INTERNATIONAL JUDICIAL ASSISTANCE FROM AMERICAN COURTS IN RUSSIAN LITIGATION

AND ARBITRATION PROCEEDINGS

Glenn P. Hendrix

Arnall Golden Gregory, LLP171 17th Street, NW

Suite 2100Atlanta, Georgia 30363-1031Telephone: (404) 873-8692Facsimile: (404) 873-8693

E-mail: glenn.hendrix@agg.comWebsite: www.agg.com

Presented at:

THIRD LOCAL CIS COUNSEL FORUM

St. Petersburg, RussiaJune 27, 2008

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TABLE OF CONTENTS

Page

I. Introduction …………………………………………………………………….. 1

II. Enforcement of Foreign Judgments ……………………………………………… 3

III. Recognition and Enforcement of Arbitral Awards ……………………………… 7

A. Substantive Grounds for Refusal of Recognition and Enforcement ……............................................................................ 8

1. Article V(1)(c) – Award Beyond the Scope of the Arbitration Agreement ……………………………………………. 10

2. Article V(2)(a) – Subject Matter Not Arbitrable ………………….. 11

3 Article V(2) – Contrary to Public Policy ………………………….. 13

B. Procedural Issues ………………………………………………………… 16

1. Personal Jurisdiction ……………………………………………… 17

2. Forum Non Conveniens …………………………………………… 19

C. Vacatur of Arbitration Awards …………………………………………… 21

1. Authority to Vacate an Award …………………………………… 22

2. Effect of a Vacated Award or a Pending Action to Vacate an Award ………………………………………………. 23

IV. Provisional Measures of Protection ……………………………………………. 25

V. Obtaining Evidence Located in the United States for Use in a Foreign Court …… 26

VI. Litigation in U.S. Courts ………………………………………………………….. 31

VII. Conclusion ………………………………………………………………………… 32

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INTERNATIONAL JUDICIAL ASSISTANCE FROM AMERICAN COURTSIN RUSSIAN LITIGATION AND ARBITRATION PROCEEDINGS1

I. Introduction

The commercial disputes decided in Russia's courts increasingly involve matters that extend beyond Russia’s borders. Between 2004 and 2007, the arbitrazh (commercial) courts decided 5,128 cases in which at least one of the litigants was foreign, and in 3,594 of those cases, the foreign party was from outside the Commonwealth of Independent States (CIS).2 These figures do not fully capture all matters with a foreign element, moreover, as they do not include disputes in which one or more of the litigants was a Russian entity having foreign ownership. The arbitrazh courts also executed 288 letters rogatory (судебные поручения) from foreign courts in 2007,3 and received 118 petitions for the enforcement of foreign arbitral awards and judgments.4 Furthermore, the International Commercial Arbitration Court attached to the Chamber of Commerce and Industry of the Russian Federation ("ICAC") decided 141 cases involving parties from 40 different countries in 2007.5 Russian parties were also involved in numerous arbitration proceedings administered by the Stockholm Chamber of Commerce, the London Court of International Arbitration, the International Chamber of Commerce, and many other arbitration institutions.

It might appear that there is little role for a foreign court to play in a dispute that is pending before a Russian court or arbitral institution. That is not the case, as illustrated by the following situations:

The claimant in a Russian lawsuit or arbitral proceeding may be concerned that the defendant will dispose of its assets prior the conclusion of the case. In a situation where those assets are located overseas, it will be

1 Portions of this paper are excerpted from prior articles by the author. See Glenn P. Hendrix, Американская правовая помощь по экономическим спорам, разрешаемым судами и третейскими судами.[Judicial Assistance in U.S. Courts in Commercial Litigation and Arbitration], ВЕСТНИК ВЫСШЕГО АРБИТРАЖНОГО СУДА РОССИЙСКОЙ ФЕДЕРАЦИИ [VESTNIK VYSHEGO ARBITRAZHNOGO SUDA ROSSIISKOI FEDERATSII], 1999, Appendix to Issue No. 3; Glenn P. Hendrix, International Judicial Assistance from American Courts in Russia Litigation and Arbitration Proceedings, Paper presented at the Russian-American Symposium on Private International Law, Moscow State Institute of International Relations (MGIMO), June 29, 2004. The author gratefully acknowledges the research assistance of Zachary D. Wilson in preparing the most recent version of this paper.

2 Статистические показатели о работе арбитражных судов Российской Федерации в 2007 году. Пояснительная записка [Statistical Indicators of the Work of the Arbitrazh Courts of the Russian Federation in 2007], at 12, Supreme Arbitrazh Court of the Russian Federation (2008) <http://arbitr.ru/news/totals>.

3 Id.4 Id. at 5.5 Статистика МКАС за 2007 год [Statistics for the ICAC in 2007], International

Commercial Arbitration Court at the RF Chamber of Commerce and Industry < http://www.tpprf-mkac.ru>.

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necessary to petition a foreign court for interim relief (обеспечительные меры), such as an attachment or garnishment6 of property or injunction.7

A successful claimant may need to have a final court judgment or arbitral award recognized by a foreign court in order to recover against assets of the defendant located outside of Russia.

A party may need evidence or information from a foreign country in order to prosecute or defend a case pending in Russia. This will generally require the assistance of a foreign court.

This article will discuss assistance that may be available from United States federal courts in the foregoing situations.

While the United States and Russia have not executed a bilateral treaty providing for mutual legal assistance in civil matters,8 both countries are parties to the Hague Convention on Taking of Evidence Abroad in Civil and Commercial Matters of 1970, the Hague Convention on Service Abroad of Judicial and Extrajudicial Documents of 1965, and the United Nations Convention for the Recognition and Enforcement of Foreign Arbitral Awards. Furthermore, as discussed below, even with respect to matters not covered by a treaty, an American court will generally be willing to provide assistance in connection with lawsuits and arbitration proceedings taking place in Russia.

Even during the Soviet period, American and Russian courts honored requests for assistance from another. On November 22, 1935, the U.S. Ambassador to the USSR (William Bullitt) and the Soviet People’s Commissar for Foreign Affairs (Maxim Litvinov), exchanged diplomatic notes explaining the procedures and criteria in their respective countries for implementing letters rogatory issued by foreign courts. The note from the U.S. Ambassador provided assurances that “no difficulty is likely to be encountered by Soviet courts in obtaining the execution of letters rogatory by American courts.”9 Mr. Litvinov’s note provided similar assurances on behalf of the Soviet Union and also stated that an American “court issuing the letter rogatory shall, if it so desires, be

6 In Russian: наложение ареста на денежные средства или иное имущество, принадлежащие ответчику и находящиеся у него или других лиц.

7 In Russian: запрещение ответчику и другим лицам совершать определенные действия, касающиеся предмета спора.

8 Russia and the United States have executed a Mutual Legal Assistance Treaty (MLAT) for the purpose of joint cooperation in criminal cases. The treaty entered into effect on December 2001. For a description of one U.S. prosecutor’s experience in obtaining witness testimony from Russia in a criminal case, see Duncan DeVille, Waving a Red Flag in Court: Obtaining and Using Witness Testimony from the Former Soviet Union 39 STAN. J. INT’L L. 99 (2003). U.S. courts have also provided assistance to Russian criminal investigations. See, United States v. Sealed I, Letter of Request for Legal Assistance from the Deputy Prosecutor General of the Russian Federation, 235 F.3d 1200 (9th Cir. 2000).

9 Exchange of notes between the USA and USSR concerning execution of letters rogatory, signed Nov. 22, 1935, 49 Stat. 3840, 3844.

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informed of the date and place where the proceedings will take place, in order that the interested parties or their legal representatives may, if they desire, be present.”10

II. Recognition and Enforcement of Foreign Money Judgments

The United States is not currently a party to any bilateral treaty or multilateral convention regarding the recognition and enforcement of foreign judgments.11 During the 1970s, the United States attempted to negotiate such a treaty with the United Kingdom. That attempt foundered because English manufacturers and insurers feared the huge verdicts sometimes issued by U.S. juries.

There is also no federal statute governing enforcement of foreign judgments. Rather, it is necessary to look to the law of the particular state in which the judgment is sought to be enforced. Even so, there is some uniformity in this area because thirty-two U.S. jurisdictions have adopted a statute known as the Uniform Foreign Money Judgments Recognition Act (the “1962 Uniform Act”). The remaining states apply standards that are similar to those set forth in the Uniform Act.12

Three states -- California, Idaho and Nevada -- have enacted a newer version of the 1962 Uniform Act, the Uniform Foreign Country Money Judgments Recognition Act (the “2005 Uniform Act”). The 2005 Uniform Act does not change the substantive bases for recognition of foreign money judgments. The 1962 and 2005 versions of the Uniform Act are different primarily in that the latter provides a procedure for the recognition of foreign country money judgments and establishes a statute of limitations.13 Since the 1962 Uniform Act remains in force in the majority of jurisdictions, it will be the focus of discussion in this paper.

10 Prior to the 1935 exchange of notes, it does not appear that letters rogatory from the United States were honored by the Soviet Union. For instance, in 1921, a U.S. court received a communication from the “Department of Economy and Law” (DEL) of the Russian Socialist Federated Soviet Republic stating that letters rogatory are executed only where “international agreements [are] concluded between the two countries, with the aim of regulating such proceedings,” and that since no such agreement existed between the Soviet Union and the United States, the DEL “regret[ted] to state that the request of your court cannot be fulfilled.” See Gurdus v. Philadelphia Nat. Bank, 273 Pa. 110, 116 A. 672 (1922).

11 The United States, like the Russian Federation, was actively involved in the multilateral negotiations at the Hague Conference on Private International Law to develop the “Convention on Choice of Courts Agreements” that would enforce forum selection clauses and resulting court judgments, much as the New York Convention does for arbitration clauses and arbitral awards. See The Hague Convention on Choice of Courts Agreement (June 2005) <http://www.hcch.net/index_en.php?act=conventions.txt&cid=98>. To date, only Mexico has ratified the Convention.

12 Richard J. Garving, The Carefully Crafted 2005 Uniform Foreign-Country Money Judgments Recognition Act Cures a Serious Constitutional Defect In It’s 1962 Predecessor, 16 MICH. ST. J. INTL. L. 289 (2007).

13 An action must be commenced within the earlier of the date the judgment became effective in the foreign country or 15 years from the date the judgment became effective in the foreign country.

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The 1962 Uniform Act provides that foreign money judgments are generally enforceable, but also sets forth nine grounds for non-enforcement:

1. the judgment was rendered under a system which does not provide impartial tribunals or procedures compatible with the requirements of due process of law;

2. the foreign court did not have personal jurisdiction over the defendant;

3. the foreign court did not have jurisdiction over the subject matter;

4. the defendant in the proceeding in the foreign court did not receive notice of the proceedings in sufficient time to enable him to defend;

5. the judgment was obtained by fraud;

6. the cause of action on which the judgment is based is repugnant to the public policy of the state;

7. the judgment conflicts with another final and conclusive judgment;

8. the proceeding in the foreign court was contrary to an agreement between the parties under which the dispute in question was to be settled otherwise than by proceedings in that court; or

9. the foreign court was a seriously inconvenient forum for the trial of the action.

Grounds (1) and (2) above merit further explanation. The first ground is narrowly applied by American courts. The foreign judicial system need only follow “civilized” norms. The fact that the foreign court’s procedures are different from those followed by U.S. courts does not, in itself, constitute a basis for non-enforcement. This ground is rarely applied unless the judgment was obtained in a foreign country where it is unlikely for political reasons that the defendant would be able to receive a fair trial.14

With regard to the second ground above, lack of personal jurisdiction, a foreign judgment will not be refused enforcement on this basis if:

1. The defendant was personally served with process (судебный приказ) while physically present in the foreign country;

14 See, e.g., Bank Melli Iran v. Pahlavi, 58 F.3d 1406, 1413 (9th Cir. 1995) (U.S. court refused to enforce judgment of Iranian court against the sister of the former Shah of Iran); Carl Zeiss Stitfung v. V.E.B. Carl Zeiss, Jena, 293 F.Supp. 892, 906-907 (S.D.N.Y. 1968) (U.S. court refused to enforce judgment of East German court).

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2. The defendant voluntarily appeared in the foreign proceeding. If the defendant appears merely to contest the forum’s jurisdiction, he is not considered to have “appeared”;

3. The defendant had previously agreed in writing to litigate in the foreign forum;

4. The defendant, whether an individual or corporation, was domiciled in the forum, or if a corporation, had its principal place of business there; or

5. The defendant “did business” in the forum, and the cause of action arose out of that business.

In addition to the nine grounds listed above, two states – Massachusetts and Georgia – will refuse to enforce a foreign judgment if the foreign court would not enforce a judgment of the court of that state. Five other states – Florida, Maine, North Carolina, Ohio and Texas – have authorized their courts to consider reciprocity in connection with the recognition of a foreign judgment, but do not require it.15 Colorado achieves an effect similar to Georgia and Massachusetts by requiring a reciprocity treaty as a precondition of foreign judgment recognition, however, this statutory requirement may be circumvented by a common law suit.16

It is unclear whether Russian courts will enforce foreign court judgments in the absence of a treaty,17 and no such treaty currently exists between the U.S. and Russia.18

To the extent that a court in one of the eight states discussed above concluded that a U.S. judgment would not be enforced in Russia, this would serve as a basis for refusing to enforce a Russian court judgment.

15 Garving, supra, n. 12, at 301, n. 65.16 Milhoux v. Linder, 902 P.2d 856 (Colo. Ct. App. 1995).17 Some commentators state that foreign judgments will not be enforced in the absence of a

treaty. See, e.g., Liudmila P. Anufrieva, МЕЖДУНАРОДНОЕ ЧАСТНОЕ ПРАВО [PRIVATE INTERNATIONAL LAW] 322 (Bek 2002). Others observe while “straightforward” enforcement of a foreign judgment is not possible in the absence of a treaty, there are a few instances in which foreign judgments have been enforced on the basis of reciprocity. See Ilya Nikiforov, Enforcement of Judgments in Russia, 1 DISPUTE RESOLUTION INTERNATIONAL 219, 222 (2007); see also Diana Tapola, Analysis of Grounds for Refusal in Enforcement of Foreign Judgments in Russia, 22-11 MEALEY’S INT’L ARBITRATION REPORT 18 (2007). Enforcement of an American judgment was refused in Pan Am Pharmaceuticals, Inc. v. Russian Cardiology Scientific-Production Complex of the Russian Ministry of Health. In that case, the Moscow Circuit Court upheld a lower court’s refusal to recognize a U.S. court judgment in the amount of $119,331 against a Russian enterprise, notwithstanding a choice of court provision in the parties’ contract specifying that disputes would be resolved by a New York court. The Moscow court held that that Russia enforces foreign judgments only on the basis of a treaty. See Case No. KG-A40/10556-04, Federal Arbitrazh Court – Moscow Circuit, Nov. 17, 2004

18 Russia is a party to approximately 40 bilateral treaties providing for the recognition and enforcement of foreign judgments. Most of these are with former Soviet bloc countries. The treaties with Spain, Greece and Cyprus are notable exceptions.

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With the exception of these eight states, however, there is no inherent reason why a Russian court judgment would not be enforced by a U.S. court. To the author’s knowledge, there are no reported cases involving efforts to enforce a Russian foreign money judgment; however, there has been some litigation regarding the effect of non-money judgments originating in the CIS. For instance, a court in the District of Columbia enforced a child custody decree issued by the Babushkin District Court in Moscow, 19 and a Mississippi court recognized and enforced a divorce decree entered by the Timiriazevsky District Court in Moscow, including the Russian court’s findings as to child custody and support.20 In another case, a U.S. federal bankruptcy court granted a request by Rossiyskiy Kredit Bank that it honor a restructuring order of the Russian Agency for Restructuring of Credit Organizations. The U.S. court order enjoined Rossiyskiy Kredit’s creditors from taking any further action against the bank or its assets.21 In at least two other cases, a U.S. court, while not directly faced with the issue of whether to enforce a Russian judgment, indicated that it would likely do so if it were presented with the issue.22

There are at least two cases in which judgments from the CIS were not recognized. In both cases, however, the petitioner failed to demonstrate that the respondent was served with proper notice of the lawsuit. For instance, in Norex Petroleum Limited v. Access Industries, Inc., et al,23 an appellate court considered whether collateral estoppel applied with respect to a default judgment issued by a court in Nizhnevartovsk. The court held that the Russian judgment was not entitled to preclusive effect in the United States because the defendant denied being served, and the lower court had not yet heard evidence on that issue. In Kiritchenko v. Universal Trading & Investment Co.,24 the U.S. court considered a non-money judgment rendered by a court in the Ukraine. At issue was whether the purported assignment of a claim by the Prosecutor General of Ukraine to a private party (UTI) was valid. Two Ukrainian courts had already ruled that it was not. The U.S. court rejected an argument by UTI that the Ukrainian courts are not impartial and that the Ukrainian judgments were invalid on that basis. Nevertheless, it ultimately declined to recognize the Ukrainian judgments on the basis that UTI had not been served with notice of the Ukrainian lawsuits.25 Even so, the court 19 Bliss v. Bliss, 733 A.2d 954 (D.C. App. 1999).20 Asanov v. Hunt, 914 So.2d 769 (Ct. App. Miss. 2005).21 In re Rossiyskiy Kredit Bank, No. 00-13504-pcb (Bankr. S.D.N.Y. Oct. 11, 2000); see

also, Joseph Slobodzian, Russian Court Ruling Gets Respect, NATIONAL LAW JOURNAL, p. B1 (Dec. 4, 2000).

22 Pavlov v. Bank of N.Y. Co., 135 F. Supp. 2d 426, 435 (S.D.N.Y. 2001) vacated on other grounds, 2002 WL 63576 (2d Cir. Jan. 14, 2002); Varnelo v. Eastwind Transport Co., 2003 WL 230741 (S.D.N.Y. 2003). In both cases, the U.S. court declined to exercise jurisdiction based on the Anglo-American legal doctrine of forum non conveniens, which allows a judge to dismiss a case if the convenience of the parties, together with the interests of justice, indicate that the case should be tried in another forum. In both cases, the U.S. court decided that a Russian court was a more appropriate forum.

23 416 F.3d 146 (2nd Cir. 2005).24 2007 WL 2669841 (N.D. Cal. Sept. 7, 2007).25 In determining whether to give preclusive effect to the Ukrainian court decisions, the

U.S. court noted that the Uniform Act does not apply to non-monetary judgments. Instead, the court applied principles of comity, which yield a similar result.

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expressly relied in part upon the reasoning of the Ukrainian judgments in reaching its own conclusion that the assignment was not valid under Ukrainian law.

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III. Recognition and Enforcement of Arbitral Awards

Like the Russian Federation, the United States is a party to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”). There are several cases in which arbitral awards issued by the ICAC in Moscow have been enforced in the United States.26 There are also numerous instances in which U.S. courts have dismissed lawsuits because the dispute was covered by an arbitration clause referring to either the ICAC or the Maritime Arbitration Commission at the Chamber of Commerce and Industry of the Russian Federation. For instance, in Filanto, S.p.A. v. Chilewich International Corp.27 the court held that a New York company and an Italian firm were bound to arbitrate before the ICAC, even though their agreement (which consisted of an exchange of letters) did not include an express provision to that effect. The court reached this result because the letters exchanged between the parties incorporated by reference the terms of a contract between the British agent of the New York company and a Russian enterprise. That contract, in turn, provided for ICAC arbitration.28 In referring the parties to the ICAC, the court “observed that there is no reason to believe that the Chamber of Commerce in Moscow cannot provide fair and impartial justice to these litigants.” More recently, in Soyuz-Victan,29 a U.S. District Court dismissed an action filed in Illinois in favor of arbitration in Russia even though one of the plaintiffs was not a signatory to the arbitration agreement.30

Likewise, arbitration was compelled before the ICAC in Happy Merchant Ltd. v. Far Eastern Shipping Co., Inc.31 and before the Maritime Arbitration Commission in Spirit of Excellence, Ltd. v. Progress.32 Instances in which American courts have declined to recognize a Russian arbitration award or enforce an agreement providing for arbitration in Russia are very rare.33 26 See, e.g., AOZT Aquatron & OOO Concordia v. Argent Chemical Labs No. C00-006L

(W.D.Wash. 2001)(court enforced ICAC award in favor of Russian petitioners despite arguments by the American respondent that the contract was signed under duress and that it had not received notice of the hearing in Moscow); International Ambassador Programs, Inc. v. Archexpo Commerce & Industry Centre, 68 F.3d 337 (9th Cir. 1995)(referencing the confirmation of a 1992 ICAC award against an American company); AAOT Foreign Economic Association (VO) Technostroyexport v. International Development & Trade Services, Inc., 139 F.3d 980 (2d Cir. 1998) (court confirmed $200 million dollar ICAC award against an American company)..

27 789 F.Supp. 1229 (S.D.N.Y. 1993). 28 The Russian contract provision providing for ICAC arbitration would not have been

incorporated into the agreement between the New York and Italian firms under domestic U.S. law. Rather, that result occurred due to the application of Article 19 of the United Nations Convention on Contracts for the International Sale of Goods. See 789 F.Supp. at 1229-30.

29 Dime Group International, Inc., v. Soyuz-Victan USA, LLC, 2008 U.S. Dist. LEXIS 11488 (N.D. Ill. 2008).

30 In reaching this result, the court applied the principle that a non-signatory is estopped from avoiding arbitration if it knowingly seeks the benefits of the contract containing the arbitration clause.

31 1995 WL 705131 (N.D. Cal. 1995).32 1997 WL 413963 (N.D.Ill. 1997).33 One such case was Moscow Dynamo v. Ovechkin, 412 F. Supp. 24 (D.D.C. 2006), where

the judge granted a professional hockey player’s motion to dismiss a petition for confirmation of an award by the Arbitration Committee of the Russian Ice Hockey Federation in favor of Moscow Dynamo, a Russian professional hockey club. The court declined to confirm the award on the

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A. Substantive Grounds for Refusal of Recognition and Enforcement

Article V of the Convention sets forth seven grounds on which a court may refuse to recognize and enforce a foreign arbitral award. The first five grounds, enumerated in Article V(1), focus primarily on due process concerns:

(a) Invalidity of the agreement under the law to which the parties have subjected it or under the law where the award was made;

(b) The party against whom the award is invoked was not given notice of the arbitration proceedings or was unable to present his/her case;

(c) The award deals with matters not falling within the terms of submission to arbitration;

(d) The arbitral procedure was not in accordance with the agreement of the parties or the law of the country where the arbitration took place; and

(e) The award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, the award was made.

Article V(2), on the other hand, serves to protect the policy interests of the enforcing country, allowing the court to refuse recognition and enforcement if “(1) [t]he subject matter of the dispute is not capable of settlement by arbitration under the law of that country; or (2) [t]he recognition of enforcement of the award would be contrary to the public policy of that country.”

The New York Convention standards are reflected in both U.S.34 and Russian35

statutory law, and in certain respects, Russian and American courts seem to apply these standards in a similar manner. For instance, both take the position that the merits of a foreign award may not be reviewed by the court during confirmation proceedings. As stated by one U.S. court, the Convention is “clear that when an action for enforcement is brought in a foreign state, the state may refuse to enforce the award only on the grounds explicitly set forth in the Convention.”36 Likewise, the Russian Supreme Arbitrazh Court has instructed that the Convention, together with articles 232 and 233 of the Code of Arbitrazh Procedure, precludes a re-examination of the merits (“пересмотру по существу”) of the case.37 There are numerous concrete examples of cases in which

basis that the player had never agreed to arbitration in writing, as required by Article II of the New York Convention.

34 9 U.S.C. § 201, et seq.35 Закон РФ “О международном коммерческом арбитраже” [Law on International

Commercial Arbitration], Vedomosti RF, 1993, No. 32, Item 1240.36 Yusuf Ahmed Alghanim & Sons, W.L.L. v. Toys “R” Us, Inc., 126 F.3d 15 (2d Cir. 1997).

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Russian courts have applied this principle.38 According to various estimates, Russian courts enforce foreign arbitral awards in approximately two-thirds39 to 80 percent40 of the cases presented to them. The actual rate of enforcement is probably somewhere in between these figures.41 While these rates of enforcement are lower than the international average enforcement rate, which is generally agreed to be about 90 percent,42 they are higher than one might expect, given the stereotype popular in some quarters that Russian courts will not enforce foreign arbitral awards.

Since the approach of Russian and U.S. courts is consistent in many respects, it is most useful to concentrate in this paper on those areas in which American and Russian courts seem to apply the Convention standards somewhat differently. In that regard, the following discussion will focus on Articles V(1)(c) (arbitration award beyond the scope of the submission to arbitrate), V(2)(a) (non-arbitrability of the dispute), and V(1)(e) (award not binding or vacated). The “public policy” ground (Article V(2)(b)) will also be discussed, as it constitutes a frequent subject of litigation. In noting possible areas of difference, the author is approaching the issue from the practical standpoint of a practicing lawyer rather than as a critic or advocate for one approach over the other.

37 Supreme Arbitrazh Court of the RF, Informational Letter No. 96, Dec. 22, 2005, example no. 12; see also, Tatiana N. Neshataeva, МЕЖДУНАРОДНЫЙ ГРАЖДАНСКИЙ ПРОЦЕСС [INTERNATIONAL CIVIL PROCEDURE] 157 (Delo 2001).

38 Boris R. Karabelnikov, Российские суды и международный арбитраж: развитие событий в 2006 г. [Russian Courts and International Arbitration: Developments in 2006], МЕЖДУНАРОДНЫЙ КОММЕРЧЕСКИЙ АРБИТРАЖ [INTERNATIONAL COMMERCIAL ARBITRATION] (2007); Dmitry Kurochkin & Albert Francesca, Arbitration – Russia, INTERNATIONAL LAW OFFICE NEWSLETTER (IBA) (Aug. 2, 2007); Hiroshi Oda, Enforcement of International Commercial Arbitration Awards in Russia, Paper presented at Association for German-Russian Economic E.V., Hamburg, Germany (Mar. 2006) <www.vdrw.de/pdf/mitteilungsheft28-29.pdf.>; William R. Spiegelberger, The Enforcement of Foreign Arbitral Awards in Russia: An Analysis of the Relevant Treaties, Laws and Cases, 16 AM. REV. OF INT’L ARB. 261 (2005); Glenn P. Hendrix, Business Litigation and Arbitration in Russia, in Aviva Yakren (ed.) A LEGAL GUIDE TO DOING BUSINESS IN RUSSIA AND THE FORMER REPUBLICS OF THE USSR, 135, 138-141 (American Bar Association 2000); Gennady Danilenko & William Burnham, LAW AND LEGAL SYSTEM OF THE RUSSIAN FEDERATION (2D ED.) 387 (Juris 2000); Kaj Hober, ENFORCING FOREIGN ARBITRAL AWARDS AGAINST RUSSIAN ENTITIES (Transnational Juris 1994).

39 Spiegelberger, supra, n. 38, at 261. 40 Boris R. Karabelnikov, ПРИЗНАНИЕ И ПРИВЕДЕНИЕ В ИСПОЛНЕНИЕ ИНОСТРАННЫХ

АРБИТРАЖНЫХ РЕШЕНИЙ: КОММЕНТАРИЙ К НЬЮ-ЙОРКСКОЙ КОНВЕНЦИИ 1958 Г. И ГЛАВАМ 30 И 31 АПК РФ, [RECOGNITION AND ENFORCEMENT OF FOREIGN ARBITRAL AWARDS: COMMENTARY ON THE NEW YORK CONVENTION OF 1958 AND SECTIONS 30 AND 31 OF THE APK OF THE RF] 14 (FBK-PRESS 2003).

41 William Spiegelberger examined only reported cases and acknowledged that “the actual enforcement rate may well be higher” than two-thirds, in that “routine cases of enforcement are reported less often than ‘problematic’ cases where enforcement has been denied.” Spiegelberger, supra, n. 38, at 261. Boris Karabelnikov based his 80% figure on estimates presented at a 2000 conference in Moscow on East-West arbitration. He indicates that the actual rate of enforcement may be lower. Karabelnikov, supra n. 40, at 14.

42 See, e.g., Albert Jan van den Berg, Refusals of Enforcement under the New York Convention of 1958: The Unfortunate Few, ARBITRATION IN THE NEXT DECADE—SPECIAL SUPPLEMENT 1999, ICC Court of Arbitration.

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1. Article   V(1)(c) – Award Beyond the Scope of the Arbitration Agreement

With regard to Article V(1)(c) (award beyond the scope of the arbitration agreement), a few commentators have observed that Russian courts tend to parse the language of arbitration agreements very carefully, often applying a narrow reading of the scope of the clause.43 For instance, in a 2003 decision, the Supreme Arbitrazh Court denied confirmation of a Swedish arbitration award in favor of an Italian company against its Russian joint venture partner on the ground that the dispute was not covered by the arbitration clause in the joint venture agreement. Specifically, the Court held that the arbitral tribunal was not authorized to apply Swedish law with respect to the termination of the agreement, notwithstanding a choice of law provision in the contract in favor of Swedish law, because the result was incompatible with mandatory provisions of Russian law regulating the creation and activities of joint ventures.44

American courts tend to apply the Article V(1)(c) defense very restrictively, holding that the burden of proof required to establish this defense “is substantial”45 and that the party resisting enforcement must “overcome a powerful presumption that the arbitral body acted within its powers.”46 An example of this approach is furnished by Fertilizer Corporation of India v. IDI Management, Inc.,47 in which the court upheld an award of consequential damages, notwithstanding a provision in the contract that might have been interpreted to exclude such damages, because “the Convention does not sanction second-guessing” and the arbitrators provided “at least colorable justification” for the award.

Similarly, in Triton Container International, Ltd. v. Baltic Shipping Co.,48 a Mexican shipping agent made a series of disbursements and loans to a Russian shipping company during the period between March 1992 and 1995. In July 1992, the parties entered into a written agency agreement which included an arbitration clause providing for arbitration before the “Maritime Arbitration Commission in Moscow.” The Mexican party argued that this provision did not cover certain loans before and after the July 1992 agreement which, it contended, were separate transactions. The court disagreed, stating

43 See, e.g., Per Runeland, Исполнение иностранных арбитражных решений в Российских Федерации [Enforcement of Foreign Arbitration Awards in the Russian Federation], Conference Paper, East-West Arbitration for the Twenty-First Century, Moscow, Russia (Apr. 26, 2000); Dominic Pellew, Recognition and Enforcement of Foreign Arbitral Awards in Russia, MONDAQ BUS. BRIEFING (Jan. 14, 2002).

44 Decision of Jan. 14, 2003 (Pressindustria S.p.A. v. Tobol’skii Neftekhimicheskii Kombinat) Supreme Arbitrazh Court of the RF, Case No. 2853/00.

45 Ministry of Defense of the Islamic Republic of Iran v. Gould, 969 F.2d 764, 770 (9th Cir. 1992).

46 Parsons v. Whittemore Overseas Co. v. Societe Generale du Papier, 508 F.2d 969, 976 (2d Cir. 1974) (court noted that “[t]he letter agreement indicates that ‘any dispute ’ which could not be ‘settled amicably’ would be resolved by arbitration. We construe the word ‘any’ broadly”).

47 517 F.Supp. 948 (S.D. Ohio 1981).48 1995 WL 729329 (E.D. La. 1995).

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that “[w]hen the scope of an arbitration clause is debatable or reasonably in doubt, a court should construe the contractual provision in favor of arbitration”.

More recently, in Telenor Mobile Communications AS v. Storm LLC,49 two partners in a telecommunications venture – one Ukrainian and one Norwegian – were involved in a dispute regarding the corporate governance provisions in their shareholder agreement. While the arbitration was pending, the Ukrainian party obtained an order from a Ukrainian court declaring the shareholder agreement invalid and enjoining the arbitration. Notwithstanding the court order, the arbitration went forward, but without the participation of the Ukrainian firm, and the arbitral tribunal issued in favor of the Norwegian company. In resisting enforcement of the award, the Ukrainian party argued that the tribunal exceeded its powers in ordering: 1) a conditional divesture of the Ukrainian firm’s stock in the joint venture, because the Norwegian party had only sought monetary relief; and 2) an anti-suit injunction against further collateral attacks on the award. The U.S. court rejected these arguments, holding that there was no express limitation on the arbitrators’ remedial powers and observing that: “[A] respondent must overcome a powerful presumption that the arbitral body acted within its powers.”

2. Article V(2)(a) – Subject Matter Not Arbitrable

Article V(2)(a) of the Convention allows a court, on its own motion, to refuse recognition and enforcement where the subject matter of the dispute is not capable of settlement by arbitration under the law of the country where enforcement is sought.

Article 248 of the Russian Code of Arbitrazh Procedure provides that disputes involving foreign parties fall within the exclusive jurisdiction of the arbitrazh courts if they relate to:

state property, including disputes in relation to the privatization of government property and expropriation for government purposes;

real estate in Russia; registration and granting of IP rights; invalidation of registration in state registers, such as land registers; establishment, liquidation or registration of legal entities or individual

entrepreneurs in Russia and the decisions of the authorities responsible for them; and

public or administrative violations.

This code section does not refer specifically to the arbitrability of such matters, and a number of Russian legal commentators have argued that it merely serves to exclude the competence of foreign state courts, not private arbitral tribunals.50 Nevertheless, the

49 524 F.Supp.2d 332 (S.D.N.Y. 2007).50 See, e.g., Интервью номера: А.С. Комаров. Международный коммерческий

арбитраж и третейское судопроизводство в России: актуальные проблемы [Interview with A.S. Komarov-- International Commercial Arbitration in Russia: Current Problems], ЗАКОН [ZAKON], 5, 7 (Jan. 2008).

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Supreme Arbitrazh Court has relied upon this position as a guide to subjects which are not subject to arbitration.51 In addition to Article of 248 Code of Arbitrazh Procedure, other Russian laws preclude arbitration of patent, copyright, antitrust, and employment disputes.52

In the United States, on the other hand, allows most disputes to be arbitrated. For instance, arbitrators may resolve issues arising under the federal securities laws,53

employment discrimination statutes,54 the Racketeer Influenced Corrupt Organization Act (RICO),55 and certain consumer protection statutes such as the “Truth in Lending Act”,56

as well as certain patent,57 copyright,58 and bankruptcy59 disputes. Most recently, in Preston v. Ferrer,60 the Supreme Court held that the Federal Arbitration Act overrides not only state statutes that refer disputes initially to a court, but also state statutes that refer disputes initially to a state administrative agency.

In 1985, the U.S. Supreme Court held in Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc.,61 that even claims arising under the antitrust laws may be arbitrated, notwithstanding the strong U.S. policy interest in competition and anti-monopoly matters. Describing its decision as “shak[ing] off the old judicial hostility to arbitration”, the Court allowed a panel of Japanese arbitrators to apply U.S. antitrust law to a dispute between Japanese and American parties. Of course, not all U.S. legal scholars are entirely comfortable with this trend. One commentator has observed, in connection with the Mitsubishi Motors case, that it is “hard to imagine that allegations of antitrust violations under the U.S. [antitrust laws] could have been seriously and carefully assessed by the three Japanese arbitrators who were to constitute the panel in the Mitsubishi arbitration and whose determinations would not be subject to any further

51 Supreme Arbitrazh Court of the RF, Informational Letter No. 96, Dec. 22, 2005, example no. 27; see also, Gleb V. Sevast’yanov, Подведомственность третейскому суду споров о недвижимом имуществе: современное состояние проблемы [Jurisdiction of Arbitral Tribunals in Disputes over Real Estate: The Current State of the Problems] ЗАКОН [ZAKON], 58 (Jan. 2008); Oda, supra, n. 38, at 42-45; Kurochkin, supra, n. 38; Tapola, supra, n. 17.

52 A. N. Zhil’tsov, Оспаривание решений международный коммерческих арбитражей в соответствии с российским законодательством [Challenges to International Commercial Arbitration Awards in Accordance with Russian Legislation] МЕЖДУНАРОДНЫЙ КОММЕРЧЕСКИЙ АРБИТРАЖ [INTERNATIONAL COMMERCIAL ARBITRATION] 4, 9 (2005).

53 Scherk v. Alberto-Culver, 417 U.S. 506 (1974).54 Circuit City Stores, Inc. v. Adams, 532 U.S. 105, 116-21 (2001).55 Shearson/American Express v. McMahon, 482 U.S. 220 (1987).56 Green Tree Fin. Corp. v. Randolph, 531 U.S. 79 (2000).57 35 U.S.C. § § 294(a), 135(d). The arbitration award binds only the parties to the arbitration. 58 Saturday Evening Post Co. v. Rumbleseat Press, Inc., 816 F.2d 1191 (7th Cir. 1987). As

in patent cases, the award binds only the parties to the arbitration. 59 Hays & Co. v. Merrill Lynch, Pierce, Fenner & Smith, 885 F.2d 1149 (3d Cir. 1989).

Arbitration in the context of a bankruptcy case is essentially limited to “non-core” proceedings in which a bankruptcy trustee seeks to enforce a claim that is not derived from the Bankruptcy Code, but rather inherited from the debtor.

60 128 S.Ct. 978 (2008).61 473 U.S. 614 (1985).

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review.”62 Regardless of such concerns, a defense that a dispute in the realm of international commerce is not arbitrable will seldom succeed in the United States.

62 Linda Silberman, International Arbitration: Comments from a Critic, 13 AM. REV. INT’L ARB. 9, 12 (2002).

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3. Article V(2) – Contrary to Public Policy

As observed by one Russian legal scholar, the concept of “contrary to public policy” (”противоречат публичному порядку”) was “practically unknown to Soviet legal practice and therefore new to Russian courts.”63 This was due in part to the fact that parties from the former Soviet bloc almost invariably voluntarily complied with arbitral awards, and “the courts of the CEE states and Russia had limited opportunity to develop substantial jurisprudence regarding the proper interpretation of the public policy concept.”64

That is no longer the case, of course, and several different formulations of the public policy concept have been competing for ascendancy in Russia.65 Earlier this decade, one Russian commentator, Boris R. Karabelnikov, cited three different authorities – one who asserted that the mere fact that an award would be satisfied from state funds invests the dispute with a public character and constitutes grounds for invoking the defense of public policy; another who took the position that a forward exchange contract would violate Russian public policy; and yet another who viewed public policy as encompassing questions of “morals and morality.”66 Likewise, a Western lawyer who surveyed Russian court decisions that had been published as of 2005 concluded that “[t]he diverse conclusions reached by these courts make it difficult … to map out the erratic contours of the public policy exception as applied in the context of Russian enforcement proceedings.”67 More recently, in 2008, the Chair of the ICAC, Alexander S. Komarov, observed that the concept of public policy applied by the courts is “too broad and often incorrect.”68 Perhaps the most notorious denial of enforcement involved an award that allegedly threatened a “strategically important” enterprise with bankruptcy.69

63 Alexander Muranov & Natalia Toupikina-Holm, Enforcement in Russia: Chronology of a Loan Recovery, 2 STOCKHOLM ARB. REPT. 137, 173 (1999).

64 Vesselina Shaleva, The Public Policy Exception to the Recognition and Enforcement of Arbitral Awards in the Theory and Jurisprudence of the Central and East

European States and Russia, 19 ARB. INT’L 67, 82 (2003).65 Tatiana N. Neshataeva, МЕЖДУНАРОДНЫЙ ГРАЖДАНСКИЙ ПРОЦЕСС [INTERNATIONAL

CIVIL PROCEDURE] 166 (Delo 2001) (“In the Russian Federation, the criteria for applying the public policy defense in the context of entrepreneurial relations are still developing” -- “В Российской Федерации критерии применения оговорки о публичном порядке к предпринимательским отношениям пока только формируются”).

66 A forward contract is an agreement to purchase or sell a foreign currency on fixed terms at an agreed upon future date for the purpose of hedging commercial risks against rate fluctuation. See Parex Bank v. Russian Savings Bank, 116 F.Supp.2d 415 (S.D.N.Y. 2000).

67 Spiegelberger, supra, n. 38, at 296. 68 Interview with A. S. Komarov, supra, n. 50, at 6 (Mr. Komarov stated: “Понятие

«публичный порядок» используют в судебной практике слишком широко и зачастую неверно”).

69 No. A43-10716/02-27-10, Federal Arbitrazh Court-Volgo-Vyatsk Region, Feb. 17, 2003; see also Maxim Kulkov, Enforcement of Foreign Arbitration Awards in Russia, 3 RUSSIA/EURASIA COMMITTEE NEWSLETTER (AMERICAN BAR ASSOCIATION SECTION OF INTERNATIONAL LAW), 5, 6 (May 2007).

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Yet Russian courts have also rejected the public policy defense in a number of cases, including, for instance, arguments based upon: Russian currency exchange laws, Soviet signature requirements for foreign trade contracts, failure of the arbitrators to take into account the principle of “proportionality” in determining the extent of liability, failure of the tribunal to apply mandatory provisions of the Russian Civil Code with respect to the proper performance of obligations, and numerous other situations.70

Furthermore, most Russian legal commentators advocate that the public policy defense be applied only in rare instances, as where enforcement would be contrary to fundamental principles of state structure and public life.71

The approach advocated by these commentators is consistent with that taken by American courts, which tend to interpret the public policy defense very narrowly. The defense is typically invoked as a strategy of last resort by the party resisting enforcement and is rarely successful. Enforcement of foreign arbitral awards may be denied on the basis of public policy “only where enforcement would violate the forum state’s most basic notions of morality and justice.”72 This approach is illustrated in a series of cases involving arbitrations having a connection to the Commonwealth of Independent States.

In AAOT Foreign Economic Association (VO) Technostroyexport v. International Development and Trade Services, Inc., a U.S. federal circuit court73 rejected a public policy challenge to a $200 million award rendered by a Russian arbitration tribunal in favor of a Russian party and against a U.S. company.74 The American company claimed to have evidence that the Russian tribunal was corrupt and that enforcement of the award would therefore be contrary to public policy. The court held that this argument was waived because it had not been raised by the U.S. company at any point during the arbitration proceeding. The award in favor of the Russian party was confirmed.75

70 Boris R. Karabelnikov, Оговорка о публичном порядке в новейшей практике российских и зарубежных судов [The Public Policy Exception in the Recent Practice of Russian and Foreign Courts], МЕЖДУНАРОДНЫЙ КОММЕРЧЕСКИЙ АРБИТРАЖ [INTERNATIONAL COMMERCIAL ARBITRATION], 5 (Jan. – Apr. 2006); Oda, supra, n. 38, at 34-37; Spiegelberger, supra, n. 38.

71 See, e.g., Interview with Alexander S. Komarov, supra, n. 50, at 6 (public policy defense should be applied only in the case of violations of “фундаментальные начала государственного устройства и общественное жизни”); Alexander S. Komarov, Sergei N. Lebedev & Valery A. Musin (eds.) МЕЖДУНАРОДНЫЙ КОММЕРЧЕСКИЙ АРБИТРАЖ. КОММЕНТАРИЙ ЗАКОНОДАТЕЛЬСТВА [INTERNATIONAL COMMERCIAL ARBITRATION: A LEGISLATIVE COMMENTARY] 182-84 (Treteiskii Sud 2007); Boris R. Karabelnikov, ПРИЗНАНИЕ И ПРИВЕДЕНИЕ В ИСПОЛНЕНИЕ ИНОСТРАННЫХ АРБИТРАЖНЫХ РЕШЕНИЙ [RECOGNITION AND ENFORCEMENT OF FOREIGN ARBITRAL AWARDS] 207-12 (Iustitsinform 2001) (public policy defense should be applied only where enforcement would give rise to legal consequences that would be incompatible with fundamental law and order and morality).

72 Parsons, 508 F.2d at 974.73 The U.S. federal court system is divided into three levels. At the highest level is the

Supreme Court. Below the Supreme Court are the courts of appeal for thirteen judicial “circuits.” The courts of first instance are known as “district courts.”

74 Technostroyexport, 139 F.3d 980.75 An interesting comparison to the Technostroyexport case is presented by a case in the

Netherlands in which a Dutch court refused enforcement of a Moscow-based arbitration award on public policy grounds. The claimant in the arbitration proceedings, Media Most, alleged that the

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In another case, MGM Productions Group, Inc. v. Aeroflot Russian Airlines,76 the court rejected a public policy challenge asserted by a Russian airline, which maintained that the underlying transactions violated express U.S. laws forbidding Americans from doing business with Iran. The appellate court affirmed the district court’s holding that “a violation of United States foreign policy does not contravene public policy as contemplated in Article V of the Convention.”77

In Ukrvneshprom State Foreign Economic Enterprise v. Tradeway, Inc.,78 the court rejected a U.S. company’s public policy challenge to a $6.1 million award in favor of a Ukrainian party, which included arguments that the Ukrainian tribunal had misapplied Ukrainian law regarding the statute of limitations on arbitral claims.

Yet American courts do not always apply the public policy exception narrowly. For instance, in Laminoirs S.A. v. Southwire Co., a U.S. court applied the exception to deny enforcement of a portion of an award which the court deemed to be “penal” (штрафной), as opposed to compensatory.79 In that case, a contract between French and American parties provided for arbitration before the International Chamber of Commerce in Paris and for the application of the law of the U.S. State of Georgia, to the extent it was in accordance with the laws of France. The award in favor of the French party provided that the American company was liable for damages and interest. In accordance with French law, the award also provided for a five-percent increase in the interest rate effective two months after the date of the award. The U.S. court upheld the basic interest rates, which were higher than the maximum legal rate of interest in Georgia, stating that “[w]e cannot have trade and commerce in world markets . . . exclusively on our terms, governed by our laws, and resolved in our courts.” Nevertheless, the court refused to enforce the portion of the award that provided for escalated interest rates, stating that “[w]here a party resisting an arbitration award can demonstrate that the foreign law pursuant to which the arbitrators awarded interest ‘is penal only and relates to the punishing of public wrongs as contradistinguished from the redressing of private

chairman of the arbitration panel had engaged in improper ex parte contacts with the respondent, including giving advice to the respondent on filing a counterclaim. The arbitration institute’s rules provided that a challenge to an arbitrator must be filed within 15 days “after the party has found out about any circumstances which may be a ground for challenge. Such request submitted subsequently shall be considered only if the arbitral tribunal finds the delay justified”. Media Most did not raise a challenge to the chairman within 15 days of the date that it first suspected that ex parte contacts were occurring, but did submit a challenge within 15 days after the respondent filed its counterclaim. Media Most’s challenge was denied by the arbitration institute as untimely, and an $8.5 million award was subsequently rendered against it. The Dutch court held that these events violated fundamental concepts of due process in the Netherlands and invoked Article V(2) – the public policy exception – to refuse confirmation of the award. See, Goldtron Ltd. v. Media Most B.V., 13 WORLD ARB. & MEDIATION REP. 324 (2002). Notwithstanding the decision of the Dutch court, an Isle of Jersey court subsequently issued a Mareva injunction against Media Most in anticipation of enforcement of the same arbitration award. See, Goldtron Ltd. v. Most Investment Ltd., 2002 JLR 424 (R.C. 2002).

76 2004 WL 234871 (2d Cir. 2004).77 2003 WL 21108367 (S.D.N.Y. 2003) aff’d 2004 WL 234871 (2d Cir. 2004).78 1996 WL 107285 (S.D.N.Y. 1996).79 484 F.Supp. 1063 (N.D. Ga. 1980).

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injuries,’ the arbitrators’ award of interest is unenforceable as contrary to the public policy of this country.” Under American law, punitive damages may be awarded in tort cases, but are not available for a breach of contract unless the conduct constituting the breach also constitutes a tort. The Laminoirs decision is consistent with that principle. Nevertheless, the case has been criticized by some American arbitration scholars as “aberrant”80 and “overly broad.”81

A few attempts have been made by litigants resisting enforcement in the U.S. to intertwine the public policy defense with the so-called “manifest disregard for the law” doctrine. Yet while that doctrine was sometimes applied in domestic awards, U.S. courts have refused to vacate foreign arbitral awards on the ground that the arbitrator displayed a manifest disregard for the law in resolving the dispute.82 In that regard, the courts have noted that the New York Convention does not list “manifest disregard of the law” as a basis for refusing recognition of an award.83 For instance, in Brandeis Intsel Ltd. v. Calabrian Chemicals Corp.,84 the court reasoned that it would be against public policy for an American judge to determine “whether foreign arbitrators manifestly disregarded the internal substantive law of a foreign nation by which the parties agreed in their contract to be bound.”85 A recent U.S. Supreme Court decision, Hall Street Associates LLC v. Mattel, Inc.,86 effectively deprives the “manifest disregard” of the law standard of any force in domestic cases as well.

B. Procedural Issues

Article III of the New York Convention provides that courts shall recognize and enforce foreign arbitral awards “in accordance with the rules of procedure of the territory where the award is relied upon.”

In certain areas, Russian and U.S. procedure are similar. As in Russia, U.S. law provides that a petition for recognition and enforcement of an arbitration award must be filed within three years of the effective date of the award.87 Unlike Russia, the United States does not impose a timeframe within which the court is required to act upon the

80 William W. Park, The International Currency of Arbitral Awards, 704 PLI/LIT 519 n. 32 (2004).

81 Ian R. MacNeil, et al., FEDERAL ARBITRATION LAW: AGREEMENTS, AWARDS, AND REMEDIES UNDER THE FEDERAL ARBITRATION ACT, § 44.36.7.1 (Aspen 1999).

82 See e.g., Yusuf Ahmed Alghanim & Sons, W.L.L. v. Toys “R” Us, Inc., 126 F.3d 15 (2nd Cir. 1997); M & C Corp. v. Erwin Behr GmbH & Co., KG, 87 F.3d 844 (6th Cir. 1996); International Standard Elec. Corp. v. Bridas Sociedad Anonima Petrolera, Industrial y Comercial, 745 F. Supp. 172 (S.D.N.Y. 1990)

83 Albert Jan van den Berg, The New York Arbitration Convention of 1958: Towards a Uniform Judicial Interpretation 265 (1981) (“the grounds mentioned in Article V [of the New York Convention] are exhaustive”)

84 See e.g., Brandeis Intsel Ltd. v. Calabrian Chemicals Corp., 656 F. Supp. 160 (S.D.N.Y. 1987).85 Id. at 167.86 128 S.Ct. 1396 (2008).87 9 U.S.C. § 207. Proceedings to confirm a domestic award, on the other hand, must be

commenced within one year. 9 U.S.C. § 9.

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petition to confirm an award.88 Nevertheless, proceedings to confirm foreign arbitral awards in the United States follow a “summary procedure in the nature of federal motion practice.”89 As a result, petitions for the recognition and enforcement of foreign arbitral awards tend to be decided more quickly than other matters on a court’s docket.

In other areas, however, U.S. courts take a more unique approach, including: 1) the American concept of personal jurisdiction; and 2) application of the doctrine of forum non conveniens. Both concepts are discussed below.

1. Personal Jurisdiction

Russian law provides that a petition to confirm a foreign arbitration award may be filed in the arbitrazh court of the subject of the Russian Federation in which the respondent resides or is located. If that place is unknown, then the action may be filed where the property of the respondent is located.90

U.S. law reaches a similar result, but by different means. In the United States, as in most other countries, a defendant domiciled in a particular forum may be sued in the courts of that forum on the basis of a claim arising anywhere in the world. With respect to business entities, this principle confers “domicile” status upon both corporations which were “incorporated” (registered) in the forum state, and to those which are incorporated elsewhere, but which have their principal places of business within the forum state. In addition, courts sometimes exercise personal jurisdiction over entities which are not “domiciled” within the forum within this strict meaning of the term, but which exercise “continuous and systematic general business contacts” with the forum.91 As stated by one American legal scholar, “the relevant concept is the same as in most other legal systems: the defendant may be sued where the defendant is. The difference is that the U.S. system recognizes a broader definition of where the defendant is for jurisdictional purposes.”92

With respect to the assertion of jurisdiction over foreign defendants who are not domiciled in the United States, American jurisprudence requires certain “minimum contacts” between the defendant and the forum as a pre-condition to the exercise of jurisdiction.93 In addition, the plaintiff’s claim must have arisen out of those contacts. A 88 Article 243.1 of the Russian Code of Arbitrazh Procedure requires the court to issue a

decision within one month from the filing of the petition. However, Kulkov , supra, n. 69, observes that on average, it might take from six to 20 months from submission of the petition to enforce the award to the time the claimant actually makes a recovery, depending on appeals and the condition of the debtor’s assets.

89 Imperial Ethiopian Gov’t v. Baruch-Foster Corp., 535 F.2d 334, 335 (5th Circ. 1976); see also 9 U.S.C. § 6.

90 Code of Arbitrazh Procedure, Art. 242(1).91 See, Milliken v. Meyer, 311 U.S. 457, 462 (1940).92 Ronald A. Brand, Private Law and Public Regulation in U.S. Courts, in Ronald A. Brand

(ed.) PRIVATE INTERNATIONAL LAW & JUDICIAL COOPERATION IN THE EU-US RELATIONSHIP, 115, 122 (Thomson-West 2005) (emphasis added).

93 See, e.g., Moncrief Oil Intl, Inc. v. OAO Grazprom, 481 F.3d 309 (5th Cir. 2007) (court rejected arguments that a Russian company – Grazprom – was subject to jurisdiction in Texas on the basis of contracts between Gazprom and a Texas company and a visit by Grazprom’s vice-president to Texas).

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Belgian lawyer has succinctly summarized the difference between the U.S. and European approaches to jurisdiction as follows: “while in the common law [American] tradition the use of standards formulated as open-ended propositions allows for the adaptation to the circumstances of particular cases, in the civil law [European] tradition the use of rules couched in objective terms is supposed to yield reasonably certain results”.94

These jurisdictional principles were applied in Base Metal Trading, Ltd. v. OJSC “Novokuznetsky Aluminum Factory” in a case involving a $12 million award rendered against a Russian manufacturer (NKAZ) by the Commercial Arbitration Court of the Moscow Chamber of Commerce. The petitioner sought enforcement of the award in a federal district court in the State of Maryland, which declined to address the merits of the petition, finding that NKAZ lacked sufficient “minimum contacts” with the forum. The Fourth Circuit Court of Appeals upheld the lower court’s decision, stating that “NKAZ’s alleged contacts with the United States appear sparse and limited to a few shipments of aluminum arriving in American ports.”95 In connection with the action before the lower court, the petitioner had sought to attach an aluminum shipment in a Maryland port. It subsequently appeared that the aluminum did not belong to NKAZ, and the attachment was released. Nevertheless, the court stated: “[e]ven assuming, however, that the aluminum did belong to NKAZ, this single shipment” would not support jurisdiction. This statement has been criticized by American legal scholars96 on the ground that it ignores legal precedent in the United States that the presence of property of the defendant in the forum is a sufficient basis to establish jurisdiction in an action to enforce a foreign judgment or award.97 It does not appear, however, that this precedent was cited by the petitioner to either the Maryland district court or the Fourth Circuit Court of Appeals. Had the court considered this precedent, the outcome of the case might have been different.

94 Arnaud Nuyts, Due Process and Fair Trial: Jurisdiction in the United States and in Europe Compared, in Ronald A. Brand (ed.) PRIVATE INTERNATIONAL LAW & JUDICIAL COOPERATION IN THE EU-US RELATIONSHIP, 27, 29 (Thomson-West 2005). Another legal scholar encapsulates the differences between the European and U.S. approaches in the following manner: “[R]estraints on judicial jurisdiction in the United States focus upon the relationship between the individual defendant and the forum state rather than on the connection between the dispute and the forum state, which is characteristic of the European system.” Linda Silberman, The Impact of Jurisdictional Rules and Recognition Practice on International Business: The U.S. Regime, 26 HOUSTON J. INT’L L. 327, 330 (2004).

95 283 F.3d 208 (4th Cir. 2002). 96 See, e.g., Linda Silberman, International Arbitration: Comments from a Critic, 13 AM.

REV. INT’L ARB. 9, 15 (2002) (describing the Base Metals decision as “most egregious”); Pelagia Ivanova, Forum Non Conveniens and Personal Jurisdiction: Procedural Limitations on the Enforcement of Foreign Arbitral Awards under the New York Convention, 83 B.U.L. REV. 899, 917 (2003).

97 In Shaffer v. Heitner, 433 U.S. 186, 210, n. 36 (1977), the U.S. Supreme Court observed that “[o]nce it has been determined by a court of competent jurisdiction that the defendant is a debtor of the plaintiff, there would seem to be no unfairness in allowing an action to realize on that debt in a State where the defendant has property, whether or not that State would have jurisdiction to determine the existence of the debt as an initial matter.” This concept is known as quasi in rem jurisdiction.

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The petitioners also sought to enforce the same award against NKAZ in a separate action in New Jersey. That action was also dismissed on the same ground. In that case, the petitioner did seek to rely upon the previously referenced legal precedent, but only after the case was on appeal to the Third Circuit Court of Appeals. The appellate court declined to address this argument because it had not been raised in the proceedings before the New Jersey district court.98

In a more recent case, Frontera Resources Azerbaijan Corp. v. State Oil Co. of the Azerbaijan Republic,99 the court declined to enforce an award by a Swedish arbitral award against a state-owned Azerbaijani oil company on the ground that the company was not subject to personal jurisdiction. The court rejected arguments to the effect that contracts between the Azeri company and various American oil companies and a U.S. bank were sufficient to establish the requisite minimum contacts for purposes of jurisdiction.

In another case, a New York district court dismissed a petition by Dardana Ltd. to enforce an award of the Stockholm Chamber of Commerce against Russian companies Yukos and Yuganskneftegaz due to the respondents’ lack of the requisite “minimum contacts” with the United States.100 On appeal, the Circuit Court remanded the case to the district court with instructions that it consider alternate bases for jurisdiction, including the presence of the respondents’ property in the jurisdiction.101 Other cases have reached similar results and, in the view of this author, represent the more typical approach of U.S. courts.102

2. Forum Non Conveniens

Even where a U.S. court has jurisdiction, it may decline to exercise it under the Anglo-American legal doctrine of “forum non conveniens.”103 This defense has been applied to the benefit of Russian defendants in recent non-arbitration litigation in U.S. courts.104 In each of these cases, the U.S. court dismissed the action because the

98 47 Fed. Appx. 73, 2002 U.S. App. LEXIS 18408 (Sept. 5, 2002).99 479 F.Supp. 2d 376 (S.D.N.Y. 2007).100 2001 WL 1131987 (S.D.N.Y. Sept. 24, 2001).101 Dardana Ltd. v. A.O. Yaganskneftnegaz & Yukos Oil Co., 317 F.3d 202 (2d Cir. 2002).102 See, e.g., CME Media Enterprises B.V. Zelezny, 2001 WL 1035138, 2001 U.S. Dist.

LEXIS 13888 (S.D.N.Y. 2001). The respondent in this case – Zelezny, a resident of the Czech Republic – did not have “minimum contacts” with New York. In fact, his only contact with that jurisdiction was a New York bank account containing $69.65. The arbitral award was for $23,350,000, but the court held that the presence of the account afforded jurisdiction to confirm (признать) the entire award. Nevertheless, it would issue a judgment to enforce (исполнить) the award only to the extent of the property supporting jurisdiction. Thus, the petitioner obtained an order of attachment for only $0.05, which was all that remained in Zelezny’s account after the bank deducted its fees. For a useful discussion of quasi in rem jurisdiction in the context of enforcement of foreign arbitral awards, see Mark W. Friedman, Jurisdictional Limits on Enforcement of NY Convention Awards,2 DISPUTE RESOLUTION INTERNATIONAL 150, 158-162 (May 2008).

103 See, supra, n. 22.104 See, e.g., Escheva v. Siberia Airlines, 499 F. Supp. 2d 493 (S.D.N.Y. 2007); Akofin v.

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convenience of the parties and the interests of justice indicated that the dispute should be resolved by the Russian courts.

The doctrine of “forum non conveniens” is also sometimes applied in actions to enforce a foreign arbitral award. In Monegasque de Reassurances SAM (Monde Re) v. Nak Naftogaz de Ukraine,105 a reinsurer from Monaco (Monde Re) sought to enforce an arbitration award rendered in Moscow against a Ukrainian pipeline operator (Naftogaz) with significant ties to the Ukrainian government. The Ukrainian government was not a party to the Moscow arbitration; nevertheless, Monde Re also sought to enforce the award against Ukraine, contending that Naftogaz was an agent, instrumentality or alter ego of the Ukainian government. The Ukrainian respondents asserted the forum non conveniens defense, and both the district court and the Court of Appeals for the Second Circuit agreed that the case should be dismissed. In deciding that Ukraine was a more appropriate forum, the appellate court noted that proof that Ukraine was responsible for Naftogaz’s actions would require extensive discovery (i.e., gathering of evidence), that much of the pertinent evidence was in the Ukrainian language, and that the issue would be governed by Ukrainian law. In effect, the court determined it was not for the U.S. judicial system to decide in the first instance whether or not the Ukraine was either an alter ego or, in the alternative, a joint venture partner of Naftogaz. The court also rejected Monde Re’s contention that Ukraine was an inadequate forum due to corruption, finding that “the meager and conclusory submissions of Monde Re” were insufficient to permit the court “to pass value judgments on the adequacy of justice and the integrity of [Ukraine’s] judicial system.” In addition, the court maintained that its decision would help promote foreign trade, on the ground that: “Forcing the recognition and enforcement in Mexico, for example, in a case of an arbitral award made in Indonesia, where the parties, the underlying events and the award have no connection to Mexico, may be highly inconvenient overall and might chill international trade if the parties had no recourse but to litigate, at any cost, enforcement of arbitral awards in a petitioner’s chosen forum. The Convention was intended to promote the enforcement of international arbitration so that businesses would not be wary of entering into international contracts.”

Most commentators have been critical of this decision and skeptical of the court’s conclusion that it will help promote foreign trade. The common view among legal scholars and arbitration practitioners in the United States is that an award should be enforceable in any signatory to the New York Convention.106 Thus, there is some likelihood that the reasoning in the Monde Re case will be applied only in unique

Jumbo Navigation N.V., 481 F. Supp. 2d 310 (S.D.N.Y. 2007); Overseas Media, Inc. v. Skvortsov, 441 F. Supp. 2d 610 (S,D,N.Y. 2007) aff’d, 2008 U.S. App. LEXIS 10128 (2nd Cir., May 8, 2008); But see, Norex Petroleum Norex Petroleum Ltd. v. Access Indus., Inc., 416 F.3d 146 (2nd Cir. 2005)(denying a “forum non conveniens” motion to dismiss the U.S. action in favor of parallel litigation proceedings in Russia).

105 311 F.3d 488 (2d Cir. 2002).106 See, e.g., Friedman, supra, n. 102, at 164 (“[F]orum non conveniens may be misplaced

when it comes to enforcement. In a case on the merits, comity, efficiency and fairness may well justify pushing off a dispute to a single, appropriate forum. By contrast, to win complete recovery of an award, creditors often must chase assets across many jurisdictions”); David Rivkin & Suzanne Grosso, Forum Non Conveniens: A Doctrine on the Move, 5 BUSINESS LAW INTERNATIONAL 1, 28-30 (2004).

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situations involving foreign sovereigns and disputed issues that pose significant difficulties for resolution by a U.S. court, as in the Monde Re case, where it was necessary to determine the legal and factual nature of the relationship between Ukraine and Naftogaz. Had the Ukrainian government been a party to the Moscow arbitration, or if the petitioner had presented evidence that Naftogaz maintained property in the United States, the outcome of the case might have been different.107

In any event, subsequent to the Monde Re decision in 2002, efforts by litigants to utilize the forum non conveniens doctrine as a defense to confirmation of an arbitral award have not been successful. In each of these instances, however, the court decided the motion to dismiss on its facts and did not reject the application of forum non conveniens as a matter of principle. Two of these cases involved parties from the Commonwealth of Independent States.108

C. Vacatur of Arbitration Awards

1. Authority To Vacate An Award

Article V(1)(e) of the New York Convention provides that if “the award has not yet become binding upon the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which” the award was made, recognition may be refused.

U.S. courts interpret the term, “country … under the law of which” (“страны, закон которой применяется”), to refer “exclusively to procedural and not substantive [материальный] law, and more precisely, to the regimen or scheme of arbitral law under which the arbitration was conducted, and not the substantive law of contract which was applied in the case.”109 This approach is consistent with that of most other countries and with the views of international legal scholars.110

107 Joseph E. Neuhaus, Current Issues in the Enforcement of International Arbitration Awards, 36 U. MIAMI INTER-AM L. REV. 23, 30 (2006); Carolyn B. Lamm & Jocelyn A. Aqua, Defining the Party – Who is the Proper Party to an International Arbitration , 34 GEO. WASH. INT’L L. REV. 711 (2003); William W. Park, The Specificity of International Arbitration The Case for FAA Reform 4 VANDERBILT JOURNAL OF INTERNATIONAL LAW, 1241, 1264 (2003).

108 TMR Energy v. State Property Fund of Ukraine, 411 F.3d 296 (D.C. Cir. 2005); Moncreif Oil Int’l, Inc. v. OAO Gazprom, 481F.2d 309 (5th Cir. 2007).

109 Int’l Standard Electric Corp. v. Bridas Sociedad Anonima Petrolera, 745 F.Supp. 172, 178 (S.D.N.Y. 1990) (holding that Article V(1)(e) of the New York Convention did not allow a New York court to vacate an award rendered in Mexico even though the merits of the dispute were to be decided under New York law).

110 See, e.g., Albert Jan van den Berg, The Application of the New York Convention by the Courts, ICCA CONGRESS SERIES NO. 9 25, 26 (Kluwer 1999); Michael Mustill & Stewart Boyd, THE LAW AND PRACTICE OF COMMERCIAL ARBITRATION IN ENGLAND 64 (Butterworths 2d ed. 1989); Alain Hirsch, The Place of the Arbitration and the Lex Arbitri, 34 ARB. J. 43, 46 (1979); Alan Scott Rau, The New York Convention in American Courts, 7 AM. REV. INT’L ARB. 213, 224 (1996). Russian commentators have also expressed views consistent with this position. See, e.g., Elena A. Vinogradova, Rossiiskii sud ne vprave otmenit’ reshenie treteiskogo suda vynesennoe na territorii drugogo gosudarstva [A Russian Court Does Not Have the Authority to Vacate an Arbitral Award Rendered on the Territory of Another State] ROSSIISKAYA IUSTITSIA, 31 (June

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It is unclear whether Russia will follow a similar approach. Article 230 of the Code of Arbitrazh Procedure provides that a Russian court may vacate “a foreign arbitration award in which the norms of Russian legislation are applied” (“может быть оспорено иностранное арбитражное решение, при принятии которого применены нормы законодательства Российской Федерации”). Commentators have expressed concern that “the language used in the statute (‘legislation’) leads to a conclusion that a reference is made to both procedure and material law.”111 The Chair of the ICAC, among a number of other prominent Russian jurists, has taken the position that any such interpretation would be impermissible under Russian law.112

In any event, a U.S. court would not give any effect to a Russian court order vacating an award issued by an arbitration tribunal seated in a third country, unless the underlying agreement expressly provided that the arbitration would be conducted under Russian procedural law, and the parties to the arbitration conducted the proceedings in a manner consistent with that stipulation.113 In Karahas Bodas Co., LLC v. Perushahan Pertambanan Minyak Dan Gas Bumi Negara,114 a Cayman Islands company sought confirmation of an arbitration award issued in Switzerland against an Indonesian state enterprise. The award had been annulled by an Indonesian court. The parties’ agreement was governed by Indonesian law, but was silent as to the procedural law governing the arbitration. The U.S. court confirmed the award, notwithstanding the Indonesian court order, observing that “an agreement specifying the place of the arbitration creates a presumption that the procedural law of that place applies to the arbitration.” The Indonesian party failed to overcome that presumption, in part because its conduct during and immediately after the arbitration (for instance, filing a petition to vacate the award in the Swiss courts) evidenced its own intent to have Swiss procedural law apply.

2002)111 See, e.g., A. N. Zhil’tsov, Оспаривание решений международный коммерческих

арбитражей в соответствии с российским законодательством [Challenges to International Commercial Arbitration Awards in Accordance with Russian Legislation] МЕЖДУНАРОДНЫЙ КОММЕРЧЕСКИЙ АРБИТРАЖ [INTERNATIONAL COMMERCIAL ARBITRATION] 4, 13-18 (2005); Boris P. KarabelnikovIspolnenie reshenii mezhdunarodnykh kommercheskikh arbitrazhnyi Rossiiskii sudami: problemy i perspektivy [Enforcement of International Commercial Arbitration Awards by Russian Courts: Problems and Perspectives] (Dec. 2003) http://www.legislature.ru/monitor/ amendapk/karabelnikov.html; Ilya Nikiforov, New Rules for Proceedings Ancillary to Arbitration, 8 INTERNATIONAL BAR ASSOCIATION COMMITTEE D NEWS; 51, 52 (Sept. 2003).

112 See, e.g., Alexander S. Komarov, Chair, International Commercial Arbitration Court attached to the CCI of the RF, Remarks at ICC Conference on “Recognition and Enforcement of Foreign Arbitral Awards”, Moscow, Russia (Oct. 14, 2003).

113 Agreements providing that one country will be the site of the arbitration, but that the proceedings will be conducted under the procedural law of another country have been described as “exceptional” and “almost unknown”. Michael J. Mustill & Stewart Boyd, THE LAW AND PRACTICE OF COMMERCIAL ARBITRATION IN ENGLAND, 64 (Butterworths 2d ed. 1989). A rare example is provided by Hiscox v. Outhwaite, [1991] A.E.R. 641. See, William W. Park, The International Currency of Arbitral Awards 704 PLT/Lit 519 (2004); see also, cases cited in Karaha Bodas, 364 F.3d 274, 291 n. 37.

114 364 F.3d 274 (5th Cir. 2004).

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2. Effect of a Vacated Award or a Pending Action to Vacate an Award

If an award rendered on the territory of the Russian Federation were vacated or annulled by a Russian court, could it then be enforced in another country, including the United States?

Different countries have taken varying approaches to this issue. France, for example, does not consider the annulment abroad of a foreign arbitration award when deciding whether to grant or refuse recognition and enforcement.115 The French courts would likely enforce a Russian arbitral award even if it had been vacated by the Russian courts. German courts, on the other hand, defer to the national courts of the country in which the arbitration took place. For instance, a German court confirmed an award of the Maritime Arbitration Commission of the Chamber of Industry and Commerce of the Russian Federation, but when that award was subsequently set aside by the Russian courts, the confirmation was withdrawn. When the Russian Supreme Court later reversed that decision and declared the award to be enforceable, however, the German court held that the award was binding. Thus, the German courts’ treatment of the Russian award closely tracked the award’s status as determined by the Russian courts.116

The approach taken by American courts is somewhat more ambiguous. In one highly publicized case, Chromalloy v. Aeroservices v. Arab Republic,117 a U.S. court enforced an award rendered in Egypt even after an Egyptian court had vacated the award. The U.S. court focused on language in the arbitration clause providing that the “decision of the [arbitral panel] shall be final and binding and cannot be made subject to any appeal or other recourse”, as well as the fact that Egyptian court annulled the award for a mistake of substantive law, which is not a ground for refusal to recognize an award under U.S. law.

In most cases, however, U.S. courts tend to follow an approach that is closer to that of Germany than of France. In a 1999 decision, a federal court in New York refused to enforce an award vacated in Italy,118 in 2000, the Second Circuit Court of Appeal affirmed a district court’s refusal to enforce an award vacated in Nigeria,119 and in 2007, the D.C. Circuit Court of Appeals refused to enforce an award that had been set aside by a Columbian court.120 Thus, absent special circumstances, such as those present in the Chromalloy case, a U.S. court generally would not enforce an award rendered in Russia that had been vacated by a Russian court.

115 Noveau Code de Procedure Civile, Art. 1502.116 See, OLG Rostock, Betriebs-Berater ([BB], Beilage 8 (2000); BGH, Monstsschrift fur

Deutsches Recht [MDR] 11 (2001). The German decisions are appended to, Erica Smith, Vacated Arbitral Awards: Recognition and Enforcement Outside the Country of Origin , 20 B.U. INT’L L.J. 355 (2002).

117 939 F.Supp. 907 (D.D.C. 1996).118 Spier v. Calzaturifico Tecnica, S.p.A., 71 F.Supp. 2d 279 (S.D.N.Y. 1999).119 Baker Marine (Nig.) Ltd. v. Cherran (Nig.) Ltd., 191 F.3d 194 (2d Cir. 2000).120 Termorio S.A. E.S.P. v. Electranta S.P., 487 F.3d 928 (D.C. Cir. 2007).

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A related issue involves the effect of a pending challenge to an award in the courts of the country in which the arbitration was conducted. Article VI of the New York Convention provides:

[i]f an application for the setting aside or suspension of the award has been made to a competent authority referred to in article V(1)(e), the authority before which the award is sought to be relied upon may, if it considers it proper, adjourn the decision on the enforcement of the award and may also, on the application of the party claiming enforcement of the award, order the other party to give suitable security.

In Nedagro B.V. v. ZAO Konversbank,121 the petitioner, a Dutch company, attempted to enforce an award issued in Moscow by the ICAC against a Russian bank (Konversbank). Before bringing a confirmation action in the United States, the petitioner applied to a Moscow arbitrazh court to confirm the award. Shortly thereafter, Konversbank filed a petition to set the award aside. The Moscow court upheld the award and issued a writ of execution. On appeal, however, a Russian Circuit (кассационной) Court reversed and remanded the case to the lower court to reconsider a number of issues, including whether the dispute was within the scope of the arbitration clause. It was at this stage of the dispute that the case came before the judge in New York. The U.S. court cited legal precedent that “a district should not automatically stay enforcement proceedings on the ground that parallel proceedings are pending in the originating country,” and referenced a list of factors that had been applied in other cases addressing the issue. Among those factors, the court focused most on the fact that it was the Dutch “petitioner who first sought to enforce its award in the originating country, Russia .  . ., thus, raising concerns of international comity vis-à-vis its petition to confirm the [ICAC] award in this court.” The court also noted that the petitioner would not be harmed by delay because it had already attached $2.1 million in Konversbank’s New York correspondent accounts. Thus, the action in U.S. court was adjourned pending the outcome of the court proceedings in Russia.

A different result obtained in MGM Productions Group, Inc. v. Aeroflot Russian Airlines,122 in which the U.S. court declined to adjourn proceedings to confirm a Swedish award against a Russian airline pending the outcome of a challenge in the Swedish courts. The court was concerned that judicial proceedings in Sweden had only just begun and, unlike the situation in Nedagro, had been commenced on the sole initiative of the respondent. Similarly, in Ukrvneshprom State Foreign Economic Enterprise v. Tradeway, Inc.,123 the court denied a request by the U.S. company to stay enforcement of a $6.1 million award of the Ukrainian ICAC in favor of a Ukrainian party pending the outcome of an appeal to the Ukraine Supreme Court. In this case, the court’s decision was motivated in part by its conclusion that the U.S. party was “engaged in obstructive litigation while it conducts transactions intended to avoid the effect of the award”, including efforts to transfer and hide its assets.

121 2003 WL 151997 (S.D.N.Y. 2003).122 2003 WL 21108367 (S.D.N.Y. 2003).123 1996 WL 107285 (S.D.N.Y. 1996).

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IV. Provisional Measures of Protection ( О беспечительные М еры)

International arbitration is often a slow process. The average duration of International Chamber of Commerce arbitrations, for instance, is between one and two years. During the interim between the initiation of the arbitration and the final award, assets may be dissipated or hidden, the property in dispute may lose market value, and evidence may be lost or destroyed.

As a result, a party to an arbitral proceeding may find it desirable to petition a court for one or more of the following provisional measures of relief:

an arrest or sequestration of assets in the possession of an adverse party;

injunctive relief for the purpose of preserving the status quo pending a resolution of the dispute;

a court order requiring the adverse party to post security sufficient to satisfy a final award;

attachment of debts owed to an adverse party; or

a court order appointing a third person to take certain actions. For instance, an independent expert or referee may be appointed to inspect property and report on its condition.

The availability of such relief in aid of arbitration is well-established in most industrialized countries. For instance, the English Arbitration Act of 1996 gives courts broad powers to grant interim injunctions and other relief in support of arbitral proceedings, including those conducted outside of England and Wales. Section 1033 of the German Code of Civil Procedure includes similar provisions. French courts will grant a pre-arbitration arrest of property, known as saise conservatoire. Likewise, in Russia, the Code of Arbitrazh Procedure specifically provides that provisional measures may be ordered in support of arbitration.124

Unfortunately, the availability of such remedies is less certain in a few jurisdictions in the United States than in many other countries. This situation arises because a few U.S. courts have adopted a somewhat unusual reading of Article II(3) of the New York Convention, which states that cases failing under the Convention, national

124 One case involving the application of provisional relief is described in Dmitryi Kurochkin, Обеспечительное мэри в российском суде в поддержку иностранного арбитража [Interim Measures in the Russian Courts in Support of International Arbitration], МЕЖДУНАРОДНЫЙ КОММЕРЧЕСКИЙ АРБИТРАЖ [INTERNATIONAL COMMERCIAL ARBITRATION], 71 (2004). An arbitrazh court in Kamchatka granted interim relief in connection with a London Court of International Arbitration proceeding between a Japanese trading house and two Russian companies. The Japanese party obtained an order preventing the Russian parties from dissipating their assets.

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courts “shall . . . refer the parties to arbitration.” In a 1974 case, McCreary Tire & Rubber Co. v. CEAT S.p.A., the U.S. Court of Appeals for the Third Circuit interpreted this provision to divest courts of any jurisdiction over a case that is subject to the New York Convention, except for the limited purpose of referring the parties to arbitration.125 The reasoning of the Third Circuit has been adopted by a number of other courts, including the Fourth Circuit Court of Appeals and the state courts of New York.126

Fortunately, a growing number of courts have rejected the Third Circuit’s position in the McCreary case, including the Second Circuit Court of Appeals,127 the Fifth Circuit Court of Appeals,128 and federal district courts in California, Connecticut, Massachusetts, New York, and Tennessee.129 These courts note that the U.S. Federal Arbitration Act (“FAA”) allows for provisional measures in aid of domestic arbitration proceedings and that the language of the FAA is not materially different from that of Section II(3) of the New York Convention. This line of cases has the support of most American legal scholars. In addition, the trend appears to be in favor of this position, since most recently decided cases hold that nothing in the FAA or the New York Convention deprives federal courts of jurisdiction to grant provisional protective relief in the context of a pending arbitration.

Nevertheless, until the U.S. Supreme Court considers this issue and endorses one line of cases or the other, whether provisional protective measures are available in aid of a New York Convention arbitration will depend upon whether the case for such relief is brought in a judicial circuit that follows the reasoning of the McCreary case.

V. Obtaining Evidence Located In The United States for Use in a Foreign Court

The rules of civil procedure governing domestic litigation within the United States allow parties broad rights to obtain from each other (and from non-parties to the case) extensive information and evidence in order to prepare for trial.130 This process (referred to in the United States as "pretrial discovery") may be conducted through oral depositions of witnesses, written interrogatories to parties, requests for production of documents, and other means. Discovery is not limited to evidence that the opposing party intends to use in the case. Indeed, a party may be required to produce evidence that is detrimental to its own case. Furthermore, in requesting documents, it is not necessary to specifically identify the particular document being sought. Instead, a party may request that entire classes of documents be produced. For instance, a typical discovery

125 I.A.T.D. Assoc. Inc. v. Podar Bros., 636 F.2d 75 (4th 1981). The Fourth Circuit covers Virginia, North Carolina, South Carolina, Maryland and West Virginia.

126 Drexel Burnham Lambert Inc. v. Ruebsamen, 139 A.D.2d 323 (1st Dept. 1988).127 Borden, Inc. v. Meiji Milk Products Co., Ltd., 919 F.2d 822, 826 (2d Cir. 1990).128 E.A.S.T., Inc. of Stamford Conn. v. M/V ALAIA, 876 F.2d 118 (5th Cir. 1989).129 See, e.g., Bahrain Telcoms Co. v. Discovery Tel., Inc., 476 F. Supp. 2d 176 (D. Conn.

2007); Caroline Power & Light v. Uranex, 451 F.Supp. 1044 (N.D. Cal. 1997); Filanto S.p.A. v. Chilewich International Corporation, 789 F.Supp. 1229 (S.D.N.Y. 1992); Tennessee Imports, Inc. v. Filippi, 745 F.Supp. 1314 (M.D. Tenn. 1990); Irinkos Shipping Corporation v. Tosco Corporation, Civil Action No. 84-519-Z (D.Mass. 1984).

130 Federal Rules of Civil Procedure, Rule 26.

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request might state: “Produce copies of any and all correspondence between company A and company B.” In complex business disputes, it is not unusual for the parties to exchange thousands of documents during the discovery process.131

American courts also have a long history of providing liberal assistance to foreign courts and litigants in obtaining evidence located in the United States. The first federal statute on this subject dates back to 1855.132

There are currently at least three methods by which a Russian court or litigant could compel the production of documentary evidence or testimony from an American witness: 1) the traditional process of utilizing a letter rogatory (судебное поручение); 2) a letter of request133 according to the procedure set forth in the Hague Convention on the Taking of Evidence Abroad in Civil and Commercial Matters; and 3) a request pursuant to U.S. federal statute 28 U.S.C. § 1782. The third method is recommended. Nevertheless, all three will be discussed for purposes of comparison.

The traditional avenue for obtaining evidence from a foreign court is through a letter rogatory. A “letter rogatory” is defined in American jurisprudence as “the medium . . . whereby one country, speaking through one of its courts, requests another country acting through its own courts and by methods of court procedure peculiar thereto and entirely within the latter's control, to assist the administration of justice in the former country; such request being made, and being usually granted, by reason of the comity [вежливость] existing between nations in ordinary peaceful times.”134 A letter rogatory to the United States should be transmitted through the Russian Ministry of Foreign

131 There is a misunderstanding among many non-American lawyers and judges that “pretrial” discovery in the United States means discovery before the commencement of legal proceedings. For instance, in an otherwise excellent commentary on the Hague Evidence Convention, a staff attorney for the Russian High Commercial Court concludes that “pretrial discovery” enables a party to “obtain, even before the institution of legal proceedings, access to documents at the disposal of the opposing party for preparation of the complaint and for future legal proceedings.” Vladislav V. Starzhenetskii, Комментарии Гаагской Конвенции 1970 года о получении за границей доказательств по гражданским или торговым делам [Commentary on the Convention on the Taking of Evidence Abroad in Civil or Commercial Matters of 1970] , in Tatiana N. Neshataeva, ГРАЖДАНИН И ПРЕДПРИНИМАТЕЛЬ В РОССИЙСКОМ И ЗАРУБЕЖНОМ СУДЕ: ПРАВОВАЯ ПОМОЩЬ [THE CITIZEN AND ENTREPRENEUR IN RUSSIAN AND FOREIGN COURT: JUDICIAL ASSISTANCE] 77, 100-01 (Delovoi Ekspress 2002). In the original Russian, this sentence reads in context as follows: “Согласно данной процедуре, одна из сторон в судебном процессе может получит еще до возбуждения искового производства доступ к документам, находящимся в распоряжении противной стороны, для подготовки искового заявления, для подготовки к будущему судебному производству.” That understanding is incorrect. Except in unusual circumstances, the discovery process is engaged after the institution of civil proceedings, i.e., after a complaint has been filed with the court and summons has been served on the defendant.

132 10 Stat. 639, ch. 140 § 2 (Mar. 2, 1855).133 In Russian, the same term, “судебное поручение;” is used to refer to both a “letter

rogatory” and a “letter of request” under the Hague Evidence Convention. In the United States (and in this paper), the term “letter rogatory” is used to refer only to requests for judicial assistance that are not made through the mechanism of the Hague Evidence Convention.

134 The Signe, 37 F.Supp. 819 (D.La. 1941).

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Affairs to the U.S. Department of State (the American equivalent to the Ministry of Foreign Affairs),135 and from there to the Civil Division of the U.S. Department of Justice. The Department of Justice then submits the letter rogatory to the appropriate court. The evidence requested in the letter rogatory is transmitted back to Russia via the same channels. This process obviously requires a substantial amount of time.

A second, and somewhat more expeditious, avenue for obtaining evidence from the United States is through the Hague Evidence Convention, which sets forth two basic methods of gathering evidence:  1) from voluntary witnesses by diplomatic officers or “commissioners”; and 2) through a letter of request procedure, in the event the witness will not cooperate voluntarily. The following discussion will focus upon the latter situation, which is addressed in Chapter I of the Convention.   A “letter of request” is defined in the Convention as a request from a “judicial authority” to “obtain evidence which is … intended for use in judicial proceedings, commenced or contemplated.” Each Convention member state designates a “central authority” to receive letters of request from foreign courts and oversee their execution. The United States has designated the U.S. Department of Justice as its "central authority". The U.S. Department of Justice will accept letters of request directly from the foreign court.   There is no requirement that the letter of request be routed through a foreign ministry or other intermediary.   

Upon receiving the letter of request, the central authority staff in Washington D.C. forwards it to the United States Attorney's Office for the federal judicial district in which the evidence subject to the request is located.136  The United States Attorney’s office will first attempt to obtain compliance with an evidentiary request through voluntary means, without having to rely upon the compulsory mechanisms available through the domestic judicial system. Unless otherwise indicated in the letter of request, the testimony is usually furnished in affidavit form; a verbatim transcript is not typically obtained.

If the party to whom the evidentiary request is directed refuses to cooperate voluntarily, the United States Attorney will petition the proper court to issue a subpoena to compel compliance.  Pursuant to Article 10 of the Hague Convention, compulsory process is available against recalcitrant witnesses “in the instances and to the same extent as are provided by its internal law for the execution of orders issued by the authorities of its own country or of requests made by parties in internal proceedings."  Under U.S. law, the failure of a witness to appear may result in punishment for "contempt of court", including possible imprisonment. 

The court order directing compliance with the letter of request will usually designate a U.S. magistrate137 or a lawyer with the local United States Attorney’s office as a “commissioner” (уполномоченны лиц для получения доказательства) to take the

135 28 U.S.C. §1781.136 The function of a United States Attorney is loosely analogous to that of a Russian

prokuror (прокyрор).137 This position is somewhat analogous to that of a Russian mirovoi sud (мировой суд).

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evidence. The commissioner issues the subpoena and advises the witness of the nature of the proceedings and any applicable rights and privileges. The commissioner is also responsible for recording the witness’ answers to the questions and certifying the transcript. The foreign court issuing the letter of request may be informed of the time when, and the place where, the witness examination will take place, in order that the parties and their representatives may attend. If so indicated in the letter of request, this information is sent directly to the parties or their counsel. Once the requested evidence has been obtained, it is returned to the requesting court via the same route by which it arrived. Although this process is somewhat cumbersome, it is faster and simpler than a letter rogatory because there is no involvement of diplomatic channels.

  The third and most convenient method of obtaining evidence from the United States is through a U.S. federal statute, 28 U.S.C. § 1782 ("Section 1782"), which provides that “[t]he district court of the district in which a person resides or is found may order him to give his testimony or statement or to produce a document or other thing for use in a proceeding in a foreign or international tribunal. . .” Evidence may be obtained from both parties and non-parties to the foreign litigation. Section 1782 does not require that the courts of the country where the foreign action is pending be willing to offer reciprocal assistance.

Prior to a very recent decision of the U.S. Supreme Court, lower courts in a few judicial circuits required, as a prerequisite to granting a request for assistance under section 1782, a threshold showing that the evidence would be “discoverable” under the laws of the foreign country. Under this approach, if the law or procedure of the foreign country from which the request emanates would not permit compulsion of the requested evidence (assuming that such evidence were available within the territory of that country), then the U.S. court would not compel production of the evidence in the United States either. The United States Supreme Court rejected that approach in Advanced Micro Devices v. Intel Corp.,138 stating that “Section 1782 is a provision for assistance to tribunals abroad. It does not direct United States courts to engage in comparative analysis” of foreign law. Nevertheless, the Supreme Court also ruled that a district court is “not required to grant a § 1782 discovery application simply because it has the authority to do so”. In deciding whether to exercise its discretion to grant assistance, the court presented with the request may “take into account the nature of the foreign tribunal, the character of the proceedings underway abroad, and the receptivity of the foreign government or the court or agency abroad to U.S. federal-court judicial assistance.”

The Section 1782 procedure is more expeditious than a letter rogatory or Hague letter of request because it removes both diplomatic channels and the U.S. Justice Department from the process. Indeed, unlike a letter rogatory or a Hague letter of request, a request under Section 1782 need not even originate with a foreign judicial authority. Section 1782 allows "any interested person" to make an application. Thus, the litigant seeking evidence in the United States may file a petition directly with the U.S. court.

138 542 U.S. 241 (2004).

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The meaning of the term, “tribunal,” as used in Section 1782, has been the subject of considerable litigation. The decision of the Supreme Court in Advanced Micro Devices provides some clarity on this topic, holding that Section 1782 can be used to obtain evidence not only on behalf of government courts, but also quasi-judicial agencies. In that case, for instance, the Supreme Court authorized a lower court to provide assistance to an antitrust investigation of the European Commission.139

There is one reported case in which § 1782 was invoked in aid of litigation pending in Russia. In In re Application of Imanagement Services Ltd140 the bank of New York (BNY) sought to vacate an order issued pursuant to § 1782 directing it to provide discovery in support of an action in Russia that was pending between Imanagement Services, Ltd., on the one hand, and BNY and Inkombank, one the other. The parties introduced competing affidavits from two Russian law professors. One asserted that written evidence obtained abroad was inadmissible in a Russian court, while the other asserted it was not. The U.S. District Court for the Eastern District of New York narrowly read the Supreme Court’s instruction to take into account “the receptivity of the foreign government” when considering requests under § 1782 and concluded that the “inquiry into the discoverability of requested materials should consider only authoritative proof that a foreign tribunal would reject evidence obtained with the aid of § 1782.141 In light of the competing interpretations of Russian law by the two experts, the court declined to find authoritative proof of whether a Russian court would consider the evidence. As a result, it upheld the order allowing discovery in support of the Russian lawsuit.

One frequently litigated question is whether § 1782 may be used to obtain evidence for use in private arbitration (третейский суд) proceedings, such as cases before the ICAC, the International Chamber of Commerce in Paris, or the Arbitration Institute attached to the Stockholm Chamber of Commerce. The first U.S. case to consider this issue involved a Russian foreign economic association.142 In that case, a federal district court (i.e., a federal court of the first instance) held that the ICAC is a "tribunal" within the meaning of the statute. Several subsequent decisions interpreted §1782 differently, however, holding that the statute does not extend to private arbitration proceedings.143 The Supreme Court did not directly address this issue in Advanced Micro Devices. Nevertheless, in the course of discussing a related question, the Court quoted with approval a scholarly treatise which stated that the “term, ‘tribunal’ … includes … administrative as well as arbitral tribunals.”

139 542 U.S. 241, 249; See also In re Letters Rogatory from Tokyo, 539 F.2d 1216 (9th Cir. 1976) (request from Tokyo prosecutor’s office granted where prosecutor was conducting an investigation in connection with a possible prosecution arising from alleged improper payments to Japanese citizens by an American corporation).

140 2005 U.S. Dist. LEXIS 17025 (E.D.N.Y. Aug. 16, 2005).141 Id. (quoting In re Application of Euromepa, 154 F.3d 24 (2nd Cir. 1998)142 In re Application of Technostroyexport, 853 F.Supp. 695 (S.D.N.Y. 1994).143 National Broadcasting Co. v. Bear Stearns & Co., Inc., 1998 165 F.3d 184 (2d Cir.

1999); Republic of Kazakhstan v. Biederman Int’l, 168 F.3d 880 (5th Cir. 1999); In re Application of Medway Power, Ltd., 985 F.Supp. 402 (S.D.N.Y. 1997).

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Since Advanced Micro Devices, three U.S. district courts have ruled that arbitral panels are “tribunals” within the meaning of § 1782.144 Two of those cases have involved parties from the Commonwealth of Independent States. In Oxus Gold, a New Jersey district court held that an arbitration proceeding under the United Nations Commission on International Trade Law (UNCITRAL) constitutes a “foreign or international tribunal” within the meaning of § 1782. That case involved a discovery request in aid of arbitration between an international mining group based in the United Kingdom and the Kyrgyz Republic. However, the holding does not, on its face, purport to disagree with prior precedent which held § 1782 is not applicable to private arbitration. Rather, the court distinguished the arbitration proceeding before it from purely private arbitration, noting that the proceeding did not arise from a private contract, but rather from a bilateral investment treaty between the United Kingdom and Kyrgyzstan. Shortly after the decision of the New Jersey district court in Oxus Gold, the U.S. District Court for the Northern District of Georgia held that an arbitral panel in a purely private arbitration proceeding in Austria was a “tribunal” for the purposes of § 1782. The arbitration at issue in that case was between Roz Trading Company and The Coca-Cola Export Company (CCEC), a subsidiary of Coca-Cola Company. Roz Trading entered into contract with CCEC in connection with a joint venture between CCEC and the government of Uzbekistan. The arbitration was initiated by Roz Trading after the failure of the joint venture. In addressing prior precedent, the court simply concluded that “[t]he Supreme Court’s decision in [Advanced Micro Devices] undermines the reasoning of [prior precedent holding contrary.]145 The district court granted Roz Trading’s request for discovery and Coca-Cola appealed the order. The issue is presently before the Eleventh Circuit Court of Appeal.146 More recently, a Minnesota district court came to the same conclusion in a case involving a discovery request for use in Israeli private arbitration.147

The court simply cited to the decision in Roz Trading as authority that an arbitration proceeding qualifies as a tribunal under § 1782.

VI. Litigation In U.S. Courts

Thus far, this article has considered the use of U.S. courts to provide assistance to judicial or arbitral proceedings taking place outside of the United States. Another option which should not be overlooked is to file suit in a U.S. court on the merits of the claim (assuming, of course, that a U.S. court has subject matter jurisdiction over the claim and personal jurisdiction over the defendant, and the doctrine of forum non conveniens is not applied).

144 In re Oxus Gold PLLC, 2006 U.S. Dist. LEXIS 74118 (D.N.J. Oct. 10, 2006); In re Application of Hallmark Capital Corp., 534 F. Supp. 2d 951 (D. Minn. 2007); In re Roz Trading Ltd., 469 F. Supp. 2d 1221 (N.D. Ga. 2006).

145 In re Roz Trading, 469 F. Supp. 2d at 1227.146 For a more thorough explanation of the Oxus Gold and Roz Trading cases, see Anna

Conley, A New World of Discovery: The Ramifications of Two Recent Federal Courts’ Decisions Granting Judicial Assistance to Arbitral Tribunals Pursuant to 28 U.S.C § 1782, 17 AM. REV. INTL. ARB. 45 (2006).

147 In re Application of Hallmark Capital Corp., 534 F. Supp. 2d 951 (D. Minn. 2007).

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Foreign parties are generally quite successful in U.S. courts. An analysis of cases between American and non-American parties decided in the U.S. federal courts between 1986 and 1994 found that foreign parties won eighty percent of the cases that they filed as plaintiffs, whereas the overall win rate for plaintiffs in the U.S. federal courts during this period was only sixty-four percent. When American plaintiffs sue foreign defendants, moreover, the plaintiff win rate falls to fifty percent. Thus, foreign plaintiffs fare better than American plaintiffs, and foreign defendants fare better than American defendants.148

VII. Conclusion

The continued expansion of commerce between the United States and Russia will be accompanied by an inevitable expansion in the number of civil disputes between Russian and American parties. Interaction between Russian and American courts and arbitral tribunals has already become a frequent occurrence and will soon become routine. One hopes that the results of such interactions will also become increasingly efficient and predictable.

Glenn P. HendrixArnall Golden Gregory, LLP171 17th Street, NWSuite 2100Atlanta, Georgia 30363-1031Telephone: (404) 873-8692Facsimile: (404) 873-8693E-mail: glenn.hendrix@agg.comWebsite: www.agg.com

148 Kevin Clermont & Theodore Eisenberg, Xenophilia in American Courts, 109 HARVARD LAW REVIEW 1120 (1996). Note that the authors do not necessarily believe that foreign parties are favored in U.S. courts. Rather, they conclude that “[f]oreigners abandon or satisfy most claims and, presumably, persist in the cases that they are most likely to win.” Id. at 1134. This phenomenon occurs due to the “apprehension [by foreigners] that American courts exhibit xenophobic bias and the pecuniary and nonpecuniary distaste for litigation in a distant place.” Id.

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