1. The ambiguity of the claim, the uncertainty of the amount and the possible difficulties at the stage of enforcement of the arbitral award violates public order.

The facts of the case

The Partnership applied to the Samarkand Regional Court with an application for the recognition and enforcement of the arbitration award of the ICAC at the Chamber of Commerce and Industry of the Russian Federation (“arbitral award”) on the recovery from the Company of the principal debt, penalties, arbitration costs and the awarded “penalty for each day of delay in the amount of 0.1 % of the value of the goods till the day of the actual fulfilment of obligations” (“future penalty”).

The Samarkand Regional Court satisfied the application on 28 January 2022.

The Collegium for Economic Affairs of the Supreme Court denied the recognition of the arbitral award in part of the future penalty on 18 August 2022.

The Company’s position

The Company claimed that the collection of future penalties contradicts the current legislation and demanded to apply Uzbek law, which provides for a 50% cap on penalties (Article 32 Law No. 670-I), instead of foreign law based on public order (Art. 1164 CC RUz). Since the recognition and enforcement of the arbitral award is contrary to public order (Art. 256 II EPC), the Company asked to reverse the judicial acts of the first and appeal instances.

The Partnership’s position

The Partnership raised the following objections. The parties agreed that the dispute will be considered by the ICAC in accordance with Russian law. In the legislation of Russia and Uzbekistan there is a difference in the issue of collecting “penalties and fines”. Based on Art. 1164 II CC RUz, the difference between the legislation of the two States cannot be considered contrary to the fundamentals of law and order, public order. At the same time, the arbitral award did not infringe the Constitution, the state structure, independence or security, which are the basis of the public order. In the social sphere, the interests of the majority, constitutional rights and interests of individuals are not violated. In accordance with the arbitral award, a contractual dispute between the two parties was resolved.

Art. 9 of the Kyiv Agreement of 20 March 1992 does not provide for a violation of public order as a ground for refusing the recognition and enforcement of an arbitral award. When considering a case, the economic court is not entitled to review the award on its merits (Art. 254 IV EPC). However, the court of appeal, violating the requirements of the law, regarding the future penalties came to an unreasonable conclusion about the ambiguity of the claim, the uncertainty of the amount and the possible difficulties at the execution stage. The court of appeal instance did not explain on what grounds this part of the arbitral award contradicts or threatens public order and take into account that the difficulties at the enforcement stage can be resolved within the framework of the relevant laws and the EPC. The Partnership asked to uphold the ruling of the court of first instance and dismiss the cassation appeal.

The Supreme Court’s position

The court of first instance ignored the discussion of the future penalties.

Applying Art. 256 II Nr. 2 EPC, the court of appeal instance in terms of future penalties future came to a reasonable conclusion about the ambiguity of the claim, the uncertainty of the amount and the possibility of difficulties at the execution stage. Moreover, such a conclusion does not violate the prohibition on examination of the arbitral award by the economic court on its merits (Article 254 IV EPC).

The Company’s arguments about public order (Art. 256 II Nr. 2 EPC) are unfounded. Since the arbitral award concerns two economic entities and there is a difference in the legislation of Russia and Uzbekistan regarding the collection of penalties and fines in the framework of this economic case, the existence of differences in the legal system is not a basis for refusing to apply foreign law, and also does not contradict the fundamentals of the public order. 

The Supreme Court dismisses the cassation appeal and upholds the resolution of the court of appeal instance.