In late December 2019, the Plenum of the Russian Supreme Court published a Resolution*, which clarifies for the first time issues concerning Russian courts and their role in commercial arbitration procedures.
These clarifications should help harmonise the Russian state courts’ approach to arbitration matters and increase legal certainty and transparency. This can therefore be viewed as a positive development for business.
Below you will find a review of the key aspects of the Resolution, the most notable being the Court’s definition of "public order" and guidance concerning when state courts can apply this concept.
The Resolution clarifies court jurisdiction in relation to specific types of disputes.
For example, an application for the issuance of an order of execution or recognition and enforcement of an arbitral award against individuals and legal entities is to be submitted to the court of general jurisdiction in respect to all debtors (if separate claims are not possible).
An application for interim measures in connection with arbitration proceedings is to be filed with the court at the location where the arbitral tribunal, the debtor or the debtor’s property is based.
An application for preliminary interim measures must be filed at the location of the claimant, the location where the debtor has funds or other property, or where the violation of the claimant’s rights occurred.
The Resolution clarifies what constitutes a non-arbitrable dispute (i.e. disputes that cannot be submitted to arbitration).
In particular, non-arbitrable disputes include those arising from agreements between professional financial market participants (i.e. Forex dealers) with individuals who are not entrepreneurs. This also applies to disputes arising from consumer credit agreements (if the arbitration clause is included in the agreement prior to the emergence of grounds for filing the claim) and disputes arising from public-law relations (e.g. relating to tax, customs, public finance).
An arbitration agreement can be concluded by an exchange of emails provided the messages meet the requirements of Russian law (such as containing the necessary conditions of such an agreement).
Principles of validity and enforceability
The jurisdiction of an arbitral tribunal to resolve a dispute arises from an arbitration agreement which must be valid, enforceable and has not been terminated.
If there are any doubts as to the validity or enforceability of an arbitration agreement, the courts must assess both its wording and other evidence that could establish the actual will of the parties (including the negotiations and correspondence before the conclusion of the agreement, and the parties’ subsequent conduct).
Choice of an arbitrator as a court’s function in assisting arbitral proceedings
When selecting arbitrators, courts must take into account the requirements imposed on arbitrators by Russian law and under the parties’ agreement. This is to ensure the appointment of independent and impartial arbitrators.
To select candidates to serve as an arbitrator, the court may use the lists of recommended arbitrators held by permanent arbitration institutions.
Courts can take interim measures in respect to arbitrations conducted both in Russia and abroad.
When dealing with the issue of interim measures, the court must check that the arbitration agreement is valid and enforceable. It must also find out whether it is possible to submit the dispute that arose between the parties to arbitration (whether the dispute is arbitrable).
If interim measures have been ordered by an arbitral tribunal, no writ of execution can be issued in Russia.
For the first time at this level, the Plenum provided a definition of public order, namely:
“Public order is understood as fundamental legal principles having the highest imperative and universal character, a unique social and public significance, and forming the basis of the economic, political and legal system of the Russian Federation”.
As a result, the courts can set aside or refuse to enforce arbitral awards on the ground of breach of public order only when the following two criteria are met:
- there is a violation of the fundamental principles that form the basis of the economic, political and legal system of the Russian Federation; and
- such a violation can result in any one of the following:
- infringing the sovereignty or security of the state;
- affecting the interests of a large social group; or
- violating the constitutional rights and freedoms of individuals or legal entities.
No violation of public order will be found where:
- an arbitral tribunal applies foreign law rules that have no equivalent in Russian law;
- the respondent did not take part in the arbitration proceedings; or
- the debtor does not object to the forced execution of the arbitral award.
The above explanations of the Russian Supreme Court represent the finishing touches to the arbitration reform that has been underway since 2016.
These commentaries will undoubtedly be followed in disputes relating to the recognition and enforcement of arbitral awards and when applying to state courts for assistance in connection with arbitration proceedings.
In particular, the Court entrenches the definition of “public order” as well as the rules when it can be used as a ground to oppose enforcement. This should finally remove the long-standing legal uncertainty regarding this notion, which had existed for many years.
As a result, more foreign arbitral awards are likely to be recognised and enforced in Russia.