In a domestic arbitration the arbitral tribunal awarded the claimant a substantial sum of damages following the respondent's failure to meet the deadline in the first stage of a project. The Commercial Court of Moscow refused to enforce the award on the ground that it violated "the basic principles of Russian law" (violation of such principles being a ground for cancellation of an arbitral award under the Russian Code of Commercial Procedure and the Law "On arbitral tribunals in Russian Federation"). The court came to that conclusion because the sum awarded to the claimant for the first stage of works was calculated as percentage of the total sum of works under the contract. Therefore, the sum awarded was bigger than the entire cost of the first stage works.

On appeal, the Federal Commercial Court of Moscow region confirmed the judgment of the lower court. The court stated that one of the basic principles of Russian legislation is equality of parties and compensation for violated rights. A penalty for failure to perform contractual works on time, which is bigger than the total cost of those works, contradicts the compensatory nature of the remedy of damages. Damages should serve the purpose of restoration of violated rights, not the punishment of the respondent.

Even though the violation of the basic principles of Russian law is only a ground for refusal of enforcement for domestic (not international) arbitral awards, the concept of the "basic principles of Russian law" is very similar to "public policy". Thus, the reasoning of the court in this case might possibly be adopted by the Russian courts in other enforcement cases, including those concerning international arbitral awards. A claimant can probably minimise the risk of this happening by carefully formulating any claim for damages so as to ensure that the compensatory principle is not breached.

Case: № A40-57217/12-56-534