Introduction

Arbitration has long played an important role in commercial relations with Russian entities. The two leading arbitration institutions in Russia-the International Commercial Arbitration Court (MKAS) and the Russian Maritime Arbitration Commission (MAK), both attached to the Chamber of Commerce and Industry of the Russian Federation-date back to the nineteen thirties and have a good track record in settling international commercial disputes. Since the nineteen seventies Russian entities have also agreed to arbitration outside Russia.

Foreign investors have little choice when it comes to formulating a dispute resolution clause. They are understandably reluctant to have disputes submitted to Russian courts, which are not particularly known for their independence and fairness and, even if they manage to persuade the Russian party to accept the jurisdiction of a foreign court, would be unable to enforce a foreign judgment in Russia without a treaty providing for such enforcement. Hence, lenders cannot, for example, designate New York or English courts in loan agreements with Russian entities, as they customarily do with foreign borrowers. The only realistic option available to them is arbitration.

However, the enforceability of arbitral awards in Russia is problematic for foreign investors. Although a former president of the Supreme Commercial Court has claimed that awards are rarely refused enforcement,2 it can be difficult for foreign parties to enforce awards. Russian parties resist enforcement by either contesting an application for enforcement by the foreign party, or by themselves applying for the award to be set aside (in the case of awards made in Russia). These difficulties concern not only foreign awards but also awards issued by the Russian International Commercial Arbitration Court.

This article looks at the enforcement of international commercial arbitration awards in Russia in the light of the court practice and recent discussions. Consideration will be given to both foreign awards and awards issued in Russia.

I. Statutory framework

Russia is a party to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, having succeeded the former USSR. [Page52:]

During most of the Socialist era, there were no statutes providing for the enforcement of foreign arbitral awards. It was only in 1988 that a decree of the Presidium of the USSR Supreme Soviet on the enforcement of foreign judgments and arbitral awards was enacted.3 This decree remained in force until the enactment of the Procedural Code for Commercial Courts in 2002. At the present time, there are two main laws relating to the enforcement of foreign arbitral awards. One of these is the aforementioned Procedural Code and the other the 1993 International Commercial Arbitration Law.4

The 1993 International Commercial Arbitration Law has a preamble (unusual for Russian legislation) in which it is explicitly stated that the Law recognizes the usefulness of arbitration as a widely applied method of settling disputes in international trade and takes account of the UNCITRAL Model Law on International Commercial Arbitration. Like the Model Law, the International Commercial Arbitration Law forbids any intervention by State courts except as provided in the Law. The recognition and enforcement of foreign arbitral awards is addressed in Chapter 8 of the Law. Article 35(1) reads:

Arbitral awards, regardless of where they were granted, are recognized as binding and, upon the submission of an application to a competent court, shall be enforced, with consideration being given to the rules of the present provision and of Article 36.

Article 36 sets out the grounds upon which the recognition and enforcement of foreign arbitral awards may be refused. The first paragraph of Article 36 is almost identical to Article V of the New York Convention. The Law also lists the grounds upon which arbitral awards may be set aside, which are in line with the UNCITRAL Model Law.

The 2002 Procedural Code for Commercial Courts contains provisions on the enforcement of foreign judgments and arbitral awards in Chapter 31. Article 241 provides for the recognition and enforcement of foreign arbitral awards on the basis of either an international treaty or a federal law. The New York Convention is one of those treaties. Article 244 lists the grounds on which the enforcement or recognition of foreign judgments and arbitral awards can be refused. As far as arbitral awards are concerned, it provides in paragraph 2 that recognition and enforcement can be refused either on the ground of public policy or on the grounds listed in Article 239, which appears in Chapter 30 relating to the procedure for contesting the validity of the awards of arbitral tribunals (treteiskii sud ) and granting enforcement orders for awards. Article 230, in the same Chapter, provides that the provisions concerning arbitral tribunals are applicable to both domestic awards and 'awards of international commercial arbitration tribunals made in the territory of the Russian Federation'.

The way these provisions are organized is confusing, and judges have occasionally been misled into citing incorrect provisions.5 With respect to legislative method, it is inappropriate to provide for the recognition and enforcement of foreign judgments and arbitral awards in a single provision, since the grounds upon which recognition may be refused are not identical to those upon which enforcement may be refused. It is also regrettable that the provisions concerning international commercial arbitration awards are split up: the short paragraph on the recognition and enforcement of foreign arbitral awards, rather than listing grounds for refusal, merely refers to another provision covering the enforcement of domestic awards and international commercial arbitration awards made in Russia. It would have been preferable to group together in [Page53:] a single chapter all the provisions concerning international arbitration, rather than distinguishing between those international arbitration awards rendered abroad and those rendered in Russia.

Further confusion is caused by Article 239(3), which provides that the fundamental principles of Russian law ( osnovo-palagaiushchie printsipi rossiiskogo prava) constitute grounds for refusing the enforcement of awards. A commentary has suggested that these correspond to public policy as referred to in the International Commercial Arbitration Law and ultimately in the UNCITRAL Model Law. 6 However, in this case why use a different term ( publichnaia poriadka) in Article 36 of the International Commercial Arbitration Law, to which Article 239(4) of the Procedural Code for Commercial Courts refers? Russian lawyers and academics regard public policy and the fundamental principles of Russian law as one and the same concept. V.F. Iakovlev, when president of the Supreme Commercial Court, pointed out that the grounds upon which enforcement may be refused were 'practically the same for domestic and foreign tribunals' and that this part of the Procedural Code is no different from the New York Convention.7 If this is the case, there would appear to be no reason to use different terminology.

The 2002 Procedural Code for Commercial Courts introduced a change concerning jurisdiction that has had a significant impact on the enforcement of awards. In Russia there are two systems of courts: ordinary courts with general jurisdiction and commercial courts.8 The above-mentioned 1988 decree presupposed that jurisdiction over the enforcement of awards lay with the ordinary courts, since the commercial court system did not exist at that time. When the commercial courts were established in 1992, they were not explicitly given-or denied-jurisdiction over the enforcement of awards. And the 1993 Law on International Commercial Arbitration avoided the issue by merely referring to the 'competent courts'. As a result, some cases reached the commercial courts, but the majority of cases went to the ordinary courts. This led to some important precedents from the Supreme Court, as opposed to the Supreme Commercial Court.

The 2002 Procedural Code for Commercial Courts put an end to this jurisdictional overlap: Article 32 gives the commercial courts sole jurisdiction over the recognition and enforcement of foreign judgments and arbitral awards. Article 31 provides for the enforcement and setting-aside of the awards of 'arbitral tribunals'. It is not clear from this provision whether the reference to 'arbitral tribunals' in this context includes those that deal with international commercial arbitrations. According to the official commentary, it does.9 As a result of this change, the confusing state of dual jurisdiction has been removed, which is an advantage. However, the change has also brought some disadvantages. In particular, some senior commercial court judges, including the former president of the Supreme Commercial Court, have shown hostility towards arbitration. Although ready to enforce foreign judgments, even through a liberal interpretation of the Procedural Code in the absence of an international treaty, they have generally been reluctant to enforce arbitral awards. They appear to have been sceptical of non-governmental international arbitration institutions and party autonomy, and to have believed that the decisions of private institutions could not be enforced without being examined on their merits. In this respect, they differed from the judges of the courts of general jurisdiction, whose initial hesitation over the enforcement of arbitral awards was due to inexperience. In the case of the commercial courts, it was the convictions rather than the inexperience [Page54:] of the senior judges that made enforcement difficult. Another disadvantage of shifting jurisdiction from the ordinary courts to the commercial courts is that the experience and case law accumulated within the ordinary courts during the nineteen nineties have been lost.

II. Judgments of the ordinary courts (1990-2002)

In the early days of post-Socialism, some foreign arbitral awards were enforced in Russia. In 1991, in what was probably the first case involving a claimant from a country outside the former socialist bloc, the Moscow City Court allowed the enforcement of an award rendered in London on the basis of the New York Convention and the 1988 decree of the Presidium of the USSR Supreme Soviet on the enforcement of foreign judgments and arbitral awards. The court's decision was not appealed. In another case, the Moscow City Court enforced an award made in Stockholm.10 In 1998, another Stockholm award was enforced, this time in St. Petersburg. This case reached the Supreme Court, which gave a questionable ruling, but the City Court of St. Petersburg, to which the case was remanded, allowed enforcement.11 Despite these decisions, a Russian expert commented in 2001 that 'many Russian courts, as before, do not understand that their power is limited by the New York Convention, and that they are not entitled to review an arbitral award on its merits'.12

Russian respondents resisting the enforcement of arbitral awards often base their arguments on public policy. Most Russian lawyers agree that the concept of public policy is yet to be formulated in Russia. One commentator, taking a broad view of public policy, has suggested that it includes the protection of an enterprise whose insolvency would have a serious negative impact on the socio-economic state of a town. In such cases, it is doubtful whether the arbitral award would be enforced in Russia.13 In the St. Petersburg case referred to above, the Russian party argued that the mandatory requirement of two signatures on the Russian side under the Soviet law on foreign trade contracts was part of public policy.

The Supreme Court has made an effort to narrow the concept of public policy, which lower courts tend to interpret broadly. This is illustrated by a case between a Russian party and a German party in which the Russian party applied for the award to be set aside, arguing that there was no contract between the parties, no authenticated copy of the contract, no arbitration agreement, and that the award was based on forged documents. The Moscow City Court accepted the plaintiff's argument and set aside the award on the ground that the plaintiff's liability had not been sufficiently proven and that enforcement of the award would violate public policy since it was contrary to Russian law. The Supreme Court found that the Moscow City Court had erred by reviewing the case on the merits, and ruled that it was wrong to refer to public policy.14 The Supreme Court explained that 'public policy of the Russian Federation' should not be equated with the national legislation of the Russian Federation. Given that Article 28 of the International Commercial Arbitration Law allowed the rules of foreign States to be applied in Russia, differences between Russian law and the law of a foreign State should not serve as a ground for applying the public policy exception to enforcement, for to do so would be to deny the possibility of applying foreign law in Russia in general. It concluded that 'public policy of the Russian Federation' meant rather the fundamental social system underlying the Russian State, and that the public [Page55:] policy defence should be available only when the application of foreign law would lead to a result that was unacceptable to the Russian legal consciousness

In most, if not all, published cases where Russian parties objected to enforcement on public policy grounds, the Supreme Court rejected their objections.

III. Decisions of the commercial courts

In 2002, as mentioned above, jurisdiction over the recognition and enforcement of international arbitral awards and over the setting-aside of such awards shifted from the ordinary courts to the commercial courts. According to the annual report on the commercial courts, 111 cases relating to the recognition and enforcement of foreign judgments and foreign arbitral awards were heard in 2003 and 49 in 2004. It is not known in how many of these cases enforcement was allowed. In 2003 and 2004 respectively 936 and 911 awards made in Russia were set aside. These figures cover both domestic and international arbitrations. 15

Applications for the enforcement and setting-aside of awards appear to be decided nowadays more at the level of the federal commercial courts than by the Supreme Commercial Court. This is presumably due to the fact that appeals to the Supreme Commercial Court are subject to that Court's discretion.16

Public policy, interpreted broadly, remains the primary ground on which Russian parties seek to have awards set aside or refused enforcement. However, as the following illustrations show, their arguments are not readily accepted by the higher commercial courts.

In a case where the claimant, a French company, applied for enforcement of an award of the International Commercial Arbitration Court, the first instance court in St. Petersburg rejected the application on the ground that fundamental principles of Russian law had been breached. These included failing to apply provisions of the law that should have been applied, disregarding the principle of proportionality when determining the extent of liability, and ignoring the creditor's part in increasing the damage. The cassation court ruled that no fundamental principles of Russian law had been breached and pointed out that it was not against the fundamental principles of Russian law not to apply the law considered by the court to be applicable to the case. It thus quashed the decision of the lower court.17

In another case, again involving an award issued by the International Commercial Arbitration Court, the Russian debtor argued that the award, inter alia, contravened the fundamental principles of Russian law. The court rejected this argument as unsubstantiated and commented as follows:

Awards of the arbitration tribunals may be found to be against the basic principles of Russian law (the public policy of the Russian Federation) when, as a result of the enforcement of the award, acts that are directly prohibited by law or harm the sovereignty or the security of the State, that affect the interests of a large social group, that are incompatible with the principles of constructing the economic, political and legal systems of the State, that harm the constitutional rights and freedom of citizens, or that are against the basic principles of the civil State, such as the equality of its members, the inviolability of property and freedom of contract, are affected.

The above decision was upheld at cassation level.18[Page56:]

In another case, a German company sought to enforce an award issued by the International Commercial Arbitration Court. The debtor raised the issue of public policy, which was dismissed at first instance on the ground that it did not come within the grounds for setting-aside awards as provided in the Procedural Code for Commercial Courts and the International Commercial Arbitration Law. The first-instance court also ruled that a breach of public policy had not been proven. At cassation level, the debtor argued that the award was against the fundamental principles of Russian law, as embodied in the mandatory provisions of the Civil Code, such as Articles 309 and 328 on the proper performance of obligations. The cassation court quashed the first-instance decision, as the lower court had not provided any evidence showing whether or not the award was contrary to public policy and had come to a negative decision without any justifiable reason.19

There are other cases, however, where public policy has been used to quash a first-instance decision allowing enforcement. For instance, the cassation court overturned an enforcement order on the ground that the first instance court had erred by applying substantive law that should not have been applied. Upon remand, the first instance court again allowed enforcement. The debtor again appealed against this decision, claiming a breach of substantive law and arguing that the granting of the enforcement order was itself contrary to public policy and violated the fundamental principles of Russian law. In support of its appeal, the debtor referred to a court judgment rendered after the award, which established that the debt arose from a criminal act by an employee of the creditor. The cassation court quashed the decision of the first instance court and the matter was remanded to the lower court in order to see whether there were circumstances justifying the refusal of enforcement on the ground of public policy.20 It may be added that if the award truly concerned an obligation resulting from an act that had been the subject of a criminal judgment, then this might well have been against international public policy.21

It may be concluded from the above that, with a few exceptions, the federal commercial courts have generally rendered positive decisions allowing the enforcement of arbitral awards. As one Russian commentator has pointed out, ungrounded references to public policy used by losing parties as a last resort are likely to find little favour with the courts.22

IV. Recent decisions of the Supreme Commercial Court

We know from the published decisions of the Supreme Commercial Court that at least five decisions relating to international commercial arbitration were rendered between 2003 and 2005.

More than one of these decisions concerned the burden of proof of whether the respondent had been duly informed of the procedure and had been given the opportunity to present its case. In one case, a foreign company applied to the Commercial Court of the City of Moscow for the enforcement of an award issued in an ad hoc arbitration in London. The court refused enforcement on the ground that the creditor had failed to prove that the other party had been duly informed of the [Page57:] date and place of the arbitration. This decision was upheld, first at cassation and then by the Supreme Commercial Court, which ruled that since no evidence had been submitted proving that the arbitral tribunal had informed the absent Russian party of the proceedings, enforcement could justifiably be refused.23 This finding reflects a misreading of the New York Convention and the Russian International Commercial Arbitration Law, which make it clear that the party objecting to enforcement has the burden of furnishing the necessary proof. The court, however, jumped to the conclusion that no evidence had been presented, without addressing the question of the burden of proof.

A year later, the Supreme Commercial Court reversed this precedent in a case concerning the enforcement of a Stockholm Arbitration Institute award sought by a consortium of Italian companies. The Moscow City Commercial Court refused enforcement on the ground that the creditor had failed to produce evidence that the debtor had been duly informed of the date and place of the arbitration. This decision was quashed by the cassation court, which found proof of notification in a letter written by a representative of the debtor to the chairman of the arbitral tribunal acknowledging receipt of the minutes of the previous hearing and containing information about the final hearing. More importantly, the cassation court rightly pointed out that the New York Convention requires that the party wishing enforcement to be refused prove one of the grounds justifying refusal. A similar condition is found in Article 36 of the Russian International Commercial Arbitration Law, which requires that the party against which the award has been made submit evidence to the competent court proving one of the grounds for refusing enforcement.24 The case eventually reached the Supreme Commercial Court, which upheld the cassation decision and ruled that the burden of proof concerning service of notice and the impossibility to present one's case lay with the party against whom the award was addressed, i.e. the Russian party.25

In another case, concerning the setting-side rather than the enforcement of an award, the Supreme Commercial Court overturned the decisions of the first-instance and cassation courts and asserted that Russian courts had no power to set aside a Swedish award. 26

While these decisions reflect a positive attitude towards international arbitration, mention should be made of two other controversial decisions.

In March 2002, an award was issued by the International Commercial Arbitration Court in a case involving the breach of an obligation owed by a Russian company under a sales contract with a foreign company. The foreign company applied to the Moscow City Court for enforcement of the award (this was before the Procedural Code for Commercial Courts came into effect), while the Russian company requested that the award be set aside The court allowed enforcement and dismissed the claim to set aside. Its decision was upheld by the Supreme Court. In November 2002, the Russian company approached the International Commercial Arbitration Court again, asking for the earlier award to be annulled due to newly discovered circumstances. According to the new evidence, the foreign party had been awarded damages for income expected from a transaction with a party that was not registered at the time of the transaction. The International Commercial Arbitration Court refused to reopen the case.

The Russian company then applied for the original award to be set aside on the ground that new evidence had emerged. The first instance court dismissed this [Page58:] application and granted enforcement. Its decision was upheld by the Federal Commercial Court of the Moscow District. The Russian company then took the case to the Supreme Commercial Court, where it argued that the award was against public policy since the foreign party misled the International Commercial Arbitration Court by referring to a transaction with a non-existent company for the purpose of calculating expected income. The Supreme Commercial Court ruled that the lower court's decision to allow enforcement was unlawful. Citing Article 36 of the International Commercial Arbitration Law, the Court pointed out that the newly discovered facts 'may indicate acts in bad faith (abuse of rights) by the party claiming compensation and this is against the public policy of the Russian Federation'.27

It is arguable that in an extreme case of gross misconduct where an award is the outcome of fraud or corruption, enforcement of the award may be against public policy.28 In the case in question, however, the newly discovered fact does not appear to have a substantial effect on the award, for the breach of contract had taken place and the newly discovered fact merely concerned the calculation of damages. According to the Procedural Code for Commercial Courts, newly discovered facts need to be 'essential' to the case to justify reopening the procedure (Art. 311). The fact that the party to an abortive transaction was not registered is a far cry from concluding that the claimant had acted in bad faith. The Supreme Commercial Court failed to address the significance that the newly discovered circumstances would have had on the case, and ruled that the lower court should have investigated the relevant facts, which would have been tantamount to examining the award on its merit.

Probably the most controversial decision of the Supreme Commercial Court was in a case in which an Italian company applied for the enforcement of an award rendered in an ad hoc arbitration in Stockholm in July 1997. The dispute concerned the termination of a joint venture agreement between the Italian company and a Soviet entity due to a substantial breach by the Soviet party. The agreement contained an arbitration clause entitling the parties to have recourse to ad hoc arbitration for any problem concerning the agreement and providing for the application of Swedish civil and substantive law (but not the rules of conflict of law). The tribunal applied Swedish law and ordered the Russian successor to the Soviet entity to repay the Italian company's capital contribution and expenses, which altogether amounted to some sixty-five million German marks plus interest. The creditor applied for the award to be enforced in Russia.

At first instance, the Commercial Court of Tiumen Province granted enforcement in January 1999, but its decision was overturned by the appeal court (to which first instance decisions could at that time be referred). The appeal court found that the arbitration clause did not allow the tribunal to rule on the termination of the agreement pursuant to Swedish law, since this was incompatible with the mandatory provisions of Soviet/Russian law regulating the creation and activities of joint ventures in the USSR/Russia. In July 1999, the cassation court upheld the decision of the appeal court and agreed that the arbitral tribunal did not have the power to rule on the termination of the agreement pursuant to Swedish law. Noting that the tribunal had failed to address the question of the application of Soviet/Russian law, the cassation court held that the termination of the agreement was not subjectable to foreign law and was beyond the scope of the arbitration clause. It endorsed the appeal court's conclusion that the application of Swedish law was against the mandatory provisions of Soviet/Russian legislation and referred to the New York Convention, which [Page59:] provides that recognition and enforcement may be refused if the award goes beyond the scope of the arbitration clause.29 It is not clear from the cassation court's reasoning whether the unenforceability of the award was due to the tribunal's failure to apply mandatory rules of Soviet/Russian law or to its having exceeded the scope of the arbitration clause.

The case was subsequently referred to the Supreme Commercial Court. The Italian party asked the Court to specify which part of the award was outside the scope of the arbitration clause. It also pointed out that, according to the New York Convention and the Russian International Commercial Arbitration Law, even if an award exceeds the scope of the arbitration clause, any matters that are separable and come within the scope of the arbitration clause may be enforced. In its rather terse decision, the Supreme Commercial Court held that there was no reason to overrule the decision of the lower court, which rightly judged that the award went beyond the scope of the arbitration clause, since the dispute concerned not only the withdrawal of an original party to the joint venture but also the reorganization of that legal entity. The latter issue, it pointed out, was regulated by mandatory provisions of Russian law and the parties to the agreement were therefore entitled to have that issue determined according to Russian law.30

It would seem from reading the above decisions that reference was made to the scope of the arbitration clause merely to justify refusal on the basis of one of the grounds listed in the New York Convention. Although the fact that an arbitral tribunal exceeded the scope of the arbitration clause has been cited as a ground for refusing enforcement in some other cases,31 here the problem was rather that of the arbitrability of disputes to which Russian mandatory norms are applicable. Enforcement was in effect refused because the dispute was not arbitrable.

V. Arbitrability of disputes

Generally, arbitrability is about whether a particular type of dispute is eligible for settlement by arbitration or whether it should be reserved to national courts. Neither the New York Convention nor the UNCITRAL Model Law on International Commercial Arbitration is very instructive. The former simply refers to 'a subject matter capable of settlement by arbitration', 32 while the latter uses the expression 'the subject-matter of the dispute is not capable of settlement by arbitration'.33 It is basically for national laws to determine the domain of arbitration, as opposed to the courts. 34

The Russian International Commercial Arbitration Law provides that disputes resulting from contractual and other civil law relationships arising in the course of foreign trade and other forms of international economic relations in which at least one of the parties is a foreign commercial organization can be referred to arbitration (Article 1(2)). Article 1(4) provides that the Law does not affect any other laws prohibiting certain types of dispute from being subject to arbitration or making them subject to arbitration according to other provisions. An example is the Bankruptcy Law, which provides that cases concerning bankruptcy are to be handled exclusively by the commercial courts.

Outside Russia, discussions on arbitrability normally revolve around antitrust law, securities law, and intellectual property. In the celebrated Mitsubishi Motors case , the [Page60:] US Supreme Court dismissed the argument that antitrust issues could not be arbitrated under the Federal Arbitration Act.35 It may be noted that although the Supreme Court saw no reason to assume that international arbitration would not be an adequate means of resolving disputes-i.e. there is no reason to assume that the dispute is not arbitrable because it involves antitrust matters-it also pointed out that 'the national courts of the United States will have the opportunity at the award enforcement stage to ensure that the legitimate interest in the enforcement of the antitrust laws has been addressed'. Thus, enforcement of arbitral awards may in such cases be refused, not because the dispute was not arbitrable, but for other reasons, such as non-application or misapplication of the antitrust law, which would probably be against public policy.

In the Eco Swiss case, the European Court of Justice addressed the problem of whether the failure to apply a mandatory provision-Article 85 (now Article 81) of the Treaty establishing the European Community-could serve as a ground for setting aside an arbitral award, despite the fact that the national law provided only limited grounds for annulment. The Court ruled that Article 85 constituted a fundamental provision for the functioning of the internal market and that it could be regarded as a matter of public policy within the meaning of the New York Convention.36

In Russia, a trend has recently emerged towards limiting the range of disputes capable of settlement by arbitration. It is supported by some senior commercial court judges, intent upon keeping certain matters within their exclusive jurisdiction. They refer to Article 248 of the Procedural Code for Commercial Courts, which provides that the commercial courts have sole jurisdiction over the disputes listed below when one of the parties is a foreign person:37

• disputes involving State property, including disputes related to the privatization of State property and the compulsory sale of property for the needs of the State;

• disputes involving real property located in the Russian Federation;

• disputes involving the registration and granting of intellectual property rights;

• disputes involving the validity of State registration administered by a competent agency;

• disputes involving the establishment, liquidation, or registration of a juridical person in the territory of the Russian Federation and disputes involving the decisions of the bodies of such juridical persons.

The common denominator underlying this list is State registration. According to T.N. Neshataeva, a judge of the Supreme Commercial Court, if a legal relationship involves an entry in a register administered by a competent State authority, any economic disputes arising out of that relationship are to be heard only by the State courts of the Russian Federation.38 In corporate matters, Article 248 covers not only the registration of companies but also their establishment and liquidation. It is no wonder, then, that in the case discussed above the Supreme Commercial Court found that the liquidation of a joint venture could not be arbitrated.39

It has been observed that 'restrictions upon arbitrability usually stem, not from public policy rules, but from the compulsory jurisdiction of national courts prompted by public policy'.40 In a book devoted to legal/theoretical analyses of the use of sub-soil, [Page61:] it has been pointed out that disputes of a public law nature concerning the use of natural resources fall under the exclusive competence of the country that owns them, and recourse to foreign courts (including arbitration) is not possible.41 In Russia, however, the pendulum seems to have swung too far in favour of State courts. As an authoritative Russian article on the subject has put it, this attitude has unjustifiably narrowed the range of matters that can be arbitrated.42 Article 248 of the Procedural Code for Commercial Courts provides for the exclusive jurisdiction of the Russian commercial courts and has nothing to do with the arbitrability of disputes.43 As pointed out in the official commentary on the Procedural Code produced by the Supreme Court and the Supreme Commercial Court, the purpose of this provision is to demarcate the jurisdiction of Russian and foreign courts in cases involving foreign entities.44

Arbitrability is closely related to the question of mandatory norms in arbitration. Although conceptually different, the two are often intertwined in that the requirement to apply State mandatory law is used to justify the non-arbitrability of the dispute. This can be seen in the Eco Swiss case and in the above-mentioned Russian case concerning the termination of a joint venture. In the Russian case, the Supreme Commercial Court found that Soviet rules should be applied mandatorily and that the award had exceeded the scope of the arbitration agreement due to the fact that the dispute was not arbitrable. These two findings concern the same issue: the extent to which the prerogative powers of the State should prevail over or interfere with systems of dispute settlement that are based upon party autonomy.

When considering the relationship between mandatory national legal provisions and international commercial arbitration, a distinction needs to be made. According to Article 1192 of the Russian Civil Code, mandatory rules of Russian law are unaffected by choice-of-law provisions. It has been pointed out in an authoritative commentary on this article that there are two categories of mandatory rules: mandatory rules of national civil law and meta-mandatory rules (ois d'application l immediate in French law, and 'absolute norms' in Swiss law). The former limit private autonomy under national civil law, but their application can be excluded by conflict-of-law rules. The latter cannot be excluded at all, whether by the parties' choice or pursuant to conflict-of-law rules.45 It is only non-application of the latter category that can affect the validity of arbitral awards.46

The aforementioned decision of the Supreme Commercial Court refusing enforcement owing to the tribunal's failure to apply a mandatory law was flawed. The instrument in question was the Decree of the Council of Ministers of 1987 (No. 49). This was the first decree under the Soviet regime permitting joint ventures with Western companies on Russian territory. It naturally imposed various restrictions on such joint ventures. However, there is no reason to invoke this decree as a mandatory norm in order to refuse enforcement of an arbitral award well after the collapse of Socialism. The 1999 Foreign Investment Law has since made national treatment available to foreign investors and the provisions of the Civil Code and company law are therefore now generally applicable to joint ventures. The special treatment given to joint ventures under the 1987 Decree has thus long lost its meaning.[Page62:]

Conclusion

Since the collapse of Socialism fifteen years ago, case law on the enforcement of international commercial arbitration awards has been slowly developing in Russia. Although this development was affected by the shift of jurisdiction in 2002, there have been a sizeable number of cases in which enforcement has been allowed or attempts by debtors to set aside awards aborted. In some of these cases, however, the process has been time-consuming.

There has been a tendency amongst certain judges to assert the primacy of the national court system over international commercial arbitration and to narrow the scope of arbitration by resorting to the concept of arbitrability. This tendency has led to some questionable decisions and has found some support in the legislature. For instance, the recently adopted Concession Law does not specifically refer to arbitration, and the draft Subsoil Law now before the Duma, unlike its predecessor, does not include arbitration as one of the means of settling disputes.

This negative attitude towards international commercial arbitration in part explains the hesitation of foreign investors to invest in Russia. However, some consolation may be found in a speech made by I.M. Strelov, a vice-chairman of the Supreme Commercial Court, in St. Petersburg in December 2004, according to whom arbitration should be regarded as an alternative to the State courts and as a flexible and operational form of dispute settlement that ensures confidentiality. He described the relationship between courts and arbitral institutions as one of cooperation and support, and warned against regarding it as that of a higher instance to a lower instance.47

Despite a few disconcerting decisions, there is cause for optimism, especially as the case law is still evolving. However, the use of arbitrability to narrow the range of disputes that are capable of settlement by arbitration is still worrying. This would not work in favour of foreign investment if ever it is reflected in future laws.

1
This article is based upon the paper presented by the author at a conference on commercial law reform in Russia and Eurasia, in honour of Professor Peter Maggs, held at the Kennan Institute for Advanced Russian Studies, Washington D.C., 8-9 April 2005.

2
Vystuplenie V.F. Iakovleva, Vestnik VAS, 2002, no. 12, p. 111.

3
Vedomosti VS SSSR, 1988, no. 26, item 427.

4
A third law, enacted in 2002, regulates arbitral tribunals established in Russia, but does not apply to international commercial arbitration. The text of the 1993 Law is available at <www.jus.uio.no/lm/russia.international. commercial.arbitration.1993/doc.htm>.

5
e.g. Federal Commercial Court, Moscow District, 5 December 2003.

6
Supreme Court and Supreme Commercial Court of the Russian Federation and the Russian Academy of the Judiciary, eds., Kommentarii k arbitrazhnomu protessual'nomu kodeksu Rossiiskoi Federatsii, 1st ed. (Moscow, 2003) at 598.

7
V.F. Iakovlev, supra note 1 at 111.

8
History has given them the name 'arbitration courts' (arbitrazhnyi sud), but they are in fact State commercial courts. The International Commercial Arbitration Court, on the other hand, is an arbitration institution. For details, see H. Oda, Russian Commercial Law (The Hague: Kluwer Law International, 2002) at 21-34.

9
Supreme Commercial Court, ed., Kommentarii k arbitrazhnomu protsessual'nomu kodeksu Rossiskoi Federatsii, 2d ed. (Moscow, 2005) at 108-109.

10
K. Hober, 'Enforcing Foreign Arbitral Awards in Russia' Russia and Commonwealth Business Law Report (16 August 1995) 8-10.

11
A. Mouranov & N. Toupikina-Holm, 'Enforcement in Russia: Chronology of a Loan Recovery' Stockholm Arb Rep 1999:2 137.

12
B. Karabel'nikov, 'Problemy ispolneniia reshenii mezhdunarodnykh arbitrazhei v Rossiiskoi Federatsii' in Tikhomirov et al., eds., Sudebnaia reforma v Rossii (Moscow, 2001) 150 at 156.

13
T.N. Neshataeva, Mezhdunarodnyi grazhdanskii protsess (Moscow, 2001) at 165-66. See also N. Pavlova, 'Nekotorye osnovaniia otkaza v priznanii i privedenii v ispolnenie arbitrazhnykh reshenii' Vestnik VAS RF, 1999, no. 3, pp. 22-23.

14
Civil Law Division of the Supreme Court, 25 September 1998. See also Presidium of the Supreme Court, 9 August 2000.

15
'Sudebno-arbitrazhnaia statistika' Vestnik VAS, 2005, no. 2, p. 37.

16
The Russian commercial court system has four levels. After appeal, cases are heard at cassation level by one of the ten federal district commercial courts. However, first instance decisions concerning the enforcement of foreign arbitral awards are appealed directly to the cassation court. Parties that consider their rights and lawful interests to have been significantly harmed are entitled to apply for their case to be heard by the Presidium of the Supreme Commercial Court acting in a supervisory capacity. There are around 20,000 such applications each year, but less than 200 lower court judgments are heard by the Presidium. In 2004, for instance, it heard 167 cases. Ibid., p.40.

17
Federal Commercial Court, North District, 20 March 2003. See also Federal Commercial Court, Moscow District, 18 November 2002; Federal Commercial Court, Moscow District, 4 January 2003; Federal Commercial Court, North-West District, 24 April 2003.

18
Federal Commercial Court, Moscow District, 3 April 2003.

19
Federal Commercial Court, Moscow District, 5 December 2003. This concerns the same matter as the decision of the same court of 11 December 2003 on the enforcement of the award. The latter judgment recommended that the proceedings be consolidated after remand to the first instance court.

20
Federal Commercial Court, Moscow District, 8 January 2004.

21
See A. Sheppard, 'Interim ILA Report on Public Policy as a Bar to Enforcement of International Arbitral Awards' (2003) Arbitration International 217 at 235-36. ILA Resolution 2/2002, 1(d)(i).

22
A.N. Zhil'tsov, 'Osparivanie reshenii mezhdunarodnykh kommercheskikh arbitrazhei v sootvetstvii s rossiskom zakonodatel'stvom' Mezhdunarodnyi kommerchsekii arbitrazh, 2005, no. 1, p. 13.

23
Presidium of the Supreme Commercial Court, 22 June 2004.

24
Federal Commercial Court, Moscow District, 19 February 2004. A commentary clearly points out that the burden of proof lies with the interested party: see e.g. V. Iarkov, ed., Kommentarii k Arbitrazhnomu protsessual'nomu kodeksu Rossiiskoi Federatsii (Moscow, 2004) pp. 514 and 528.

25
Presidium of the Supreme Commercial Court, 22 February 2005.

26
Presidium of the Supreme Commercial Court, 30 March 2004.

27
Presidium of the Supreme Commercial Court, 26 October 2004.

28
See A. Sheppard, supra note 21 at 238.

29
Federal Commercial Court, West-Siberian District, 20 July 1999.

30
Presidium of the Supreme Commercial Court, 14 January 2003.

31
Moscow City Commercial Court, 28 April 2004. A tribunal of the International Commercial Arbitration Court held that there was no contract between the parties and, therefore, the Russian party should return what it had received from the creditor on the ground of unjust enrichment. The commercial court ruled that this decision went beyond the scope of the arbitration clause, which provided for contractual disputes.

32
Art. II.1.

33
Art. 34(2)(b)(i), Art. 36(1)(b)(i).

34
A. Redfern & M. Hunter, Law and Practice of International Commercial Arbitration, 4th ed. (London, 2004) at 138.

35
Mitsubishi Motors v. Soler Chrysler-Plymouth, 437 U.S. 614 (1985).

36
Eco Swiss China Time Ltd v. Benetton International NV, C-126/97, [1999] E.C.R. I-3055.

37
This provision seems to have come from the Lugano Convention on jurisdiction and the enforcement of judgments in civil and commercial matters, which provides for the exclusive jurisdiction of national courts.

38
T.N. Neshataeva, 'O voprosakh kompetentsii arbitrazhnykh sudov v RF po rassmotreniiu del s uchastiem inostrannykh lits' Vestnik VAS, 2004, no. 12, pp. 92-95.

39
Dr Neshataeva was the rapporteur to the Presidium of the Supreme Commercial Court in this case.

40
H. Arfazadeh, 'Arbitrability under the New York Convention: the Lex Fori Revisited' (2001) Arbitration International 73 at 76.

41
V.N. Konin, Nedropol'zobanie: Teoretiko-pravovoi analiz (Moscow, 2005) at 185.

42
A.L. Makovskii & B.R. Karabelnikov, 'Arbitrabil'nost' sporov: rossiiskii podkhod' Mezhdunarodnyi kommercheskii arbitrazh, 2004, no. 3, p. 27.

43
A. Komarov, 'Nekotorye aktual'nykh voporosov mezhdunarodnogo kommercheskogo arbitrazha v RF' Mezhdunarodnyi kommercheskii arbitrazh, 2004, no. 1, p. 16.

44
Kommentarii k arbitrazhnomu protessual'nomu kodeksu Rossiiskoi Federatsii, 1st ed., supra note 6 at 632. See also Kommentarii k arbitrazhnomu protessual'nomu kodeksu Rossiiskoi Federatsii, 2d ed., supra note 9 at 770-75.

45
A.L. Makovskii & E.A. Sukhanov, eds., Kommentarii k chasti tret'ei grazhdanskogo kodeksa RF (Moscow, 2002) at 348-49.

46
It should be added that Article 1192 is only applicable to cases in which the court or arbitral tribunal is seated in Russia, e.g. when an arbitral tribunal seated in Russia applies foreign law in accordance with the parties' choice or pursuant to rules of conflict, meta-mandatory rules of Russian law supersede the foreign law. See A.L. Makovskii & B.R. Karabelnikov, supra note 40 at 35.

47
'Vzaimodeistvie arbitrazhnykh i treteiskikh sudov' Vestnik VAS, 2005, no. 4, pp. 109, 112.