The public procedure is not a club

The Higher Court of Arbitration completed the survey of the practice of application of the last chance reservation, which makes it possible to block the execution of foreign courts’ rulings and arbitration awards in Russia. The parties were loaded with the burden of proof, the judges were allowed initiative, albeit limited, and Anton Ivanov demonstrated that his word – even regarding Roman law – is enough to change the text of a document.

Anton Ivanov, Chairman of the HCA of Russia, thus explained the necessity to survey the court practice in the sphere: “We should work on the creation of investment attractiveness of our country, and a predictable regime of enforcing foreign courts’ rulings and arbitration awards is a component thereof”. The experts agree that the problem exists. Evgeny Zhilin, Associated Partner of the Law Firm "YUST", told Pravo.Ru: “The debtors, who lose trials, have started claiming more often that a ruling by a foreign court or a foreign arbitration award violates the public procedure of the Russian Federation”.

Russian courts do not tend to apply the public procedure reservation and refuse to execute foreign decisions often, but it still useful to define more clearly the situations when they are entitled to do this. Elena Kudriashova of “Yukov and Partners” Bar Association explained the necessity of the elucidation: “A judge, as a rule, intuitively senses that there is a conflict between the domestic law system and the foreign norms”. She shared her experience: “There is an opinion among the lawyers that the public procedure reservation is the last resort of the party to a dispute, when all arguments have already been exhausted”.

The main difference between the final text of the survey, which was published earlier this week, from the previously discussed draft is in the following provision: if a party to a case claims that the foreign ruling contradicts the Russian public procedure, that is – fundamental legal basics adopted in our country, it is that party who must prove the fact of such contradiction (clause 3). The previous version of the document did not specify the court’s actions in the event, if a party does not claim violation of public procedure on its own. Experts see it as the HCA’s desire to set certain boundaries for the judges regarding the evaluation of the essence of the judgment passed by a foreign court or arbitration. E.Kudriashova pointed out: “The survey indicates the exclusiveness of application of the motive [of contradiction of the public procedure]”.

However, a judge may overstep those boundaries. Clause 2 of the survey says that if a party claims any other motive not to recognize the foreign judgment, but the court ascertains the contradiction of the public procedure of the Russian Federation, the court may, on its own initiative, apply that argument as a motive to refuse to execute it. Yuly Tay, managing partner of Bartolius Advocates’ Bureau, sees a risk here. He said to Pravo.Ru: “When it is about disputes between Russian and foreign legal entities, suspicions of favoring Russian ventures may arise. And this will lead to a loss of reputation, and in the worst case – to reprisals by other countries’ courts against Russian businessmen”. However, other experts see no such menace, and E.Kudriashova even believes that the initiative and the possibility to independently ascertain contradictions of the public procedure granted to the courts are positive changes. <…>

Not all provisions of the survey were made more precise as compared to the first draft. For example, in the course of public discussion, clause 5, which allows exacting compound interest (interest over interest), allowed in some countries but disallowed under Russian law, caused questions. The final edition contains no such provision. Perhaps due to a remark by Anton Ivanov that Roman law also prohibited such interest.

The initial version of the document included the provision stating that if the parties agree to let the case be considered by the so-called truncated arbitration (when, for example, one of the arbitrators is ill), afterwards they may not claim violation of public procedure. That provision (clause 11 of the first draft) was left out of the final draft, because at the development stage it was strongly criticized and contradicted the HCA practice: the supervision instance has frequently mentioned in its resolutions on certain cases that such judgment would not be legitimate.

The HCA, by scrapping that provision, remained completely within its earlier approaches. K.Truhanov of VEGAS LEX is convinced: “This survey is a logical continuation of the trend to limit the application of the public procedure reservation, which was adopted by the Board of the HCA of Russia during the last 2-3 years in considering certain cases”. E.Zhilin of YUST concurs. He said to Pravo.Ru: “The HCA has always adopted a rather limiting position in certain cases on the issue of application of public procedure provisions. And now it sends a very clear message that public procedure is not a club raised over the whole lot of foreign creditors”.

For more detail see here.