In November 2018, the Russian Arbitration Association (the RAA) published its study on the Application of the New York Convention in Russia during 2008-2017. The study is a significant work performed by the working group headed by Roman Zykov and comprising lawyers from leading law firms who thoroughly studied published cases over the period of nearly a decade and analysed them within a significant number of parameters. It provides a very useful insight into the enforcement of foreign arbitral awards in Russia. It captures nearly all available court practice regarding application of the New York Convention in Russia. Prior to 2008, the judgments have not been published on a regular basis, whereas starting from around 2008 nearly every decision of commercial courts of all instances is available online.
As ever, the study does have certain limitations (and this is not meant to be a criticism). Firstly, it only looks at enforcement of foreign arbitral awards under the New York Convention. Hence, it does not capture the enforcement of international arbitral awards rendered in Russia (mostly from the Russian ICAC) or domestic awards. Secondly, it does not, and frankly cannot, deal with the enforcement of arbitral awards against individuals (that is, not in commercial courts), because the judgments from the courts of general jurisdiction are not published in the same manner as those of commercial courts. Accordingly, the picture may be somewhat distorted. Having said that, the study actually looks at the question which is more relevant for an international audience: the treatment of foreign arbitral awards by Russian courts. Finally, the study did not look at the decisions of 2018, obviously, because 2018 fell beyond the research window.
Nevertheless, the study provides an important starting point for proper empirical research into the enforcement practices in Russia. There must be a significant amount of data which was not included in the study, but which the working group should have in their possession. Hopefully further details will follow in due course.
The study identified 472 applications filed with the Russian courts over the research window. Out of those, 378 (80%) were granted, whereas 45 (fewer than 10%) were rejected and 49 (over 10%) were not considered, mostly due to procedural reasons. The study concludes, therefore, that Russian courts are arbitration-friendly, granting 80% to 97% of enforcement applications in any given year.
In monetary terms, the total value of the claims with respect to which the enforcement was sought over the research window was over €8.2 billion, out of which claims for nearly €4.8 billion (58%) were enforced.
Most popular objections to enforcement related to violation of public policy (in 42 cases); lack of proper notice (34 cases) and excess of mandate by arbitrators (in 13 cases).
Overall, the study draws a picture of enforcement practice in Russia that is not too bad; however, I would argue that a more nuanced approach to the statistics is warranted.
To start with, there are different types of cases. The vast majority of cases (341) related to disputes arising from sale of goods contracts. In terms of their monetary value, in over 50% of awards, enforcement was sought for orders of payment for less that €50,000 (with 35% cases being below €1 million; 12% of cases being in the region of €1 to 15 million and only 5% of cases over €15 million).
The vast majority of the awards came from the neighboring former Soviet Union countries: Ukraine (196), Belarus (101), Kazakhstan (15), Latvia (13).
Over the period of 10 years, only 17 applications related to LCIA awards; 16 related to SCC awards; 13 related to the ICC awards. These numbers are pretty low if one compares them with the number of Russia-related cases in the relevant institutions. Over the same period of time, the LCIA registered 170 new requests for arbitration involving Russian parties; the SCC registered 221 and the ICC registered 191. Obviously, not every case results in the final award, and not every final award would be against a Russian party. Nevertheless, these statistics also show that Russia is not a particularly popular enforcement jurisdiction. Unfortunately, the study does not show the success rate of applications for enforcement of the awards from these institutions.
The study also shows that the lower the claim, the easier it is to enforce the award. Thus, for example, if one looks at the enforcement applications which have resulted in the decisions (that is, excluding those cases which have not been resolved on procedural grounds), only 10% of applications were unsuccessful (45 decisions out of 423 cases rejected enforcement). However, if one categorises cases by amounts in dispute, the overall picture is not so appealing. Out of 358 cases where the amount of claim was below €1 million, the success rate was 93% (only 25 applications were rejected). However, once the amount in dispute becomes bigger, the success rate decreases. Thus, in cases worth between €1 and 10 million, only 77% of applications were successful (11 out of 46 applications were rejected ); and once the amount rises above the €10 million threshold, the success rate drops to some 34% (19 applications rejected out of 29 cases).
It is also notable that the majority of the applications is apparently not opposed by respondents. Thus, chart 19 of the study shows that during the research window, the respondents made 131 objections to enforcement applications. Unfortunately, it is not clear in how many cases the objections have been raised; therefore, to approach this conservatively, one may assume that the objections were raised in 131 cases (which is much too conservative, because in reality parties often refer to two or more grounds of objection). This means that in only 30% of cases (131 out of 423) the respondents resisted enforcement (hence 70% applications go unopposed). Thus, while the overall success rate of enforcement applications is around 10% (45 rejections out of 423 cases), if one looks at the success rate in cases where respondents raise objections, it drops to 66% (45 rejections out of 131 cases).
Accordingly, the high success rate of enforcement applications is largely due to non-participation of respondents. This conclusion is also corroborated by the number of appeals made against first instance court rulings on enforcement. Out of 423 decided cases, only 105 appeals were filed (24%). However, it should be noted that in Russia the appeal is available as of right, and it is very common and natural to litigants to appeal any decisions against them. One can also assume that out of these 105 appeals, 45 were filed by unsuccessful claimants. This would mean that respondents file appeals only against 16% of enforcement orders issued by the first instance courts.
Looking at 2018
I thought it would be interesting to compare the statistics for 2018 with the conclusions of the study, which did not look at 2018. I am grateful to my colleague Mikhail Kalinin (associate in the Moscow office of Norton Rose Fulbright) for researching enforcement cases in 2018. We did not try to adopt the entire methodology of the study, but instead looked at just some of the parameters we found useful.
The research identified 62 cases where the enforcement of foreign arbitral awards was sought in 2018. Out of those cases, three were not considered for some procedural grounds. The applications were granted in 36 cases and rejected in 23 cases. The success rate of the applications in 2018 was therefore around 61% overall.
The statistics are, however, heavily influenced by the incredibly low success rates of the enforcement applications in relation to the awards rendered by the ICAC at the Ukrainian Chamber of Commerce and Industry (the Ukrainian ICAC). Out of 16 applications, 13 were rejected by the Russian courts. Accordingly, if one was to disregard these cases, the overall success rate of the enforcement applications in 2018 was around 77% (19 applications were rejected out of 43).
The statistics on enforcement of awards from the major international institutions looks rather similar. There were 14 cases where the enforcement of awards from the ICC (six cases, one application rejected), LCIA (six cases, two applications rejected), SCC (two cases, one granted, another one not considered) was sought. Out of those, three were rejected (23%) and one application with respect to the SCC award was not considered for procedural reasons.
The amount in dispute still played an important role. Thus the success rate in cases where the amount in dispute was over €10 million was around 33% (one application granted, two rejected). In disputes worth between € 1 and 10 million, the success rate was surprisingly similar: around 35% (seven applications granted and 13 rejected). However, five of the rejected applications in this range were in relation to the Ukrainin ICAC awards. In cases worth below €1 million, the success rate was around 78% (28 applications granted, eight rejected). However, it is important that while in the more expensive cases the respondent appeared to participate and raise objections, in at least 15 out of 36 cases below €1 million (that is, in 42% of such cases) the respondents appeared not to raise any objections against enforcement. This means that when respondents resist, the success rate, even with respect to the smaller cases, drops to 62%.
Enforcement of an arbitral award in Russia is not a mission impossible. But it is not a walk in the park either. The empirical research shows that the Russian courts are by no means hostile with respect to international awards (perhaps with the exception of awards from the Ukrainian ICAC). However, if the respondent actively resists enforcement, it reduces the chances to get the award enforced. Arguably, the higher the amount in dispute, the more likely the respondent is to participate in proceedings and raise objections.
This certainly means that the enforcement strategy needs to be carefully planned, ideally well in advance. This also means that counsel for enforcement proceedings in Russia needs to be selected as carefully as counsel for the proceedings in arbitration. Hopefully, the experienced and knowledgeable team working for claimants in enforcement proceedings in Russia does increase the chances of success. However, I have to admit that this conclusion is made more on the basis of my own experience and there is no empirical data properly to corroborate it.