The Arbitration court (commercial court) of the city of Moscow has ruled to enforce a judgment of a New York State District Court in the absence of a treaty between Russia and the USA covering issues of legal assistance/mutual recognition and enforcement of judgments.

In many instances when foreign parties contract with the Russian companies, foreign law is chosen to govern such contracts and non-Russian courts and arbitration institutions are chose to resolve disputed arising out of or in connection with such contracts. However, if a foreign counterpart in such contract intends to sue the Russian party, it must always remember that in order to recover the amounts awarded or adjudged, (unless the Russian party has sufficient assets abroad), it will have to  seek recognition of the arbitration award or judgment from a Russian court. By itself,  procedure of recognition and enforcement is formal and rather simple.

Enforcement of arbitration  awards, in majority of cases, is effected in accordance with the 1958 NY Convention[1], which is directly applied; enforcement of arbitration awards is, therefore, relatively easy and the number of successful recognitions is significant. However, as far as the enforcement of foreign judgments is concerned, the Russian procedural law  provides that foreign judgments can be recognised and enforced in Russia “if recognition and enforcement of such judgements is provided for by an international treaty of the Russian Federation or a federal law” (paragraph 1, article 241, Code of Arbitration procedure). In most cases,  the courts still apply formal interpretation of this  provision and consider that the recognition and enforcement is only possible,  if there is exists an international treaty betweenRussian Federation and a relevant state which expressly provides for recognition and enforcement of judgments.

There have been examples of a less formal approach to that procedural rule in practice of the Russian courts, which lead to successful enforcement of judgments of the Dutch and English. In these cases, the Russian judges based their decisions  on international conventions and treaties which stipulate an individual’s right to a fair and public consideration of his/her case by an independent and unprejudiced court, in particular, on  Convention for the Protection of Human Rights and Fundamental Freedoms of November 4, 1950 (paragraph 1 article 6) and considered  that by recognising and enforcing  a judgment passed by any court of the  state which is party to that Convention, the Russian would uphold the relevant provisions of the Convention . Also, in 1994 theRussian Federationentered into the “Agreement on Partnership and Cooperation Establishing a Partnership between theRussian Federation, on the one part, and the European Communities and their Member-States, on the other part” with a number of European countries. Under this agreement, each party undertook to provide  for the other party’s individuals and legal entities free access to the competent courts in the same regime as is applied to the nationals of such party and a formal refusal to enforce foreign judgments due to the absence of a specific treaty on issues of enforcement was considered to be a violation of the individual’s’ fundamental right of access to fair trial, which is also guaranteed by article 46 of the Russian Constitution.

It must be pointed out that United States are not a party to either one of the above-mentioned treaties instruments and there is no bilateral treaty between the Russian Federationand the UScovering issues of recognition and enforcement. As far as it is known, previously there have been no cases of enforcement of judgments of the UScourts on commercial matters in the Russian Federation. However, in November 2011, the Arbitration Court of the city of Moscowfound it possible to enforce a USjudgment on the grounds of the principles comitas genitum and reciprocity. By the present moment, the defendants lost their right to appeal and thus, the original judgment stood.

The case was as follows. AUSshipowning company entered into an insurance contract with a Russian insurer. The contract provided for US jurisdiction. Upon occurrence of the insurance event, the insurer refused to pay and the shipowner filed a suit against it to the  District Court of the Southern District of New York. Defendant waived the summons and did not appear before the court. A default judgment for recovery of loss and case related expenses was rendered against the defendant . As the Russian insurer had no assets in theUnited States, the foreign shipowner sough enforcement of the judgment inRussia.

The principal argument of the representatives of the claimant was that Article 15 of the Constitution of the Russian Federationprovides that the commonly recognized principles and norms of the international law form a part of Russia’s legal system. Comity (comitas genitum) and reciprocity are recognized principles of international law. The said principles are not specifically codified in the Russian procedural law, but because they are indeed customary and recognised principles of international law, the Russian court are required to follow them.

The principle of reciprocity is codified in Russian substantial law, in the Civil Code (book on international private law). Article 1189 stipulates that reciprocity shall be deemed to exist unless the contrary is proven. This is an important provision,  for parties seeking enforcement of foreign judgments, as the very obvious interpretation is that it is the defendant’s burden to prove the absence of reciprocity in issues of enforcement between theUnited StatesandRussia.

Article 244 of the Code of Arbitration Procedure provides for a comprehensive list of grounds for refusing recognition and enforcement of foreign judgments. This list includes: (1) non-entry of the foreign judgment into force, (2) undue summoning of the defendant and its inability to present his position, (3) the dispute in question  being in the exclusive jurisdiction of the Russian courts, (4) existence of a judgment of the Russian court in the same dispute or the same dispute being under consideration at the of a Russian court, provided that Russian proceedings commenced earlier , (5) recognition having become time barred (3 years), and (6) enforcement of the particular foreign judgement being in violation to the public policy in the Russian Federation. , Absence of an international treaty is not on the list of grounds for recognition.     On the basis of this argument, this the court was less formal in interpretation of article 241, which provides for recognition and enforcement in case of existence of a relevant international treaty, but also makes reference to comity and the presence of reciprocity. The defendant was required  to provide evidence that it is impossible to enforce Russian judgements in theUSas the country of origin of the judgment. As the defendant failed to do so, the Court ruled to recognise and enforce the judgment of the Southern District of New York.

Even though the amount of the judgment in the case at hand was relatively small, around USD 560,000, the importance of its recognition inRussiashould not be underestimated. The enforcement judgement in itself lays the foundations of practice of reciprocity between the courts of Russia and the US; it also marks a certain change of attitude to foreign judgments from the side of the Russian court system and finally, it encourages those who may be seeking to enforce foreign judgments in Russia but have been prevented from it by the absence of the bilateral treaty which directly provides for such possibility.

Jurinflot International law firm

34/8 Marxistskaya Ul.,Moscow109147,Russia

Tel.: +7-495-792 5701; fax: +7-495-792 5700; e-mail: jurin@jurinflot.ru

In case of any questions, you may contact the members of our team which worked on the matter: Sergey Turusinov (sergey.turusinov@jurinflot.ru) and Konstantin Krasnokutskiy (konstantin.krasnokutskiy@jurinflot.ru), or Jurinflot’s Terralex contact persons: Valery Mandriouc (valery.mandriouc@jurinflot.ru) and Alexander Mednikov (alexander.mednikov@jurinflot.ru).