Applicability of Dispute Settlement Procedures to the Enforcement of Arbitral Awards in Russia

1Throughout the past year, courts in Russia have struggled with the applicability of dispute settlement procedures to the enforcement of arbitral awards. As a result, uncertainty regarding the matter has sometimes produced an inconsistent judicial approach.

In a decision on 20 March 2017, the Supreme Court of the Russian Federation (the Court) provided clarity to these situations. The Court declared that it is unnecessary for a party to these proceedings to observe a so-called ‘pre-filing’ stage prior to filing an application for the enforcement of the arbitral award to the commercial court.

Mandatory pre-filing stage in the Russian commercial courts

In 2014, the Supreme Court of the Russian Federation suggested amendments on the pre-filing dispute settlement procedure to the Commercial Procedure Code (‘the Code’). Since 1 June 2016, these amendments have become effective, which means that a plaintiff in a state commercial court has to comply with this procedure before going to court.

At this stage, the plaintiff must first send a notice of complaint to the prospective respondent. If, after thirty days, the respondent fails to satisfy the complaint or the parties do not reach an amicable settlement, the plaintiff may file a claim to court. Apparently, this novelty represents a useful tool for parties and encourages them to resolve the dispute amicably.

The Code provides for a list of exceptions to this rule relieving certain categories of claimants from the mandatory thirty-day pre-filing requirement. Specifically, the Code provides that bankruptcy claims, corporate claims, and appeals of arbitral awards all comprise claims exempt from the thirty-day pre-filing requirement.

However, this list of exceptions does not include claims for the enforcement of arbitral awards. This has confused the courts and, consequently, has led them to taking conflicting views regarding a plaintiff’s obligation to observe the mandatory thirty-day pre-filing requirement. In fact, the courts have frequently imposed this requirement on claims and have refused to enforce arbitral awards based solely on the claimant’s failure to send a notice of complaint to the respondent

Overview of the enforcement of arbitral awards in Russia

The enforcement of arbitral awards is a specific procedure enshrined in the Code. Parties must go to court if the respondent fails to voluntarily satisfy an arbitral award. Commercial courts enforce arbitral awards and thus assist a plaintiff to obtain awarded assets. In fact, courts may not consider the underlying dispute on the merits since it has already been resolved by arbitration.

The court’s role consists of examining arbitral proceedings from the procedural standpoint, and if no violations are found, enforcing the arbitral award. Grounds for refusal to enforce the awards are the same as those stated in the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. The plaintiff has to make sure that the application for enforcement complies with the rules of the Code. The court can return the claimant’s application for enforcement if:

(a) the application for the enforcement does not comply with formal requirements to the application; or

(b) the claimant is in breach of the jurisdictional rules and files an application to the wrong court.

These grounds are construed as exhaustive, which means that court should not expand on these grounds for refusal for the purpose of refusing consideration of applications for the enforcement of arbitral awards.

Courts tend to expand the grounds for refusal to consider applications for the enforcement of the arbitral awards

Some courts have an inclination to place the proceedings for the enforcement of the arbitral award on the same footing as considering ordinary claims (e.g. to recover money). In particular, they believe that mandatory pre-filing dispute settlement procedure applies to the award enforcement proceedings in the same way as to any ordinary claim.

Remarkably, in a recent decision on 21 July 2016 (JSC “Nauchno-proizvodstvennaya kompaniya Katran” v. LLC “Perviy Aptekar”), Moscow Commercial Court refused to enforce the arbitral award of the Commercial Arbitration Court in Moscow referring to the plaintiff’s failure to observe the mandatory pre-filing stage. The court of cassation overruled this decision because the enforcement procedure for the arbitration awards in the Code does not provide for the obligation to follow the pre-filing stage.

Furthermore, the court ruled that the court is not competent to consider the dispute between parties since the dispute has already been resolved and parties have got an arbitration award. In a decision on 21 July 2016 (LLC “Avtoparitet v. LLC “Glavtechnostroy”) the court of cassation came to the same conclusions reversing the decision of the Moscow Commercial Court to refuse to enforce the arbitration award in plaintiff’s favor.

Some commercial courts in other regions have tendency to misinterpret the rules requiring pre-filing dispute settlement procedure as well. In case OJSC “Sberbank” v. Padei Nataliya Ensunovna, the Commercial Court for Vladivostok denied to enforce the arbitration award in Sberbank’s favor. The appellate court quashed this decision referring to the absence of any requirements to show the court that a plaintiff observed a pre-filing in the Code.

Supreme Court clarification – an end to the misinterpretation of the law

In its recent decision of 20 March 2017 (PJSC “Sberbank” v. LLC “Torgoviy Dom ZAT”),  the Supreme Court gave a full and comprehensive reasoning as to why a plaintiff is not required to provide the court with any proof that he has complied with rules on out-of-court attempts to settle a dispute prior to going to court.

The decision explained that an arbitral tribunal is fully competent to resolve a dispute referred to arbitration by the parties. By choosing arbitration, parties explicitly demonstrate their intent to exclude any other out-of-court means of dispute settlement. The fact that an arbitral tribunal renders an award proves that the parties had a dispute that they failed to settle amicably. If the arbitral tribunal considers a dispute and renders an award, it means that the dispute has been finally resolved.

Should the award remain unsatisfied, the plaintiff’s next option is to file a request to the commercial court to get an arbitral award enforced. Importantly, when filing a request for the enforcement of an arbitral award, the applicant does not instigate new court proceedings, but, instead, asks the commercial court to assist in enforcing the award that finalizes resolution of the dispute. In the Supreme Court’s opinion, a different approach would unreasonably augment hearing of the case and impose obligations contrary to the merits of the plaintiff’s request.

Concluding remarks

It is surprising that the Supreme Court needed to intervene and to give a guiding ruling on interpretation of the pre-filing stage and the situations when it is applicable. These cases demonstrate that some courts tend to use a strict and formalistic approach when applying law to a particular issue.

These courts still expect detailed legislative guidance as well as direct instructions regarding the application of rules. Even when the general principles of law, rules of logic and common sense dictate to apply requirements of the Code differently to claims (ie the claimant asks the court to consider a dispute) and requests to assist in enforcing the award (i.e. the dispute has already been resolved and the applicant needs enforcement assistance from the court), courts prefer to ‘play it safe’ and wait for the exact wording in the Code.

The Supreme Court decision may lead to discussions on amending the Code and listing all situations when the pre-filing stage does not apply. However, such amendments seem excessive because only disputes that need to be resolved involve going through the pre-filing stage (with certain exceptions set out in the Code). Moving forward, a greater efficiency would be achieved if courts actually look into the nature of the case and ascertain whether the pre-filing stage is indeed applicable.

In a broader sense, although the Supreme Court’s position is directed toward domestic arbitral awards, the same approach and line of arguments should work for the enforcement of the foreign arbitral awards and court decisions.

Olga Putushkina,

Attorney-at-law (Russia), Tsukanov Ponomaryova & Partners

Joseph Overstreet,

J.D., Moritz College of Law (Ohio State University)

About the Author:

Olga Putushkina is an attorney qualified in Russia. She holds an LLM degree from the Moritz College of Law, Ohio State University, and has a concentration in the Alternative Dispute Resolution. As a part of the ADR program at Moritz, she mediated cases in courts and successfully resolved conflicts via out-of-court processes. Olga had been interning at CM Partners in Boston, MA, which is a global leader in negotiation, communication and strategic leadership management. She has a long-standing interest in international arbitration and international litigation and takes part in various conferences and discussion in this area.

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