020).
3 See Informational Letter No. 156, dated 26 February 2013, available at https://rulaws.ru/vs_rf/Informatsionnoe-pismo-Prezidiuma-VAS-RF-ot-26.02.2013-N-156/ (last accessed on 11 October 2020).
4 See Russian Federation Law No. 382-FZ on Arbitration in the Russian Federation, dated 29 December 2015, available at http://www.consultant.ru/document/cons_doc_LAW_191301/ (last accessed on 11 October 2020).
5 See Review of Court Practice in Matters Related to Assisting and Controlling Domestic and International Commercial Arbitration, available at http://www.supcourt.ru/documents/thematics/27518/ (last accessed on 11 October 2020).
6 For the avoidance of doubt, the translations in this publication are not official and have been carried out by the author.
7 Document No. 1539_24895477 retrieved via https://ras.arbitr.ru/Document/Pdf/b0d7faf6-8de0-41eb-befc-a8354b5e47a1/30af4566-7e4a-4207-99cc-d9338b1d1aae/%D0%9040-309754-2019__20200225.pdf?isAddStamp=True (last visited on 11 October 2020).
8 Document No. 106759_1747745 retrieved via https://ras.arbitr.ru/Document/Pdf/b0d7faf6-8de0-41eb-befc-a8354b5e47a1/4bf8e143-c1af-4c21-8cbd-d401e886cdaf/%D0%9040-309754-2019__20200706.pdf?isAddStamp=True (last visited on 11 October 2020).
9 Document No. 900109699_26485506 retrieved via https://ras.arbitr.ru/Document/Pdf/b0d7faf6-8de0-41eb-befc-a8354b5e47a1/3dead6c7-f8ae-445b-96cc-da221563c9e5/%D0%9040-309754-2019__20200916.pdf?isAddStamp=True (last visited on 11 October 2020).
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