Case Background
A client obtained a penalty award against a contractor through commercial arbitration and subsequently applied to a state commercial (arbitrazh) court for enforcement. However, courts of first and appellate instance denied the request, citing the penalty was disproportionate and a violation of public policy.
The Russian Supreme Court reversed these decisions, highlighting the following errors:
The Supreme Court’s Conclusion: In the absence of procedural violations by the arbitral tribunal, the arbitrazh court may not review the merits of its decision.
Implications for Businesses in Russia
Reducing Risks in Penalty Enforcement
To avoid non-enforcement of an arbitration award:
Professional legal assistance minimizes risks and ensures enforcement. Our lawyers specialize in commercial arbitration and litigation, including award challenges and enforcement proceedings.
Contact us for a consultation—we can assist in recovering penalties and protecting your interests in court.
A client obtained a penalty award against a contractor through commercial arbitration and subsequently applied to a state commercial (arbitrazh) court for enforcement. However, courts of first and appellate instance denied the request, citing the penalty was disproportionate and a violation of public policy.
The Russian Supreme Court reversed these decisions, highlighting the following errors:
- The commercial courts essentially retried the case on the merits, which is impermissible.
- The arbitral tribunal had already considered the issue of proportionality and rejected the contractor’s arguments.
- The penalty amount was consistent with standard procurement contracts.
- The courts failed to provide specific justification for why the penalty clause violated public policy.
The Supreme Court’s Conclusion: In the absence of procedural violations by the arbitral tribunal, the arbitrazh court may not review the merits of its decision.
Implications for Businesses in Russia
- Increased reliability of arbitration awards—challenges now require substantial grounds.
- Lower risks for claimants—if a penalty is upheld in arbitration, enforcement is highly probable.
- Increased need for clear legal reasoning — courts must clearly articulate how a penalty breaches the law.
Reducing Risks in Penalty Enforcement
To avoid non-enforcement of an arbitration award:
- Ensure careful drafting of contracts, especially penalty clauses.
- Support the penalty's proportionality with market data.
- Retain legal counsel at all stages of the dispute.
Professional legal assistance minimizes risks and ensures enforcement. Our lawyers specialize in commercial arbitration and litigation, including award challenges and enforcement proceedings.
Contact us for a consultation—we can assist in recovering penalties and protecting your interests in court.
