Legislation
within Russia for the enforcement of arbitral awards from international
tribunals as well as domestic tribunals comes under the Law of the Russian
Federation of July 7, 1993, No. 5448-1, “On International Commercial
Arbitration”(“ICA Law”).[1]
The grounds for non-recognition and non-enforcement of awards under Article 36
of the ICA Law are almost identical to Article V of the NY Convention. Yet the Russian Code of Procedure for the Commercial Court ("CPCC") lays out supplementary criteria that are not entirely identical to the law
under the New York Convention for the Enforcement of Arbitration Awards ("NY Convention) and the ICA law.[2]
The CPCC criteria lays out seven different scenarios in which a Commercial
Court may refuse to enforce or recognize an arbitration award. Those criteria
are as follows: (1) the decision has not yet entered into legal effect in the
country in which it was awarded; (2) there has been a lack of notice or some
other lack of procedural due process that has prevented the losing party from
presenting its case; (3) the jurisdiction of the case is entirely within the
province of a court within the Russian Federation; (4) there has been a prior
decisions rendered in the case by a Russian court regarding the same party, on
the same subject and concerning the same circumstances; (5) a matter on the
same subject between the same parties has been brought to a Russian court
before the commencement of the arbitral proceeding; (6) the period for
enforcing the award has lapsed and no extension has been granted by a Russian
court; (7) enforcement of the award would violate public policy.[3]
However, according to both Article 15(4) of the Russian Condition and Article
32 of the Vienna Convention on the Law of Treaties the NY convention – and any
other international treaty – supersedes any domestic law.[4]
The
public policy exception set forth in the NY Convention as well as the CCPA
criteria for non-enforcement of arbitral awards has provided Russian courts
with strong discretion to refuse to enforce arbitral awards. Specifically,
courts have shown little interest in enforcement arbitral awards when the
consequences would be negative for state owned enterprises, particularly when
it comes to those in the energy sector.
The judicial branches subservient relationship with the executive branch
has been exemplified in recent years by a number of cases dealing specifically
with this matter. Furthermore, numerous cases illustrate some of the
questionable reasoning used by Russian courts to justify their decision to not
enforce arbitration awards.[5]
This has resulted in some foreign investors calling into question the validity
of the nation’s legal system.
For
example, in Konditerskaya Fabrika A.V.K v. AKV-Jug the Court cited public
policy as the justification for not enforcing an arbitral award. The Court
explained that recovering an amount in United States dollars from the debtor
would run counter to public policy because it would be in violation of Russian
foreign exchange law.[6] Another
example of Russian courts utilizing the public policy exception to invalidate
an arbitration award came from United World Ltd. Inc. V Krasny Yakor. In that
case, a ruling from the Regional Commercial Court in Nizhny Novgorod was
overturned by the court of causation stating that because the award of $37,600
would push Red Anchor into bankruptcy it would be counter to public policy to
enforce the award.[7]
Aside from public policy concerns, Russian courts take a very literal approach
to procedural rules and even a minor misspelling could render an award
unenforceable. In Sophocles Star Shipping Inc. v Technopromeport the Moscow
Arbitrazh court refused to enforce an award because there was a mistake in the
spelling of the claimants name in the contract and the award itself.[8]
While
the aforementioned cases might seem trivial and only illustrative of outliers
such instances nevertheless show that predictability and consistency seems be
lacking in the Russian court system. Furthermore,
such cases prove that Russian courts will be unlikely to enforce an arbitral
award when the case involves substantial government interests in the energy
sector. What seems to be the greatest concern for foreign investors are the
attacks waged by the Kremlin against foreign businesses after the highly
publicized Yukos cases. Russia has successfully nationalized much of its energy
sector at the expense of foreign investors. In 2006, the Russian government
revoked Royal Dutch Shell’s (Shell) company license to develop the Sakhalin oil
fields citing environmental violations. The Company was required to hand over
control of its $22 billion project in the world largest liquefied gas
development to Gazprom.[9] A
similar instance occurred in 2007 when British Petroleum had to sell its 62.9%
stake in the world’s largest natural gas field Kovykta for a pittance due to
alleged environmental violations.[10]
Under such circumstances, companies will have to seek compensation through the
seizure of Russian assets abroad.
[3] Id at 275.
[4] Id; Vienna
Convention on the Law of Treaties, Article 32, available at http://www.worldtradelaw.net/misc/viennaconvention.pdf.
[5] .Robert C. Bird, Enforcement of Annulled Arbitration
Awards: A Company Perspective and an Evaluation of A "New" New York
Convention, 37 N.C. J. Int'l L. & Com. Reg. 1013, 1047 (2012).
[6] Elliot Glusker, Arbitration Hurdles Facing Foreign
Investors in Russia: Analysis of Present Issues and Implications, 10 Pepp.
Disp. Resol. L.J. 595, 608 (2010).
[7] Id.
[8] Id. at 610.
[9] Id. at 611.
[10] Id.
No comments:
Post a Comment