No recognition and enforcement of Russian court judgments in Germany

Hamburg Higher Regional Court: (Still) no recognition and enforcement of Russian court judgments in Germany due to reciprocity not being warranted

After twelve years, the Hamburg Higher Regional Court has with a judgment handed down on 13 July 2016 (6 U 152/11) once again ruled on the issue of whether a Russian court judgment has to be recognised in Germany. The court came to the conclusion that despite tendency in the meantime of Russian commercial courts – but not the general civil courts – towards recognising foreign court judgments even without any international agreement in place, neither the current legal situation in Russia nor the actual recognition practice suggest that German court judgments were regularly recognised in the Russian Federation. Reciprocity is therefore negated and the recognition of Russian judgments rejected.

1. Grounds of the decision

Since, apart from special treaties such as the Convention on the Contract for the International Carriage of Goods by Road (CMR) and family law arrangements, there is no international arrangement in place between Germany and the Russian Federation regarding the recognition and enforcement of court judgments, the decisive factor for the issue of whether a Russian judgment is recognised and enforced in Germany is the granting of reciprocity, according to Sec. 328 (1) No. 5 of the German Code of Civil Procedure. This means that a Russian judgment is enforced in Germany if vice versa a German judgment would also be enforced in Russia.

The last known German court ruling on this issue is a judgment of the Hamburg Higher Regional Court of 28 October 2004 (6 U 89/04). In the years which followed, the Russian commercial courts (“Arbitrazh courts”), but not on the other hand the general civil courts, showed a tendency towards recognising foreign court judgments even without any international agreement in place, on the basis of the principle of reciprocity alone. This practice was even approved by the Supreme Arbitrazh Court of the Russian Federation. This is, however, contradicted by the wording of the legislation, in which contrary to the original draft law on the reform of the Russian Codes of Civil and of Arbitrazh Procedure of 2002, the possibility of recognition and enforcement on the basis of granting reciprocity was precisely not included.

The Hamburg Higher Regional Court therefore commissioned a detailed expert opinion on the developments in the last twelve years. According to this expert opinion, it is disputed in the Russian literature and legal practice whether the Partnership and Cooperation Agreement between the EU and Russia or even the unwritten principles of international law can form the basis for a recognition of foreign judgments in Russia. According to the analysis of all available sources, the actual recognition practice, however, does not follow the liberal opinions in the literature. In particular, the general courts apply a restrictive recognition practice, which was approved by the Russian Constitutional Court. Following the merger of the Supreme Arbitrazh Court and the Supreme Court, which was intended to guarantee uniform supreme court practice, the plenary has not yet had to decide on this issue.

The Hamburg Higher Regional Court also emphasised that the few individual cases in which foreign decisions were recognised did not concern German judgments. According to the court, the uncertainties were so great that a granting of reciprocity could not be assumed. It also stated that in view of the fact that a recognition on the basis of the granting of reciprocity in Russia was not even mentioned in the applicable Russian laws and it was unclear how Russian courts would decide in the opposite case even if they accepted the ruling of the Higher Regional Court as a “key decision”, there was no reason for German courts to make the first move.

2. Comments and practical tips from a German point of view

No change to recognition practice is to be expected in the coming years following this judgment. The further developments in Russia remain to be seen. A Russian business player who may want to assert claims against a business partner in Germany is therefore first of all well advised not to contractually accept the exclusive jurisdiction of Russian courts, but at least to keep open the option of taking legal action against the German party before German courts as well.

In particular where a party wants a judgment to have legal effect in the Russian Federation as well and/or where the contract is governed by Russian law and therefore the party first of all wants an assessment by a Russian court, in Germany besides completely new proceedings, documentary evidence proceedings (Urkundenprozess) on the basis of the Russian judgment may also be considered. If the defendant does not (any longer) have a general legal venue in Germany, the action can be filed with the court in whose jurisdiction the defendant has assets (Section 23 German Code of Civil Procedure). It has to be taken into account, however, that jurisdiction based on the location of assets is precluded by the Brussels Ia Regulation/Lugano Convention if a general legal venue of the defendant is established in the EU, Norway or Switzerland. Judgments from these countries can, however, at least be enforced in Germany without difficulty.

In view of these difficulties, it should be considered during contract negotiations whether state jurisdiction should be excluded and an arbitration clause agreed instead because, in accordance with the New York Convention, an arbitral award is recognised and enforced in a large number of countries.

3. Comments and practical tips from a Russian point of view

The decision of Hamburg Higher Regional court is important to the international business community in Russia, since it increases the risk that German court decisions will not be recognised and enforced in Russia based on the principles of reciprocity and international comity (i. e. giving due regard to the acts of official bodies of foreign states).

In general, the Russian Code of Arbitrazh Procedure provides that a judgment handed down by a foreign court is only subject to recognition and enforcement in Russia if (i) such recognition and enforcement is provided for by a treaty entered into by the Russian Federation and (ii) federal law. The Russian Federation has entered into only a few treaties providing for mutual recognition and enforcement of foreign judgments (e.g. with Italy, Spain, Cyprus, Greece, China, and some CIS countries). No such treaties are available in respect of judgments issued in most European countries.

Notwithstanding the rule set out in the previous paragraph and the lack of an applicable treaty, there are cases where the Russian Arbitrazh courts have recognized and enforced specific judgments of UK and Dutch courts, relying on the international principles of reciprocity and international comity. In some cases the courts regarded the Partnership and Cooperation Agreement establishing a partnership between the European Community and its Member States and Russia of 1994 as the international treaty within the framework of which the recognition and enforcement of foreign judgments is carried out in the Russian Federation. There is even an example of the recognition and enforcement of a UK court judgment recently by the Supreme Court (which is the highest court after its merger with the Supreme Arbitrazh Court).

Now, although some of the few recent cases have demonstrated something of a positive tendency in the recognition and enforcement of foreign court judgments in Russia, the decision of the Hamburg Higher Regional Court is highly likely to make the recognition and enforcement of German court decisions in Russia impossible, since the parties applying for the recognition and enforcement of a foreign court judgment in Russia should submit evidence of the foreign jurisdiction’s enforcement and recognition of Russian court judgments in that jurisdiction to allow the application of the principles of international comity and reciprocity.

The claimant would then have to resort to new proceedings in Russia. In case a party has assets in Russia, this would generally mean that the Russian court has jurisdiction over the claim, even if the defendant is domiciled abroad. Unlike German proceedings restricted to documentary evidence (Urkundenprozess), Russian law does not provide for any such simplified procedure. However, the German judgment could arguably serve as one of evidence; although it will not be a conclusive evidence for a Russian court.

In the stage of contract negotiations, it may therefore be recommendable to include arbitration clause. The number of successful recognitions of arbitral awards in Russia under the New York Convention is significant. Moreover, the Russian Arbitrazh Procedure Code has been significantly changed recently as regards arbitrability of some types of disputes. The changes will take effect on 1 September 2016 and will be dealt with in a separate Noerr news article.