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Resolution of the Constitutional Court of the Russian Federation No 18-P

legal updates
07 / 05 / 2024
On 16 April 2024, the Constitutional Court of the Russian Federation issued Resolution No. 18-P deciding whether paragraph 2 of Article 426(4) of the Civil Procedure Code of the Russian Federation is constitutional. This Resolution confirms that real estate disputes are arbitrable and that corresponding arbitral awards comply with Russian public policy.

Case details

In 2021, Mr I.Y. Kolosov and his partner acquired a non-residential building in Russia. Later Mr Kolosov initiated arbitration and was awarded the ownership title to the entire building. However, state courts refused enforcement, citing public policy violations. The courts argued that disputes over property rights to real estate should be considered non-arbitrable and fall under the exclusive jurisdiction of state courts since real estate registration involves public law relations. The courts also considered whether the initiation of arbitration by Mr Kolosov was merely an attempt to create the appearance of a private dispute for the tribunal to further secure ownership rights to a real estate object upon presentation of an enforcement ruling to the registration authority.

Key findings of the Constitutional Court

The Constitutional Court largely relied on legal positions previously formulated in its practice on arbitration issues (e.g., Resolutions of 3 October 2023 No. 46-P, of 26 May 2011 No. 10-P). The Court emphasised that such positions are relevant also to real estate disputes. By defining the constitutional and legal meaning of paragraph 2 of Article 426(4) of the Civil Procedure Code of the Russian Federation, the Constitutional Court reached the following conclusions:

The arbitration of disputes dealing with property rights to real estate does not automatically violate public policy and does not warrant an automatic refusal to issue an enforcement judgement.

A state court, when deciding whether to enforce an arbitral award, should not only assess whether the enforcement (e.g., making payments, transferring property) will lead to a public policy violation, but also pay attention to the integrity of the award itself and evaluate if there are signs that raise doubts as to whether the award essentially complies with good faith requirements and imperative law provisions. The courts should prevent the enforcement mechanism from being misused to benefit parties acting unlawfully or in bad faith, including the registration of real estate rights circumventing the law.

Courts should analyse such awards comprehensively, beyond the parties’ arguments, which may be made in bad faith (e.g., creating the appearance of a private dispute to transfer property rights unlawfully). Courts can involve state authorities for providing formal opinions on various public policy elements or for proposing additional arguments and evidence on other grounds for non-enforcement.
A public policy violation must be well-reasoned by the court and cannot be based solely on the fact that the arbitral award concerns property rights to real estate.

The Constitutional Court therefore refuted the lower courts’ conclusions that the award contradicted public policy, emphasising the need to avoid a formalistic approach in applying paragraph 2 of Article 426(4) of the Civil Procedure Code of the Russian Federation to real estate disputes. Only a thoroughly justified public order violation can serve as a basis for refusing enforcement. This resolution aims to reduce the number of unjustified enforcement refusals due to public policy concerns, which occurs frequently in practice. This approach is intended to bolster trust in arbitration as an effective dispute resolution mechanism.
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