Sunday, November 17, 2013

Attempted Enforcement Under NYC Convention

Investors seeking the enforcement of arbitral awards against Russia or its citizens can seek recourse in the domestic courts of their own or third party states under the NY Convention. As clearly expressed in Article II(1) each Contracting State shall recognize a arbitral award if there is an agreement in writing to submit the dispute to an arbitral panel.[1] Furthermore, under Article III Contracting Stats shall enforce such awards.[2] The qualification to this is that there must be some seizable asset within the jurisdiction of the court being asked to enforce the award. Furthermore, in the United States a court must be able to establish jurisdiction over those assets. It is unlikely that a Russia would be subject to general jurisdiction within the United States because their contracts do not seem systemic and continuous. Furthermore, unless the subject of the dispute arises out of contacts that Russia purposefully directed to the United States asserting specific jurisdiction is not proper. However, if Russia or a Russian citizen who is a party to the dispute has some property in the US it is possible to establish quasi in rem jurisdiction. However, principle of sovereign immunity may still protect some of Russia’s assets.[3]
            Clearly, the laws and policy of the country in which enforcement of the award is being sought will govern. While attempting to enforce a arbitral award through to seizure of Russian assets in a different country can be a tricky and tenuous ordeal, the courts of some nations have expressed a willingness to allow such actions. Sedelmayer v. Russian Federation illustrates this point. The arbitration arose out of an alleged expropriation due to a Russian presidential decree in 1994. In 1998, the Arbitration Institute of the SCC awarded Franz Sedelmayer $2,350,000. Russia refused to abide by the award and litigation in Germany and Sweden ensued. Over 30 different executions against the Russian Federation were filed and consequently only two of those actions were successful. The German court explained that the only Russian assets not protected by principles of sovereign immunity were those used for commercial purposes. In the end, Mr. Sedelmayer was able to prevail in an execution proceeding against a former KGB compound in Cologne that Russia has been renting out for commercial purposes.[4] This case shows that it is possible to attain enforcement of arbitral awards through the seizure of assets but such instances are rare. So rare that Mr. Sedelmayer is the only individual to obtain such an award against Russia. However, this method of enforcement is likely to be a successful method of receive compensation from a private party.[5]    
            The success of Russia’s current business ventures with China has the potential to do much more than simply establish partnerships between the two nations. It is a key for Russia to reopen the door to investment and trading partnerships between itself and the rest of the world. It is clear the Russia is in need of FDI to allow its energy sector to maintain its current level of outputs, exploit new sources of oil and natural gas and to remain competitive. Yet the greater point to take away from this development is that if through the partnership Russia can show the world that it is willing to respect the rights of investors and adhere to international norms then its growth potential will be much greater than simply through energy exports. Increased international investor confidence will result in greater FDI into sectors of Russia’s economy that are uncompetitive in relation to the international market. FDI will inject new technologies, new ideas and new standards into the Russian marketplace. In turn, this would revitalize the nation’s economy and allow Russia to become a diverse and more stable economic power. The Kremlin presently has an excellent opportunity to reverse the image of its investment climate. Perception is often reality and if Russian leadership can capitalize on this opportunity, it will not only provide the nation with economic stability but will improve the lives of its people.   

Sources
1. Russia China in Energy Deal, Wall Street Journal, available at http://stream.wsj.com/story/latest-headlines/SS-2-63399/SS-2-357963/

2. Статья Министра иностранных дел России С.В.Лаврова «К миру, стабильности и устойчивому экономическому развитию в Азиатско-Тихоокеанском регионе, available at http://www.mid.ru/brp_4.nsf/newsline/5F3B945C0F67ADF844257BFB002574F0

3. New York Convention on the Enforcement of Arbitral Awards, Article III available at http://www.uncitral.org/pdf/english/texts/arbitration/NY-conv/XXII_1_e.pdf

4. Cody Olson, Enforcement of International Arbitration Awards Against the Russian Federation, 22 Am. Rev. Int’l Arb. 711, 735. 

5. John W. Head, Global Business Law, 574 (North Carolina Academic Press, 3rd ed. 2012).

6. William R. Spiegelberg, 16 Am. Rev. Int’l Arb. 261, 261 (2005).



[1] Ny Convention New York Convention on the Enforcement of Arbitral Awards, Article III available at http://www.uncitral.org/pdf/english/texts/arbitration/NY-conv/XXII_1_e.pdf
[2] Id.
[3] Restatement of the Arbitration Law 
[4] Cody Olson, Enforcement of International Arbitration Awards Against the Russian Federation, 22 Am. Rev. Int’l Arb. 711, 735. 
[5] Id. 

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