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

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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

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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)

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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)

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Rights
Arbitration
Contents
5

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 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

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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

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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

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Rights
Arbitration
Contents
9

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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

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Rights
Arbitration
Contents
11

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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

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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)

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Rights
Arbitration
Contents
14

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Enforcement Rate
... it appears that Russia has been enforcing foreign
awards at a rate of about 90% and above since 2009.

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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

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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/

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 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)

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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.

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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
guarantorFercen 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)
MoscowKiev
Chisinau
MISINARIX
creditor

Chisenau
MISINARIX
creditor
SEB Bank
debtor
SBERBANK
Enforce
Fercen > equipment
Procedure:
25 February 1993,
MoscowKiev
MISINARIX Case
(№А40-156339/09-50-1134)

Chisenau
MISINARIX
creditor
SEB Bank
debtor
SBERBANK
Enforce
Fercen > equipment
Procedure:
25 February 1993,
MoscowKiev
Ukrsocbank
MISINARIX Case
(№А40-156339/09-50-1134)

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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.

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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

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Ilya Nikiforov
Managing Partner
St. Petersburg office
Egorov Puginsky
Afanasiev & Partners
T 7 (812) 322 96 81
F 7 (812) 322 96 82
e: ilya.nikiforov@epam.ru
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

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