Procedural limitation period to be observed when seeking enforcement in Russia.

03.11.2010

PRACTICAL LAW COMPANY.

A recent ruling of the Federal Arbitrazh (Commercial) Court of the Central region (Commercial Court of third level) has drawn attention to the importance of keeping to time limits when seeking enforcement in Russia. This case provides confirmation that winning an arbitration does not always equate to reaching the desired goal.

In 2005, the German company, Lugana Handelsgesellschaft mbH (Lugana), prevailed in a DIS arbitration with the Russian company, Ryazan Factory of Metal-Ceramic Instruments (Ryazan), which was ordered by three arbitral awards to pay outstanding debts under the contracts between the parties and to perform the delivery of certain products to Lugana.

In 2008, Lugana applied to the Commercial Court of Ryazan region for the enforcement of the award, having observed the three year limitation period which is set for enforcement applications by the Russian Code of Commercial Procedure.

Since that time and over the course of two years, Lugana has been to court twice because its application for enforcement had been rejected due to the absence of a written arbitration clause (see Legal updates, Voluntary participation of respondent in arbitration is not a valid substitute for a written arbitration clause (www.practicallaw.com/4-500-6660) and Writing requirement revisited (www.practicallaw.com/1-500-9269)).

In February 2010, the Federal Arbitrazh Court finally put a stop to the discussion, ruling that the parties had effectively entered into the arbitration agreement by the exchange of letters and by the participation in DIS arbitration proceedings, without objecting to the competence of the arbitrators. In March 2010, Lugana was provided with the enforcement writs which are necessary to carry out the enforcement through the state bailiffs in Russia.

However, Ryazan successfully applied for the correction of the enforcement writs, arguing that those writs should indicate that they are to be submitted for execution within three years of the arbitral awards entering into force, that is, by 2008.

By that ruling, which became available in early October 2010, the Federal Arbitrazh Court of the Central region decided that Lugana has missed the three year deadline for submitting the writ for execution and therefore, the enforcement writs it obtained cannot be executed, unless Lugana successfully applies to the court for the extension of the three year deadline.

The prospects of obtaining such an extension are uncertain. According to Article 117 of the Russian Code of Commercial Procedure, a procedural time limit can be prolonged if the applicant proves that it failed to observe it due to a "reasonable excuse".

Whether the Russian court will consider these facts as a "reasonable excuse" remains to be seen. Whatever the outcome in this particular case, the practical lesson to be learnt is clear and simple: be aware of all procedural time limits the law of the place of enforcement has to offer.

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