enforcement of arbitration awards in russia: real if you know the way

© Egorov Puginsky Afanasiev & Partners

Enforcement of Arbitration Awards in Russia:

Real if You Know the Way

Enforcement of Awards in Turkey and the Middle East

Istanbul, Turkey

Ilya Nikiforov, Managing Partner

Egorov, Puginsky, Afanasiev & Partners

30.03.2016

| 2

1. Turbulent Times Prompt Action

2. Russian-Turkish Agreements regarding Enforcement of

Rights

3. Disturbance of Contract Relations

4. Reparation for Damages by Foreign Contractors in

Arbitration

5. Enforcement of Arbitration Awards in Russia

30.03.2016 Ilya Nikiforov Enforcement of Arbitration Awards in Russia: Real if You Know the Way

Contents 2

| 3

The Decree of the President of the Russian Federation No. 583 dated 28 November

2015 provides for a certain possibility of continuing business activities for sanctioned

companies under a specific preliminary approval procedure. (http://www.lidings.com/eng/legalupdates2?id=262)

According to subclause в) clause 5 of the Decree the Russian Government shall define

a list of contracts to be concluded with Turkish companies, in respect of which sanctions

will not be applied, therewith establish rules for selection and coordination of such

contracts has been developed and is currently under consideration. (http://www.lidings.com/eng/legalupdates2?id=262)

The imposition of sanctions may affect about 30 Turkish construction companies. The

total cost of these works is estimated at 60 billion rubles (approximately $784 million). (http://www.kommersant.ru/doc/2891367)

The Turkish companies executing contracts, termination of which could lead to non-

fulfillment of internal or external commitments do not fall under sanctions.

Developers can be allowed to stay in Russia under the condition that they will create

joint ventures with Russian partners, where the Russians would control a 75% share of

each joint venture. (http://uawire.org/news/russian-sanctions-against-turkish-construction-companies)

Russia Sanctions against Turkish Construction Companies (1/2)


http://www.lidings.com/eng/legalupdates2?id=262




























http://www.kommersant.ru/doc/2891367

http://uawire.org/news/russian-sanctions-against-turkish-construction-companies















| 4

Decree of the President of the Russian Federation No. 583 dated 28 November 2015 “On national

security measures of the Russian Federation and protection of Russian citizens against criminal and

other unlawful actions and on application of special economic measures in respect of the republic of

Turkey”

Regulations of the Government of the Russian Federation No. 1296 dated 30 November 2015 “On

measures for implementing Decree of the President of the Russian Federation No. 583 dated 28

November 2015 “On national security measures of the Russian Federation and protection of Russian

citizens against criminal and other unlawful actions and on application of special economic measures in

respect of the republic of Turkey”.

Regulations of the Russian Government No. 1457 dated 29 December 2015 “On list of works

(services) implementation of which is prohibited on the territory of the Russian Federation by

organizations under the jurisdiction of the Republic of Turkey and by the organizations controlled by the

citizens of Republic of Turkey or organizations under the jurisdiction of the Republic of Turkey”.

Regulations of the Russian Government No. 1458 dated 29 December 2015 “On adoption of list of

employers, customers of works (services) who shall not fall under the prohibition valid as of 01 January

2016 on engaging unemployed for 31 December 2015 citizens from the republic of Turkey for

performing labour activities, works, rendering services”.

Russia Sanctions against Turkish Construction Companies (2/2)


| 5



Rights



Arbitration



Contents 5

| 6

Treaty on the Principles of Relations between the Russian Federation and

the Republic of Turkey (May 25, 1992)

Treaty of Commerce and Navigation between the Union of Soviet Socialist

Republics and the Republic of Turkey (October 8, 1937)

Agreement between the Government of the Russian Federation and the

Government of the Republic of Turkey regarding the Promotion and

Reciprocal Protection of Investments (December 15, 1997)

European Convention on International Commercial Arbitration (April 21,

1961)

Convention on the Recognition and Enforcement of Foreign Arbitral Awards

(June 10, 1958)

International Law and Domestic Instruments


| 7

The term "investments" shall mean all kinds of assets invested by investors of one of

the Contracting Parties in the territory of the other Contracting Party in accordance with

its legislation, in particular:

a)movable and immovable property as well as property rights thereto;

b) shares, stocks and other forms of participation in business enterprises or companies;

c) claims to money invested for the purpose of creating economic values related to

investments;

d) copyrights, rights to industrial property (such as patents, trademarks and service

marks, industrial samples and models), technology and know-how;

e) rights conferred by law or under contract to conduct economic activity, including

commercial activity, related in particular to exploration, development, extraction and

exploitation of natural resources. Any alteration of the form in which assets have been

invested or reinvested shall not affect the character of investments in the sense of this

Agreement provided that this alteration is not in contradiction with the legislation of the

Contracting Party in the territory where the investment was made*.

*Agreement between the Government of the Russian Federation and the Government of the Republic of Turkey

regarding the Promotion and Reciprocal Protection of Investments

Russian-Turkish Bilateral Investment Treaty


| 8

Settlement of disputes between a Contracting Party and an investor of the other

Contracting Party

1. Any dispute between a Contracting Party and an investor of the other Contracting Party arising in connection with

investment activities, including disputes relating to the amount and procedure of payment of compensation to be paid in

accordance with Article VI of this Agreement, or procedure of transfer to be made according to Article VIII of this Agreement,

shall be subject to written notification with detailed comments which is sent by investor to the Contracting Party participating

in this dispute. Parties in dispute shall to the extent possible, seek a settlement to this dispute in an amicable manner.

2. In case the dispute cannot be settled in this manner within the period of six months from the date of the written notification

referred to in paragraph 1 of this Article, it shall be submitted for consideration to:

a) a competent court or arbitration tribunal of the Contracting Party in the territory of which the investments were made;

b) the Arbitration Institution of the Stockholm Chamber of Commerce;

c) an ad hoc arbitration tribunal in accordance with the Arbitration Rules of the United Nations Commission on International

Trade Law (UNCITRAL).

3. The decision of a competent court or the arbitration award shall be final and binding upon both parties to the dispute. Each

Contracting Party shall undertake to enforce this award in accordance with its legislation*.

*Agreement between the Government of the Russian Federation and the Government of the Republic of Turkey

regarding the Promotion and Reciprocal Protection of Investments

Claims against Russia


| 9



Rights



Arbitration



Contents 9

| 10

Termination of the Obligation Because of the Impossibility to Discharge It

1. The obligation shall be terminated because of the impossibility to discharge it, caused by the circumstance

occurring after the origination of the obligation, for which neither of the parties is answerable.

2. In case of the impossibility for the debtor to discharge the obligation because of the faulty actions of the

creditor, the latter shall not have the right to claim the return of what he has discharged by the obligation.*

Termination of the Obligation on the Grounds of an Act Issued by a State Body

1. If as a result of an act issued by a state body or local authority, the execution of an obligation has become

impossible in full or in part, the obligation shall be terminated in full or in the corresponding part. The parties

that have suffered losses as a result of this, shall have the right to claim compensation in conformity with

Articles 13 and 16 of the present Code.

2. An obligation shall not be deemed terminated if the issuance of the act by a state power body or local

authority that has entailed the impossibility of the obligation's execution has been caused by wrongful actions

(omissions) of the debtor proper.

3. If the act issued by the state body or local authority (Item 1 of this article) is recognized as invalid in

conformity with the established procedure, the obligation shall be deemed terminated unless otherwise follows

from the agreement between the parties or from the substance of the obligation and unless the creditor has

refused to execute the obligation within a reasonable time period.*

*Articles 416 and 417 of the Civil Code of the Russian Federation.

Fate of Earlier Construction Contracts


| 11



Rights



Arbitration


Contents 11


| 12

Reparation for Damages by Foreign Contractors in Arbitration


Where litigation is unavoidable – Prepare

When formulating the requested relief, consider the local enforcement

practices, certain types of relief may render the award not workable (e.g. “order

the defendant to pay” is treated and enforced as a specific performance rather

than pecuniary collection; *

Be especially careful: mind contractual, factual and official (registered)

addresses of a counterparty; take into account dispatch notes on any previous

correspondence with the counterparty;

Consider spelling street names, corporate names – even “dash” is important.

Monetary award: - Claim for payment of a specific sum of monetary compensation (price of goods, rent,

etc.)

- Compensation of actual damage

- Punitive damages and other sanctions

Specific performance and restitution:

- Order to a party to perform specific actions or refrain from performing such

actions

- Injunction / cease-and-desist order

- Order of termination or invalidation of a contract or a different document

Declaratory protection / claim for declaration:

- Order of creation, amendment, and termination of legal relationships

- Amendments / adaptation of contracts and filling the gaps

Payment of interest

Reimbursement of arbitration costs

Penalty / Astrainte

| 13

Reparation for Damages by Foreign Contractors in Arbitration


During 2015, Turkish contractors undertook 7,735 projects in 104 countries, valued at a

total of $304.5 billion. (http://www.bcct.org.tr/news/turkish-construction-companies-considerations-for-

international-projects-and-regional-dispute-resolution-trends/14677)

International contractors, including Turkish contractors, widely accept arbitration as an

important dispute resolution method. However, Turkish contractors tend to view

arbitration as a method of last resort, particularly when involved in constructions projects

for sovereign project sponsors. The risk of potentially losing future business from a

sovereign tends to prevent Turkish contractors from arbitrating disputes, even if a case

looks strongly in the contractor’s favor. Contractors tend to attempt other alternative

dispute resolution approaches, such as negotiation and mediation. (http://www.bcct.org.tr/news/turkish-construction-companies-considerations-for-international-projects-and-

regional-dispute-resolution-trends/14677)

http://www.bcct.org.tr/news/turkish-construction-companies-considerations-for-international-projects-and-regional-dispute-resolution-trends/14677
































































| 14



Rights



Arbitration



Contents 14

| 15

Enforcement Rate


... it appears that Russia has been enforcing foreign

awards at a rate of about 90% and above since 2009.

| 16

Compliance with adverse awards

Russia appears to have failed to honor all of the awards in the public domain that have been

rendered against it. It has challenged awards in local courts at the seat of arbitration (e.g. in

Swedish courts in the case of RosInvestCo v Russian Federation), and has vigorously resisted

the seizure of its assets by foreign courts pursuant to arbitral awards against it (e.g. in German

and Swedish courts in the case of Sedelmayer v Russian Federation).

Treaty of Commerce and Navigation between the Union of Soviet Socialist Republics and

the Republic of Turkey (Ankara, October 8, 1937)

The property of the Union of Soviet Socialist Republics which is in limits of borders of Turkish

Republic may be subjected to enforcement of a final judicial decision or a judicial decision that is

considered final excluding the objects exempted from such measures under international law

which are necessary to discharge state sovereign functions or to provide operation of diplomatic

and consular missions of the Union of Soviet Socialist Republics including the USSR Trade

Mission.

Enforcement of Investment Arbitration Awards in Russia


| 17

The World Bank Report 2016


Russian Federation and Turkey: Doing Business Rank

Topic Rankings Russian Federation Turkey

Enforcing contracts 5 36

Registering Property 8 52

Getting Electricity 29 36

Starting a Business 41 94

Getting Credit 42 79

Paying Taxes 47 61

Resolving Insolvency 51 124

Protecting Minority Investors 66 20

Dealing with Construction Permits 119 98

Trading Across Borders 170 62

Source: 2016 Doing Business Report, The World Bank

http://www.doingbusiness.org/data/exploreeconomies/russia/

http://www.doingbusiness.org/data/exploreeconomies/turkey/

http://www.doingbusiness.org/data/exploreeconomies/russia/

http://www.doingbusiness.org/data/exploreeconomies/turkey/

| 18

Get an arrest/attachment order as early as possible

Attachment in support of foreign court/judicial proceedings

Bank – warrant & writ of enforcement directly served

From Russia with warrant –

Minsk & Kiev convention

Courts are cheap. No fee shifting. Low stamp duty. Recalcitrant

debtors prefer to fight to the end

Getting It Right (Best Practices)


| 19

Access to Justice / Judicial Efficiency


Rank for Enforcing contracts

1. Singapore

2. Korea, Rep.

3. Lithuania

4. Australia

5. Russian Federation

6. Austria

7. China

8. Norway

9. Kazakhstan

10. Croatia

11. Estonia

12. Germany

13. Georgia 14. France

15. New Zealand

16. Taiwan, China

17. Luxembourg

18. United Arab Emirates

19. Antigua and Barbuda

20. Portugal Source: 2016 Doing Business Report, The World Bank

http://www.doingbusiness.org/rankings

USA UK Brazil Russian

Federation

Turkey

Rank for

Enforcing

contracts

21 33 45 5 36

Quality of

judicial

processes

index

(0-18) *

15 15 14 12,5 13

Time

(days) 370 437 731 310 580

Cost

(% of claim) 22,9 43,9 20,7 15 24,9

*The quality of judicial processes index measures whether each economy has adopted a series of good

practices in its court system in four areas: court structure and proceedings, case management, court

automation and alternative dispute resolution.

http://www.doingbusiness.org/rankings

| 20

Hot Topics

1) Attachments in support of ongoing arbitration proceedings

Decision of the Supreme Arbitrazh Court of the Russian Federation, 20 April 2010, № 17095/09 (Edimax

Limited vs. Chigirinsky)

2) Attachments in support of ongoing foreign court proceedings Decision of the Federal Arbitrazh Court of the North-West district, 29 July 2010, № A56-95127/2009 (Finisterre

Recovery Fund 1 Limited, Finisterre Special Situations Fund, Whitewater EMCF LLC, Whitewater EMCO LLC,

Spinnaker Global Emerging Markets Fund Ltd, Spinnaker Global Opportunity Fund Ltd, Spinnaker Global

Strategic Fund Ltd vs. Teorema Holding Plc)

3) Enforcement in Russia against non-resident entities Ruling of the Supreme Arbitrazh Court of the Russian Federation, 28 June 2010, № VAS-6430/10

(SRL «MISINARIX»vs. SRL «Fercen Grup», JSC «SEB Bank»)

4) Enforcement of judgments from non-treaty countries (reciprocity has to be

proven) Ruling of the Supreme Arbitrazh Court of the Russian Federation, 7 December 2009, № VAS-13688/09

(Rentpool B.V. vs. Podyomnye Technology LLC)

Ruling of the Supreme Arbitrazh Court of the Russian Federation, 26 July 2012, No. VAS-6580/2012 (Boegli-

Gravures SA vs. Darsail-ASP Ltd & Pyzhov)


Ilya Nikiforov Fraud, Asset Tracing & Recovery 21

Chisenau

SEB Bank guarantor Fercen Grup

debtor

MISINARIX – To Recognize and

Enforce

Jurisdiction basis: Assets

SEB > correspondent account

Fercen > equipment

Procedure:

Kyiv Convention, 20 March 1992,

Minsk Convention, 22 January 1993,

Agreement between the Russian

Federation and the Republic of Moldova,

25 February 1993,

RF Arbitrazh Procedure Code

MISINARIX Case (№А40-156339/09-50-1134)

Moscow Kiev

Chisinau

MISINARIX

creditor

http://www.clipart.net.ua/images/clip4404.jpg


http://geografica.net.ua/_ph/5/12785958.jpg

http://www.hse.ru/data/2010/09/03/1220645585/Moldova.gif





Chisenau

MISINARIX

creditor


debtor

SBERBANK


Enforce



Fercen > equipment

Procedure:





25 February 1993,


Moscow Kiev

MISINARIX Case (№А40-156339/09-50-1134)









Chisenau

MISINARIX

creditor


debtor

SBERBANK


Enforce



Fercen > equipment

Procedure:





25 February 1993,


Moscow Kiev

Ukrsocbank

MISINARIX Case (№А40-156339/09-50-1134)








| 24

Tricky Enforcement

Enforcement authority currently handles over 32,4 million dockets. Only in 20 % of

cases - executory proceedings succeed. (A. Ivanov, Chairman of the Supreme Commercial Court of

the Russian Federation, Interview December 2012)

No veil piercing is allowed at the enforcement stage

Where corporations have experienced problems with enforcement, the problems were

more commonly due to the insolvency and/or i.e. lack of traceable assets of the debtor

Enforcement authorities trying their best:

•Debtor’s list;

•Closed border;

•Garnishment of cell phone

accounts / balances;

•Other creative stunts.


| 25

1. Identify the entity, its owners and affiliates assets through public records;

2. File for arrest of known assets of the debtor as a conservatory measure, early. Invoke, perfect security interests / retention of title clauses;

3. Leak the story to mass media;

4. Write letters to the debtor and its business partners, regulators & supervisory agencies, advising them on the situation;

5. If the debtor and its affiliates are involved in public procurement put the government customers on notice regarding the situation;

6. Ask the Court to proceed with the enforcement case on an expedited basis;

7. Assist the enforcement authority – court bailiff – in properly identifying and seizing business assets of the debtor.

Preferred Enforcement Scenario


| 26

Ilya Nikiforov

Managing Partner

St. Petersburg office

Egorov Puginsky

Afanasiev & Partners

T 7 (812) 322 96 81

F 7 (812) 322 96 82

e: [email protected]

Ilya Nikiforov is a Managing Partner at St. Petersburg office of Egorov Puginsky Afanasiev & Partners.

Arbitration Group of the firm headed by Ilya Nikiforov is the only Russian practice listed in Global Arbitration

Review Top 100 survey (2012). Chambers Europe consistently ranked Ilya Nikiforov as a Tier 1 disputes

lawyer in the market.

Ilya Nikiforov is known for a strong expertise in both litigation and arbitration and is listed as an arbitrator by

prominent arbitration institutions, such as WIPO, ICDR. Ilya has special experience in international

business transactions, commercial arbitration, construction and development projects, and intellectual

property law .

Nikiforov represents client interests at domestic forums at all levels, before Moscow arbitration institution

and other prominent commercial arbitration institutions, such as the ICC, LCIA and SCC. He is often

engaged as a Russian law counsel/expert in connection with commercial litigation and international

arbitration proceedings worldwide.

Since 1997 Ilya Nikiforov serves as an adjunct faculty member at the Law School of St. Petersburg State

University. He frequently speaks at professional conventions. Mr. Nikiforov has published a substantial

number of works on Russian business laws. He has co-authored one of the leading Commentaries to the

Civil Code of the Russian Federation.

Ilya Nikiforov


mailto:[email protected]



© Egorov Puginsky Afanasiev & Partners

Best Law Firm in Russia

Who's Who Legal Awards 2015

Russian National Law Firm of the Year

Chambers Europe Awards 2014

Law Firm of the Year: Russia

The Lawyer European Awards 2014

European Corporate Team of the Year


European Law Firm of the Year






Law Firm of the Year: Russia and The CIS


Best National Law Firm in Russia


Best Law Firm in Russia

‘Pravo.Ru-300, Russia

European energy, infrastructure and projects deal of the year


Thank you! Ilya Nikiforov

Managing Partner

Egorov Puginsky Afanasiev & Partners