July 22, 2019

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Contract Disputes in Russia

While resolving contract disputes in Russia tends to be popularly viewed as an avenue of the last resort, in certain situations it may be unavoidable or even beneficial to have a dispute resolved locally. Various options exist for resolution of contract disputes.

Arbitrazh court

Commercial disputes are handled in the Arbitrazh court, which also handles cases involving non-Russian companies. It should be noted when bringing claims in the Arbitrazh court that the Russian legal system is still in transition and has not fully embraced the use of precedent in determining case outcomes. As such, case outcomes may be difficult to predict. Decisions made in the Arbitrazh court may also be appealed.

Arbitration

Disputes are arbitrated at the International Commercial Arbitration Court of the Russian Federation Chamber of Commerce and Industry (ICAC). Contract disputes can be heard at the ICAC when a term in the contract contains a clause in which the parties have agreed to allow the ICAC to arbitrate in the event of a dispute. Rulings made by the ICAC are binding and final.

There are limited instances in which an award made by the ICAC can be appealed or overturned. If the arbitration clause in the contract turns out to be invalid, if there is a serious procedural error, if the dispute is one that may not be arbitrated, or if the award is in contradiction to domestic law, the matter may later be heard by the Arbitrazh court. If one of the above circumstances is satisfied, the dissatisfied party must file a motion within three months from the date of the ICAC’s decision.

Foreign decisions

A judgment made in a non-Russian court can usually only be enforced if a treaty has been signed between Russia and the country in which the judgment was made. If a foreign party wants a decision to be enforceable in Russia, careful thought should be given before having the dispute resolved in another country.

There has arisen an exception to the above rule, where a treaty between Russia and a foreign jurisdiction is not necessary for a foreign judgment to be enforceable where the foreign court customarily acknowledges Russian judgments and it is established that mutual recognition exists. To determine whether this principle applies, the foreign court should examine whether there are precedents of Russian judgments having been upheld domestically. It should, however, be noted that this exception is a narrow one and may not be applicable in a vast majority of cases.

International arbitration

Russia is required under the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, or New York Convention, to enforce foreign arbitration awards. Having a contractual dispute arbitrated in another jurisdiction and then enforced in Russia is a popular option taken by foreign parties who are leery of having decisions heard in Russia due to the unpredictability of Russian law.  A popular arbitral body is the London Court of International Arbitration (LCIA), and parties often agree to have contract disputes resolved based on English legal principles so the LCIA’s awards can later be enforced in Russia.