A Russian Threat to the New York Convention

Earlier this week, we noted a decision of the Cour de Cassation, which subjects arbitral awards to scrutiny for their consistency with international public policy.  That court attempts to achieve the right balance between respecting global anti-corruption efforts and insuring the finality of arbitral judgments.  Russia seems determined to evade arbitral judgments entirely.  

Sarah Bronkhorst reports in Eurasianet on yet another disturbing development out of Russia.  Back in 2020, the Russian Duma passed new legislation, On Introducing Changes to the Arbitration Procedure Code of the Russian Federation (Law No: 171-FZ), which protects Russian companies against arbitral judgments.  According to Sarah Bronkhorst, the new law signifies nothing less than Russia’s withdrawal from the 1958 New York Arbitration Convention.

The new law permits any Russian entity subject to international arbitration to shift the proceedings to the Russian judicial service.  Russia justified its action by pointing to international hostility to Russian interests since its 2014 occupation of Crimea.  More recent events have done little to improve Russia’s standing abroad.  Russia’s Supreme Court upheld the legality of the new law in an eight-page opinion in 2021.  

The good news?  The glass was already (more than) half empty.  Russian companies’ compliance with arbitral decisions has been spotty for some time, as Russian courts have long applied exceptions to the New York Convention with liberality.  This was especially true for entities favored by the Kremlin or that could make the argument that their financial stability was of a matter of national concern.  Too big to fail?  But the law may also have limited effect on Russian companies with assets abroad.  One assumes that if a Russian company’s right to withdraw from arbitration is not recognized, the arbitration will proceed in the foreign jurisdiction and the victorious party can proceed against the Russian company’s foreign assets.

H/T to Ben Davis.