Enforcement of Russian Arbitral Awards in the United States

The Russian Federation and the United States are both parties to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, the so-called “New York Convention”. Russia acceded to the New York Convention in 1960 and the United States ratified the treaty in 1970.

Enforcement of Russian arbitral awards in the United States is typically subject to the provisions of the New York Convention. Under the New York Convention, there are numerous instances in U.S. court practice where arbitral awards issued by the International Commercial Arbitration Court at the Russian Chamber of Commerce (“ICAC”) have been successfully enforced.

For instance, in the case Aquatron & Concordia v. Argent Chemical Labs, No., C00-006L (W.D.Wash.2001), the district court for the Western District of Washington State enforced an ICAC award in favor of the prevailing Russian party despite arguments by the defendant that the contract was signed under duress and that it had not received notice of the hearing in Moscow.

In Foreign Econ. Ass’n. v. Int’l Development and Trade Services U.S., 139 F.3d 980 (2d Cir. 1998), the court of appeals in New York—following a decision by the district court—upheld a $200 million ICAC award. In enforcing the award, the U.S. court rejected an objection raised on the basis of “public policy”. The defendant stated that the Russian arbitrator had been bribed. The U.S. court rejected the argument because, even if there had been some basis to the claim, it found that the defendant had waived the objection by proceeding with the arbitration.

In another case, Int’l Ambassador Programs, Inc. v. Archexpo Commerce & Industry Centre, 68 F.3d 337 (9th Cir. 1995), a court of appeals confirmed an ICAC award against an American company. In Triton Container International, Ltd. v. Baltic Shipping Co., WL 729329 (E.D. La. 1995), the prevailing party made a series of loans to the defendant. Subsequently, the parties entered into a written agreement which included an arbitration clause providing for arbitration before the Maritime Arbitration Commission at the Chamber of Commerce and Industry of the Russian Federation (“MAC”). The subsequent defendant argued that the arbitration clause did not cover loans entered into before the signing of the agreement, which were separate transactions. The district court for the Eastern District of Louisiana (New Orleans) enforced the MAC award, stating that “when the scope of an arbitration clause is debatable or reasonably in doubt, a court should construe the contractual provision in favor of arbitration”.

In summary, U.S. courts generally consider Russian arbitral awards favorably. Nonetheless, there are still ways in which parties attempting to enforce Russian arbitral awards can be denied enforcement. First, U.S. courts may adjourn hearing enforcement cases if the arbitral award has not been recognized and enforced by a Russian arbitrazh court or if it has been set aside or suspended in Russia. For example, in Nedagro B.V. v. ZAO Konversbank, WL 151997 (S.D.N.Y. 2003), before the district court for the Southern District of New York (New York City), the prevailing party attempted to enforce an award issued by the ICAC.

Before seeking confirmation in the United States, the prevailing party applied to the Arbitrazh Court of Moscow to recognize and enforce the award. The losing party filed a motion with the Arbitrazh Court of Moscow to set the award aside. The Arbitrazh Court of Moscow upheld the award and issued a writ of execution. On appeal, the Federal Arbitrazh Court of the Moscow Region reversed and remanded the case to the lower court for reconsideration of a number of issues. It was at this stage of the dispute that the case came before the judge in the U.S. district court.

The U.S. district court stated in that case that enforcing the award in the United States would violate international comity because the plaintiff first sought to enforce its award in Russia. The primacy for determining the merits of enforcement lay in Russia. The action in U.S. court was therefore adjourned, pending the outcome of the court proceedings in Russia.

Second, the United States made several reservations when it acceded to the New York Convention in 1970.  One of the reservations, section 202 of the United States Federal Arbitration Act (“FAA”) (9 U.S.C.), provides that a foreign arbitral award will not be enforced under the Convention if it arises out of a relationship which is entirely between U.S. parties. For the purposes of section 202 of the FAA, a corporation is a citizen of the United States if it is incorporated or has its principal place of business in the United States. This means that if both parties to a Russian arbitration were U.S. corporations, the losing party could argue that the award rendered in their dispute could not be enforced under the New York Convention. Still, the award can be enforced either under the non-New York Convention provisions of the FAA or in state court.

Finally, parties seeking to enforce arbitration awards should also take into consideration that U.S. courts require that personal jurisdiction exist over the party against whom the enforcement of the arbitral award is sought. To satisfy this standard, a defendant party against whom the arbitral award is being entered, must enjoy sufficient business or personal contacts with the territorial district of the U.S. court to make requiring them to appear in court “fair.” If there are only assets, but no actions by the defendant to intentionally associate with the forum, a court may decline permitting a case to proceed.

This principle was applied in Base Metal Trading, Ltd. v. Novokuznetsky Aluminum Factory, 283 F.3d 208 (4th Cir. 2002), before a court of appeals, involving a $12 million ICAC award rendered against a Russian manufacturer. The plaintiff earlier sought enforcement of the award in the district court, which refused to enforce the award because the Russian manufacturer had insufficient business or personal contacts with the territorial district to make a hearing before the court fair.

In conclusion, enforcement of Russian arbitral awards in the United States is is not an automatic or a purely formalistic procedure, but is a proceeding in which establishing jurisdiction by the U.S. court is an important preliminary step. Furthermore, U.S. judges will take into consideration the existence and the results of proceedings on the same award enforcement or annulment taking place in Russia.  Nonetheless, so as long as there are no “loose ends” back in Russia, and provided personal jurisdiction exists, enforcement in the United States of Russian arbitral awards should present limited, if any, difficulties.

Andrey Kalimanov, Dmitry Davydenko

Muranov, Chernyakov and Partners Law Firm