The Supreme Arbitrazh (Commercial) Court of Russia recently issued two practice reviews of interest to parties likely to be involved in arbitration with a Russian connection. The reviews are likely to lead to a more restrictive interpretation of the public policy defence to enforcement and reinforce the powers of the Russian courts to grant interim measures. What are the implications for public policy defence and for the availability of interim measures?
On April 1, 2013, the Supreme Arbitrazh Court published a practice review intended to limit abuse of the public policy defence to the enforcement of foreign arbitral awards. This included a new definition of public policy:
[P]ublic policy means the fundamental legal principles that are most imperative, universal, of special social and public significance, and that form the core for the state’s economic, political or legal systems. In particular, this includes actions expressly prohibited by the super-mandatory provisions of the laws of Russian Federation (article 1192 of the Civil Code of the Russian Federation); and if such actions prejudice the sovereignty or security of the state, affect large social groups, or violate the constitutional rights and freedoms of individual.
The practice review confirmed that the application by the tribunal in its award of foreign law in the absence of similar, comparable provisions in Russian law does not amount to a violation of Russian public policy.
The previous definition of public policy, articulated by the courts in enforcement cases and in cases on the setting aside of arbitral awards, was very broad. It effectively meant that enforcement decisions turned on whether the foreign arbitral award was compatible with general requirements of Russian law. The narrowing of the definition of public policy is therefore welcome as it will limit the scope for non-enforcement of awards.
The Court also confirmed the following:
- Application of the public policy exception to the enforcement of an award does not require and should not lead to a full review of the merits of the case.
- Corruption (including commercial bribery) is contrary to Russian public policy. This was confirmed by reference to a case where the court found that enforcement of an award of certain penalties provided for under an agreement induced by a commercial bribe was contrary to Russian public policy.
- The award of excessive damages may be contrary to Russian public policy in circumstances where the damages exceed the amount which was reasonably foreseeable at the time the contract was concluded; or where there was an abuse of the principle of freedom of contract when negotiating the contractual liquidated damages. This signals that awards of punitive damages will probably not be enforced in Russia.
- The independence and impartiality of arbitrators is a matter of procedural public policy and may be a ground to refuse the enforcement of an award.
- If a party fails to avail itself of other mechanisms to challenge the arbitration procedure, it will not be allowed to raise such matters to resist enforcement.
In 2010, the Supreme Arbitrazh Court in the case Edimax Ltd v. S.P. Chigirinsky (case No. А40-19/09-ОТ-13) ruled that Russian arbitrazh courts generally have powers to grant interim measures in support of foreign arbitration proceedings. The Court’s June 26, 2013 practice review on cases involving foreign parties reconfirmed these general powers of the Russian arbitrazh courts at the place of arbitration, place of incorporation or residence of the debtor, or place of the debtor’s property to grant interim measures.
It also sets out further conditions to be established: the court should check the validity of the arbitration agreement as well as whether the dispute is arbitrable. The Supreme Arbitrazh Court also recommended that the court take into account whether an arbitral tribunal had ordered interim measures and whether the respondent had complied with these measures voluntarily.
The requirement to consider whether the dispute is arbitrable is likely to entail the greatest difficulty for applicants for interim measures. This whole area – whether certain disputes are appropriate for arbitration – remains a rather unsettled issue in Russia. Corporate disputes, for example (which may include disputes over the payment for shares), have been considered non-arbitrable by some courts.
Author: Andrey Panov is an associate in the Moscow office of Norton Rose Fulbright.