On July 26, the Supreme Court issued Ruling No. 304-ES24-2799 in case No. A45-19015/2023. It contains a list of criteria by which courts should be guided when deciding whether an arbitration award issued in an “unfriendly” jurisdiction should be enforced in Russia. In this case, the applicant, German company C. Thywissen GmbH, recovered damages in the amount of 600 thousand US dollars from a Russian company (JSC Novosibirskkhleboprodukt) in the international arbitration of the Federation of Oilseed, Seed and Fat Trade Associations (FOSFA). The arbitrators recognized this amount as JSC Novosibirskkhleboprodukt's liability for its failure to supply 3,000 metric tons of flaxseed to Belgium. The damages were calculated as the difference between the contract price and the market price of the goods at the time of the breach of the obligation, at which the company could have purchased similar goods. At the same time, the Russian company explained that it could not deliver the goods due to drought. The lower courts considered that the arbitration decision should be executed in the territory of Russia; however, the Supreme Court disagreed with this approach and ordered the retrial of the case.

The TV&P lawyer, Alexander Timofeev, explained in his comment to the “Advokatskaya Gazeta” (Russian Advocacy Newspaper) that this ruling significantly expands the procedural concept of "public order". Firstly, the expert noted, it emphasizes that arbitrators who have citizenship in "unfriendly" countries cannot be recognized as objective and impartial unless proven so. The lawyer noted that this position has already been encountered in judicial practice; however, now it has been elevated to one of the pillars of the public order concept. Thus, in Resolution of the Arbitration Court of the Central District dated May 02, 2024, No. F10-1206/2024 in case No. A48-10101/2022, recognition and enforcement of a Belize court decision in the Russia was denied, including because the head of this state is the king of Great Britain (an unfriendly country), and the application of restrictions by a foreign country "prevents the Russian side from accessing justice on its territory".

Secondly, the court critically assessed the circumstances on which the FOSFA Arbitration based its findings and concluded that it was necessary to reevaluate the damages caused and the actions of the foreign company to reduce them. Thus, the panel of judges assessed the essence of the decision and the circumstances on which it was based from the point of view of its compliance with the public order of Russia.

Thirdly, the Supreme Court emphasized the special public importance of the defendant - JSC Novosibirskkhleboprodukt. Thus, it mentioned the inadmissibility of worsening the defendant's financial situation.

Fourthly, the panel outlined that the procedure to appeal the arbitration award was not explained to the defendant. Nevertheless, the FOSFA International Rules of Arbitration & Appeal, which describe the procedure in detail, are published in open access (which makes this conclusion somewhat controversial).

According to the expert, these conclusions might be considered as blurring the line between checking a court or arbitration award issued in an "unfriendly" jurisdiction for compliance with public policy and its de facto review on the merits (which is not provided for such a procedure). "In this regard, we should expect further development of judicial practice, including the Supreme Court of the Russian Federation, where the limits of such a review will be specified," concluded Alexander Timofeev.

“Advokatskaya Gazeta” (Russian Advocacy Newspaper) is the official body of the Russian Federal Bar Association (published since 2007). The Newspaper’s publications are devoted to the most important legal topics, case law, as well as legal practice and issues of advocacy.

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