French Judgment Unenforceable Because of Lack of Legal Certainty

Kaliningrad region and Lithuania

In January 2015 the Russian Supreme Court refused to enforce the Resolution of Paris Appellate Court No. RG 09/19535 dated 18 November 2010 on the collection of EUR 150,000 from the Government of Kaliningrad Region for the Republic of Lithuania. The case highlights the importance of a foreign judge giving reasons in a clear way in order for the decision to be enforceable in Russia.

Facts of the case

This case had a long history before it appeared before the Russian Supreme Court. The Kaliningrad Region (the “Region”) entered into a loan contract with a German bank that assigned its rights under the contract to a Cypriot company (the “Company”). After the Region failed to pay the loan the Company filed a claim at the LCIA and applied at the Vilnius district court to obtain an interlocutory injunction. The court seized property from the Region.

Later the LCIA held that the Region was obliged to pay the main debt, interest and fines and arbitration costs to the Company. The Region did not comply with the award and the Company applied for its enforcement in the Appellate Court of the Republic of Lithuania which granted it by its decision upheld by the higher court. The Lithuanian court issued a writ of execution and foreclosed the Region’s property.

The Region initiated arbitration against Lithuania under the ICC Rules on the ground that it is an investor under the Agreement on the promotion and reciprocal protection of the investments dated 29 June 1999 between the Russian Federation and the Republic of Lithuania and that its investments had been illegally expropriated.

The ICC panel rejected the claim due to lack of jurisdiction of the ICC. The Region applied to the Paris Appellate Court to set aside the award on jurisdiction but the Court rejected the claim. Furthermore, the Court held that the Region as a “losing party” must pay EUR 150,000 to the Republic of Lithuania under article 700 of the French Civil procedure code. Article 700 of the French Civil procedure code establishes the general rules of distribution of court expenses between the parties.

Presumably the court meant that the losing claimant shall pay to the winning respondent legal expenses in the specified amount. However, as follows from the Supreme Court judgment, the French court only mentioned this in a summary way, incidentally, without any further explanations or calculation.

As the Region did not fulfil the decision of the Paris Appellate Court, the Republic of Lithuania filed an action in the Russian courts. The courts of the first and second instances rejected the claim on the ground that the decision was not final and was self-contradictory.

The Supreme Court held, first of all, that the conclusion of the two lower courts were wrong concerning the nature of the contested decision. It held that if “the judgment in question is not challenged …, the judgment is final and enters into force”. What is more, the Supreme Сourt held that the judgment is final and the courts wrongly regarded it as interim.”

However, the court referring to article 6 of 1950 Convention for the Protection of Human Rights and Fundamental Freedoms held that the judgment of the Paris Appellate Court failed to “meet the requirement of legal certainty: the court could not establish the nature and amount of the sum, awarded by the foreign court“.

It also stipulated that, while enforcing the judgment that does not conform with the principle of legal certainty, it is impossible to ensure the balance of the parties’ rights and to decide whether or not the grounds for rejection of recognition and enforcement of a foreign judgment exist. In particular, a judgment must be legally certain so that it is possible to check whether or not a Russian court has exclusive competence to hear the case and also whether the foreign judgment complies with Russian public policy. 

All in all, the judge of the Supreme Court refused to transfer the case to the Presidium of the court. Consequently, the decisions of the lower courts remained in force.

Legal significance

Although at first sight this decision may seem pessimistic for those who are going to try to enforce foreign judgments in Russia, on a closer examination it is not quite so. It follows from the Supreme Court judgment that it would likely have enforced the award but for its vague wording and what was deemed by the court as lack of proper legal reasoning in the award.

It is also worth noting that, in upholding the judgments which refused the enforcement, the Supreme Court referred to the European Convention on Human Rights, mentioning the principle of a fair trial and legal certainty. Russian court practice relies on this principle (for example, Resolution of Constitutional Court of the Russian Federation No. 2-P dated February 5, 2007 contains a definition of the principle).

To sum up, one should be aware that in order to enforce a monetary judgment or award in Russia, the decision should contain a meaningful rationale and explanations for each amount adjudged, including legal expenses.

Dmitry Davydenko, Natalia Ivanova

Muranov Chernyakov & Partners law firm

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