Protecting Clients Doing Business in Russia and the NIS

Since forming our St. Petersburg office in 1994, our Firm has protected businesses in Russia. The enforcement of commercial obligations and resolution of commercial disputes present an awesome challenge to businesses and investors in Russia. Russia still lacks a domestic court system capable of protecting a western company’s rights in Russia. For this reason foreign companies must look to international arbitration and innovative alternative dispute resolution (“ADR”) techniques to protect their interests, or consider using the increasingly reliable Russian tribunals. Rapid and constant change requires the assistance of U.S. and Russian lawyers to navigate the new legal institutions and sources of law in Russia and the former Soviet Union.

In Russia, most western entities rely on arbitration for enforcement of commercial obligations. The Russia – U.S. Treaty on the reciprocal protection of investment provides for the resolution of disputes between Russian and U.S. entities through established settlement procedures. If a dispute between the parties cannot be resolved through consultation or negotiation, it is submitted for settlement which is binding and enforceable.

There is also an Agreement between the Chamber of Commerce and Industry of the Russian Federation and the American Arbitration Association which provides for the settlement of disputes. This Agreement sets up a consensual arbitration procedure using the arbitration system of the Stockholm Chamber of Commerce. Contracting parties may designate Stockholm or another city as the site of arbitration in the contract’s forum selection clause.

Under the New York Convention, foreign court judgments and arbitral awards may be executed in Russia so long as they are submitted within three years from the date of issuance. In 1988, the USSR adopted its own law on foreign arbitral awards which also addressed foreign judgments. Russian law provides that foreign judgments (including arbitral awards) shall be enforced under the respective treaties entered into by Russia with a foreign state. There is no Russia – U.S. treaty which provides for enforcing U.S. money judgments under Russian law. U.S. parties to disputes involving Russian private or state entities may consider the possibility of filing a lawsuit in the U.S. and seizing assets held in the U.S., thereby avoiding the Russian courts. The likelihood of successfully enforcing a foreign judgment in Russia however, is low. In contrast, foreign arbitral awards may generally be enforced under both the New York convention and Russian law irrespective of the country in which the award was rendered.

All commercial disputes, including those involving international commerce and foreign entities, fall within the jurisdiction of the Russian Civil Courts, which may award damages to the prevailing party in a judgment.

ADR is a process which can be used as a substitute for litigation through the use of agreements requiring the parties to reach creative, mutually acceptable resolutions not available in litigation. The reasons for applying ADR techniques in Russia may be very similar to the reasons for applying them in the U.S., and the crucial element of flexibility when seeking a negotiated settlement, will enhance the likelihood of reaching mutually beneficial results. Where negotiation is possible, it should be embraced in Russia. The possibility for future commercial contracts, western financing, exposure to additional customers and contracts, and other enticements should be expressed to a business or trading partner to enforce obligations or resolve disputes whenever possible.

Berry Moorman P.C., together with our St. Petersburg, Russia, office, has succeeded in applying these techniques, and navigating this legal environment to enforce obligations and resolve disputes on behalf of U.S. and foreign clients in Russia.  Moving into new and sometimes risky environments can be successfully managed by experienced attorneys with expertise and a strong commitment to protect their clients anywhere in the world.