Liquidation of award debtor no obstacle to enforcement of arbitral award (Russian Supreme Court)

In Case No. 310ES155564, the Judicial Chamber of the Supreme Court of the Russian Federation considered whether the fact that an award debtor was subject to insolvency proceedings prevented enforcement of an arbitral award against it.

Maxim Kulkov (Partner) and Elena Zaltser (Associate), KK&P

The Judicial Chamber of the Supreme Court of the Russian Federation (Supreme Court) has held that insolvency proceedings involving an award debtor do not, of themselves, preclude the enforcement of an arbitration award in Russia.

Vitorio Shipping Company (Cyprus) tried to enforce an award against MetalMarket LLC (Russia), rendered in ad hoc arbitration in London.

On 18 December 2014, the award was recognised and enforced by the Commercial Court of Kaluga Region. Subsequently, on 27 February 2015, the Commercial Court of the Central Region reversed the decision of 18 December and remanded it for retrial, reasoning that the Commercial Court of Kaluga Region did not take into account the fact that MetalMarket was the subject of liquidation proceedings and that the court had to apply special rules for creditors (such as time periods to demand inclusion of debt).

The Supreme Court held that the approach of the Commercial Court of the Central Region was erroneous, since it meant that it would be impossible to recognise and enforce an award against an award debtor in liquidation. This could place award creditors at a disadvantage, as compared with creditors with a court judgment in their favour. The Supreme Court also noted that, when applying the public policy ground for refusing to recognise and enforce an award, the court should check whether the award violates rights of other creditors of the award debtor. As the Commercial Court of Kaluga Region did not find such violations, the award can be recognised and enforced.

Therefore, foreign award creditors have a right to enforce and recognise their awards notwithstanding the liquidation process of the award debtor. Moreover, they can only be registered as creditors in the liquidation process of an award debtor if their award has already been duly recognised and enforced.

The decision can be regarded as a positive one for arbitration since it increases the number of cases when an award can be recognised
and enforced.

Case: No. 310ES155564 (Russian Supreme Court).

This article has previously been published by Practical Law Arbitration on 02 September 2015.