Tatiana Minaeva, partner at Stephenson Harwood, tells us about the recent trends in the enforcement of foreign judgments and arbitral awards in Russia.

Over the past five years London has firmly become a major legal battleground for big Russian business disputes, creating a new wave of millionaires among the English lawyers. However, costly foreign proceedings might turn into a useless exercise for the claimants if the enforcement of judgments only leads them to Russia. This article will provide a brief overview of the current trends relating to enforcement of foreign judgments in Russia and will flag some issues that a party seeking enforcement in Russian needs to take care of, either before, or (at the very latest) at the outset of a dispute.

Although a few recent cases have demonstrated something of a positive tendency in the enforcement of English court judgements in Russia, arbitration remains the most secure dispute resolution method when seeking enforcement against assets there. The Russian Federation is a signatory to the 1958 New York Convention on the Enforcement of Foreign Arbitral Awards (“the Convention”), thus making the process of recognition fairly straightforward. Public policy violations remain the most common ground on which Russian courts will refuse to recognise or enforce a foreign arbitral award. In February 2013, the High Commercial Court of Russia (“HCC”) published clarifications directing the courts to interpret and apply this ground narrowly when considering enforcement and recognition of both foreign court judgments and arbitral awards, which is likely to result in a higher ratio of successful enforcements in Russia.

Another recent development in Russia relates to so called “forum selection” dispute resolution clauses, when a (usually foreign) lender alone has the option to choose between foreign litigation and arbitration, whereas the (usually Russian) borrower is limited only to arbitration. In a recent decision, Russian Telephone Company v. Sony Ericsson Mobile Communications, the HCC concluded that a “forum selection” dispute resolution clause was invalid as it breaches the balance of the parties’ procedural rights, thereby guaranteeing the right to justice in court. The HCC held that a party whose rights are breached by such an agreement also has the right to apply to a competent state court (in this case the Russian court), thereby assuring its right to justice on conditions equal to its counterparty. Thus we would advise lenders to think carefully before inserting such a clause in the loan agreement with Russian borrowers because of the risks of it being held to be invalid by a Russian court.

Notwithstanding the above decision in RTC v Sony, the choice of parties to submit their dispute to arbitration is generally respected by Russian courts. Other recent decisions suggest that the Russian courts inclines toward referring a dispute to arbitration even in cases when the arbitration clause refers to a particular institution’s rules without expressly naming the institution itself, or even, in the case of ad hoc clauses, where the clause is somewhat ambiguous (for example, see the recent case Bosch v. Avtosped or Amur Ship Yard v. VMF PartnerSHIP Gmbh).

Issues concerned with enforcement may become more complicated if, for some reason, the foreign party has sought a judicial resolution of its dispute rather than arbitration. Although there is a positive tendency towards enforcement of e.g. English court judgments in Russia based on the reciprocity principle (for example, see the recent case of Rentpool B.V. v. OOO Podyemnye Tekhnologii), an English “default” judgment obtained in the absence of an appearance or defence on the part of the defendant, who has not been served in accordance with the Hague Convention, will unlikely be enforceable in Russia (see, for example, Nortel Networks Ireland Limited v. Korporatsiya Uni).

Russia has made a reservation to the Hague Convention that service on a Russian party cannot be carried out by a direct method (e.g. by post or courier). At the same time the service made via the Central Authority might take as much as two years, significantly prolonging the litigation, but breaches of this procedure will have a dead-end in Russian courts even when there is evidence that the correspondence sent by a direct method was received by the defendant. Thus any non-English party would be advised to include an agency service clause in their contracts with Russian parties, providing for an address within England for service of proceedings. This will avoid the need to make a time-consuming application for service of process on the Russian party, in accordance with the Hague Convention.

Although the Hague Convention does not relate to international arbitration, there are other hidden problems here. There could be a situation when a solicitor representing a Russian defendant turns out to have no proof of representation (i.e. a valid Power of Attorney), which at the stage of enforcement provides an excellent opportunity for a defendant to challenge the enforcement in their home country. It is therefore always advisable when acting for a CIS party that the instructions come directly from an authorised individual from that party and are signed by that authorised person, usually in the form of a Power of Attorney in accordance with local laws, evidencing the retainer.

Russian litigants will continue referring their non-contractual claims to the English courts, in the form of e.g. a tortious remedy, nevertheless I expect that we will hear less about high value Russian business disputes in London’s courts, because the arena of such disputes is likely to move to the confidential world of international arbitration.

This articles represents the views of its author and not those of the Law Society.

For more information on our work in Russia, please email julie.mamou@lawsociety.org.uk