September 2012: Russia Litigation Update

by Quinn Emanuel Urquhart & Sullivan, LLP
Contact


Overview: Dispute resolution through international arbitration is rapidly developing in Russia, although not quite at the pace set by the leading international arbitration centers of Europe, such as London, Paris, and Stockholm. All the basic pieces are in place: the Russian Federation is a party to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, the 1961 European Convention on International Commercial Arbitration, and even the seldom used 1972 Moscow Convention on the Settlement by Arbitration of Civil Law Disputes Arising from Relations of Economic, Scientific and Technical Cooperation. In July of 1993, Russia adopted its own law “On International Commercial Arbitration” (“ICA”), which essentially mirrors the UNCITRAL model law.

These are certainly positive developments, but hurdles must still be cleared on the path to Russia’s full acceptance of international arbitration as a global dispute resolution mechanism. Court, decisions, and even statements of high-ranking Russian officials, reflect a cautious—and in some cases an internally controversial—attitude towards arbitration of which practitioners and clients should be aware.

Arbitrability: Significant developments have occurred on the subject of which disputes are arbitrable in the first instance. Generally, Russian law recognizes that all commercial and other civil law disputes (with limited exceptions) may be arbitrated; however, public law cases, such as bankruptcy and tax matters, remain within the exclusive province of the courts. However, recent court decisions have sent a disturbing message on arbitrability. In 2011, the Constitutional Court in ZAO Kalinka Stockmann v. Smolensky Pasazh, issued a decree clarifying that only domestic arbitral tribunals could resolve real estate disputes. And earlier this year, a three-judge panel of the Supreme Arbitrazh Court in the Maximov v. NLMK confirmed that the lower courts had correctly set aside an award of the International Commercial Arbitration Court at the RF Chamber of Commerce and Industry (“ICAC”) on the basis that a dispute arising out of non-payment under a sale-purchase agreement of shares in a Russian company, as well as other corporate disputes, could not be resolved by arbitration; worse, the decision includes a pronouncement that corporate disputes in general are not arbitrable in Russia. Both cases are disturbing from an international arbitration perspective: although the real estate decision would generally be applicable to real property in Russia, it certainly is possible that a foreign party could be involved in such a dispute (for example, in a real estate development deal with international investors). The same is obviously true regarding disputes between corporations—indeed, the vast majority of international arbitration disputes today are between corporations, partnerships, or similar legal entities.

Public Policy: Russian courts also seem to have adopted unique grounds for vacating awards on the grounds of public policy. The New York Convention of course recognizes a violation of “public policy” as grounds for refusing to enforce an international arbitration award. But case law around the world has interpreted this clause very narrowly, limiting it to behavior that offends fundamental principles of morality (see e.g., Parsons & Whittemore Overseas Co. v. Societe Generale de L’Industrie du Papier (“RAKTA”), 508 F.2d 969, 973 (2d Cir. 1974). As such, vacatur petitions on grounds of “public policy” under the Convention are seldom made and even more rarely granted.

Russia is falling into line with this reasoning, but the road has not been easy, as demonstrated in the remarkable case of Stena RoRo v. Baltiisky Zavod, —decided September 13, 2010—by the Supreme Arbitrazh Court. In Stena RoRo, the Court annulled the lower courts’ decisions that refused recognition and enforcement of an international arbitration award issued under the arbitration rules of the Swedish Chamber of Commerce based on a “public policy” rationale that was defined not in terms of morally reprehensible conduct but as an award that would lead to bankruptcy of Baltiisky Zavod (a strategic Russian enterprise), thereby jeopardizing the interests of Russia in violation of public policy. However, in righting the Russian “public policy” ship, the Supreme Court did somewhat more than it had to, holding that the question of the validity of the contracts had been considered by the arbitral tribunal and could not be reconsidered at the enforcement stage by the state court. Obviously, this holding raises its own controversy—i.e., whether Russia will allow courts to entertain any vacatur petition, either under the New York Convention or Russian law, which seeks to reexamine the validity of contract decided by the arbitral tribunal, even if the facts fit under one or more of the recognized grounds for vacatur.

Interim Measures: In line with virtually all sets of international arbitration rules, Russian law provides for the possibility of granting interim measures in support of a pending arbitration in situations where the court believes that a failure to do so could render the enforcement of the award impossible, substantially complicate enforcement, or cause the applicant to incur substantial damage. Happily, recent court decisions on this issue are much more mainstream, granting interim measures in support of international arbitration and, in one case, an attachment of assets. See Edimax Limited v. Shalva Chigirinsky (2010) (Russian Arbitrazh court granted interim measures to support Enka v. KMKI Dobrininskiy (2011) (court issued pre-award attachment of land lease rights over a state-owned land plot in support of a pending ICC construction arbitration).

Impartiality of Arbitrators: In 2010, the RF Chamber of Commerce and Industry adopted Rules on Impartiality and Independence of Arbitrators (“Rules”) based on, inter alia, the IBA Guidelines on Conflicts of Interest in International Arbitration. While the court practice on application of the Rules has yet to be established, the Rules have already become a ground for setting aside an ICAC award (Ruling of Supreme Arbitrazh Court of 30 January 2012 in Maximov v. NLMK). However, the Court once again seems to have overshot the mark. Specifically, the Court found that the failure by the arbitrators to disclose that they were employees of the same education and scientific institutions as experts who provided legal opinions to the tribunal cast doubt on the impartiality of the arbitrators sufficient to vacate the award, which is as aggressive a position on arbitrator bias as that taken by any court.

Mediation: In addition to arbitration, another positive signal of the overall development of alternative dispute resolution mechanisms in Russia is the January 1, 2011 adoption of the set of rules aimed at regulating mediation. It includes the Federal Law “On Alternative Procedure of Dispute Settlement with Participation of Mediator (Mediation Procedure)” and a separate set of amendments to the Russian procedural laws designed to incorporate mediation into the already existing procedures. It is promising that the law covers a broad range of disputes—civil, labor (except for collective employment disputes), and family law, except when such disputes affect public interests or the rights and legitimate interests of third parties that are not participants in the mediation.

All told, the Russian Federation is getting there. Movement toward fully embracing international arbitration appears to clearly be on the horizon—perhaps the fairly immediate horizon—but parties may not be able to take full comfort from an arm’s length negotiated international arbitration clause until court decisions on arbitration issues become more predictable.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Quinn Emanuel Urquhart & Sullivan, LLP | Attorney Advertising

Written by:

Quinn Emanuel Urquhart & Sullivan, LLP
Contact
more
less

Quinn Emanuel Urquhart & Sullivan, LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.