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Enforcement of Russian Arbitral Awards in Germany

National courts in many countries show an increasing willingness to recognise and enforce Russian arbitral awards. Not surprisingly, this tendency has developed through adoption of the 1958 United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention). Germany has been a party to the New York Convention since 1961.

Both the enforcement of a domestic and foreign award requires a competent German court to declare the award’s enforceability and, thereby, grant leave for enforcement of the award.

The German Code of Civil Procedure states that “recognition and enforcement of foreign arbitral awards shall be granted in accordance with the [New York] Convention”. German domestic law on the enforcement of foreign arbitral awards, therefore, contains nothing more than a general and exclusive reference to the New York Convention. As a result, German domestic law fully conforms with the enforcement regime for foreign awards provided by the New York Convention. Beneficiaries of Russian arbitral awards can seek enforcement in German Courts of Appeal, which have exclusive jurisdiction over the enforcement of foreign arbitral awards.

German law allows for the preliminarily securing of assets in Germany during the course of the enforcement of a Russian arbitral award without prior service of the award and without allowing the debtor a prior hearing. A presiding judge in the competent Court of Appeal has discretion, upon application by the beneficiary of an award, to order seizure of the amount owed under the award. This way German law ensures that the amount is secure before the debtor is served with the main application for a certificate of enforceability. To obtain such an order of preliminary enforceability, the beneficiary of the award needs to establish in court that there is a risk it will not be possible to enforce the award (for example, where the debtor’s assets located in Germany could easily be relocated out of the jurisdiction).

During the last 20 years a significant number of Russian arbitral awards have been successfully enforced in Germany.

Defendant’s Failure to Appoint Arbitrator in Case no. 11 Sch 04/98

For instance, in case no. 11 Sch 04/98 the claimant sought enforcement in Germany of an award of the International Commercial Arbitration Court at the Chamber of Commerce and Industry of the Russian Federation (ICAC). The Court of Appeal in Dresden granted enforcement, finding that none of the grounds for refusal of enforcement raised by the defendant were well-founded. The Court held, inter alia, that the arbitral tribunal had been correctly constituted. The defendant had failed to appoint an arbitrator and had asked the President of the Russian Chamber of Commerce and Industry to appoint an arbitrator on its behalf, indicating that the arbitrator should be a German speaker.

The Court ruled that, once the defendant had failed to appoint its arbitrator, the President of the Chamber of Commerce had full discretion over the appointment and was not bound to meet the defendant’s wishes as to the language skills of the arbitrator. The Court of Appeal also considered the defendant’s allegation that enforcement of the award would violate public policy because the defendant did not take the arbitration seriously due to the claimant’s allegedly having told the defendant that the arbitration was only a means of avoiding criminal prosecution for tax law offences. The Court of Appeal held that, as the defendant did not prove that the award was obtained by fraudulent means, this argument was irrelevant.

Choice of Jurisdiction in Case no. 8 Sch 03/01

In case no. 8 Sch 03/01 the Celle Court of Appeal granted the enforcement of the ICAC award in favour of a Russian claimant. The Court denied the argument of the defendant that the arbitration clause in the contract was invalid because it provided for alternative jurisdiction. The Court found that the clause was valid under the 1958 New York Convention as it clearly gave the party commencing arbitration a permissible choice between two arbitral institutions.

The Court then dismissed the defendant’s due process argument that it could not present its case in the arbitration because the proceedings had been held in Russian, a language it did not know. The Court agreed with the claimant that the Russian arbitral tribunal had used Russian since the parties had not agreed otherwise and noted that the defendant had availed itself of the possibility to submit documents to the tribunal in German. The Court concluded that the defendant could have ensured that it had been able to fully participate in the arbitration by hiring an interpreter and translator.

Objections on the Proper Tribunal in Case No. 9 Sch 12/04

Granting enforcement of the ICAC award in case No. 9 Sch 12/04 the Cologne Court of Appeal reasoned that it could not hear the defendant’s objections that the parties had intended to refer their disputes to a different arbitral tribunal –  namely the “International Commercial Arbitration Court at the Chamber of Commerce and Industry of the City of Moscow” – and that the claimant was not the original party to the contract and therefore had no standing, since both issues had been heard and settled by the arbitral tribunal.

The Court noted that the arbitral tribunal had found that there is only one arbitral tribunal in Moscow, whose name is “International Commercial Arbitration Court at the Chamber of Commerce and Industry of the Russian Federation” – rather than of “the City of Moscow” – and that the claimant had standing since it was the legal successor to the original party to the contract at issue. The Court of Appeal further held that the defendant’s objection that it had not been informed of the arbitral proceedings had also been correctly dismissed by the arbitral tribunal. The Court noted that the defendant had supplied no evidence to disprove the statement in the award relating to the notification of procedural aspects of the arbitration to the defendant.

In spite of the above-described goodwill of the German judicial system in relation to Russian arbitral awards, applicants nevertheless do encounter problems with enforcement. When they do, German courts, for the most part, deny enforcement of Russian awards on the grounds provided by the New York Convention.

Denial of Enforcement in Case No. 4Z Sch 17/03

For instance in case No. 4Z Sch 17/03 the Court of Appeal of Bavaria denied enforcement of an ICAC award on public policy grounds. The Court held that, even under the less stringent requirements of international public policy, the award obtained by the claimant by concealing the settlement agreement with the defendant “grossly” violated the basic principles of German law.

In another case the Rostock Court of Appeal refused to enforce a Russian award on the basis that the award had been annulled by the Russian courts. Following the decision not to enforce by the German Court, the Supreme Court of the Russian Federation rendered a final decision which upheld the previously annulled award. As a result, the German Federal Supreme Court subsequently reversed the prior decision of the Rostock Court and held that the award should be declared enforceable because the Russian courts had ruled that the award was binding.

Ultimately though, parties to Russian arbitral proceedings wanting to enforce awards in Germany are likely to succeed in their attempts at doing so. The New York Convention would apply to such enforcement, and such enforcement would almost certainly succeed in a German court. This conclusion presumes that the arbitration was conducted in full accordance with the procedures and rules of the applicable arbitral institution and Russian procedural law.

Andrey Kalimanov

Muranov, Chernyakov & Partners Law Firm

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