Litigation - Russia

Introduction

Russian parties to international commercial disputes routinely have recourse to the state arbitrazh (ie, commercial) courts.(1) Litigation is the preferred method of resolving commercial disputes because proceedings are reasonably quick and the fee for bringing a claim is relatively low. However, international commercial arbitration is well established in Russian dispute resolution.

The Russian court system comprises courts of general jurisdiction and arbitrazh courts. The former have jurisdiction over a range of issues, including disputes between natural persons (except for commercial disputes between natural persons who are formally registered as entrepreneurs). Therefore, an application for enforcement and recognition of an arbitral award against a natural person must be filed before an appropriate court of general jurisdiction. The Supreme Court is the highest court of general jurisdiction. Each administrative member territory within the Russian Federation has its own supreme court (eg, the Moscow City Court). Below these are district courts and judges appointed to settle minor disputes.

Arbitrazh courts are competent to hear commercial disputes between registered entrepreneurs or legal entities. Thus, an arbitral award rendered against a Russian legal entity can be recognized and enforced by such a court. However, two aspects of court procedure in particular can complicate enforcement.

Enforcing Foreign Arbitral Awards against Natural Persons

On December 16 2008 the Supreme Court ruled on a case relating to the recognition and enforcement of an award issued by the London Court of International Arbitration (LCIA) against a Russian citizen.(2)

The plaintiff applied to the Moscow City Court to enforce the award and obtain a writ of execution. However, the court rejected the application on the basis of Article 135(2) of the Code of Civil Procedure. It held that in accordance with the general rule in Article 423 of the code, the application for enforcement and a writ of execution should have been filed with the appropriate district court (ie, a lower court).

The Supreme Court upheld the plaintiff's appeal, finding that the Moscow City Court was competent to hear a claim for the enforcement of an award issued by an international arbitral institution.

Article 410 of the code provides that an application to enforce a foreign court judgment falls under the jurisdiction of a mid-level court(3) at the place of the defendant's registered or actual residence in Russia (or else at the place where the defendant's property is located). The court explained that obtaining a recognition and enforcement decision constitutes a preliminary stage before enforcement under a writ of execution. Therefore, the plaintiff had been right to apply to the Moscow City Court for enforcement under Article 45. The Supreme Court ordered the lower court to rehear the application. Furthermore, it held that the lower court was the competent forum to hear the defendant's objections. If the court recognizes and enforces the award, the plaintiff will have to apply for issue of a writ of execution to a local (ie, district) court at the place of the defendant's residence under Chapter 47 of the code.

Due Service on a Legal Entity

An application for recognition and enforcement of a foreign arbitral award against a legal entity must be filed with the competent arbitrazh court. However, when seeking to enforce such an award, plaintiffs should be aware of the Russian courts' problematic approach to due service.

Arbitral institutions worldwide commonly notify parties by fax. However, the Russian courts are reluctant to recognize this as evidence of due service on the defendant for the purposes of Articles 5(1)(b) and (d) of the New York Convention. They normally require evidence that all papers were delivered to the defendant by registered mail, considering this to be a condition of ensuring that a defendant is given sufficient opportunity to choose an arbitrator and present its case. Even if requests for arbitration and a nomination of an arbitrator are sent by registered courier service, a court may consider this insufficient evidence of notification if, for example, the papers were collected by an employee of the defendant who had no authority to confirm receipt (eg, a security guard).

On December 2 2008 the Federal Arbitrazh Court for the Northwest Circuit dismissed a German plaintiff's appeal against Kaliningrad Regional Arbitrazh Court's refusal to recognize an award issued by the Federation of Oils, Seeds and Fats Associations against a Russian defendant.(4) It agreed with the first instance court that the arbitral body was not competent to hear the case, as the defendant had not received details of the supplementary statement of claim, the request to nominate an arbitrator or notice of the date of the hearing.

In order to minimize the risk of rejection on such grounds, it is advisable to use all possible means of notifying the defendant. Proof of registered delivery and fax transmission reports should be retained for examination by the court. However, the most important papers (eg, the request for arbitration, the statement of claim, the request to appoint an arbitrator and notification of the time and place of the hearing) should be served in the presence of a notary who can subsequently attest that the party at least attempted due service of the documents.

On January 20 2009 the Higher Arbitrazh Court ruled that the Moscow Arbitrazh Court should have considered all available evidence in deciding whether a defendant had been given a reasonable opportunity to present its case in an LCIA hearing for the purposes of Articles 5(1)(b) and (d) of the convention.(5) The appeal court noted that all of the available evidence of service, considered as a whole, showed that the defendant had been given a reasonable opportunity to participate in the proceedings. Therefore, the Higher Arbitrazh Court held that the LCIA award should be recognized and enforced; the first instance court was required to issue a writ of execution. The full text of this decision is eagerly awaited by dispute resolution practitioners in Russia.