Practical Law has published an article by Maxim Kulkov and Elena Zaltser

Commercial Court of Moscow recognises and enforces an arbitral award without applying the New York Convention.

The Russian Supreme Court has held that, where a bank is undergoing a “rehabilitation” procedure (a type of bankruptcy procedure employed to avert insolvency), any related proceedings must be brought before a commercial court, and not in arbitration.

In addition, to prove the validity of an agreement to arbitrate, the original agreement must be submitted in evidence. (Deposit Insurance Agency v Bank Trust and Phosint Limited, Case No. A40-117039/2015.)

The Commercial Court of Moscow has recognised and enforced a London Court of International Arbitration (LCIA) consent award by applying principles of reciprocity and international comity, instead of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (New York Convention).

The claimant applied for enforcement of a consent award against the respondent which provided for payment of a debt under a credit agreement. The court reasoned that “in absence of an international agreement between the Russian Federation and the state where a judicial decision was made, such decision shall be enforced on the basis of principles of reciprocity and international comity”. The court substantiated its reasoning by referencing case law regarding the enforcement of foreign court judgments. The ruling did not reference the New York Convention.

This is not the first time that Russian courts have failed to accurately apply arbitration law. In Case 310-ES15-7374 the Supreme Court corrected judgments of lower courts that had applied the Kiev Treaty on Settlement of Commercial Disputes 1992 and the Minsk Convention on Legal Aid and Legal Relations in Civil, Family and Criminal Cases 1993, which are only applicable to recognition of foreign court judgments (see Legal updates, Erroneous application of conventions by state court in recognition of arbitral award (Russian Commercial Court) and Russian Supreme Court holds that Minsk and Kiev Conventions do not apply to arbitration).

Given that the incorrect application of law is a common ground for challenging decisions, cases such as this one may result in the reversal of rulings regarding the enforcement of awards potentially placing additional legal costs on the parties to the dispute and eliminating the positive effect of recognition.

Applicants for enforcement of international arbitral awards in Russian courts are strongly advised to focus on the application of the New York Convention, both in their enforcement application and in the draft court ruling which they submit to the court.

Case: North Financial Overseas Corp v Trellas Enterprises Ltd, Case No. A40-20248/16 (Commercial Court of Moscow).

This article has been published by Practical Law Arbitration on 26 of October, 2016.