A Few Arguments in Defence of Russian Courts.

18.01.2010

RBCC Bulletin, January-February 2010

Virtually every conference or seminar on the legal system in Russia criticises the local courts. Most of the arguments put forward are quite convincing, but let us consider this from a different perspective. In which cases might Russian arbitration courts [1] prove to be a more efficient defence tool than foreign courts or international commercial arbitral tribunals? Can shortcomings of Russian courts be put to advantage for a party to a dispute?

Argument Number One: Fast

The time limits for legal proceedings set by the Arbitration Procedure Code of the Russian Federation (the ‘Russian APC’) are fairly strict and, in general, most courts observe them. On average, it takes eight months for a case to go through three instances, with three months for the first instance court, two months for the appeal court and another three months for the cassation procedure. For various reasons, the proceedings may, of course, last longer but rarely more than ten - 12 months.

If we compare these time limits with the time actually taken for hearing cases in such well-known international commercial arbitration centres as the ICC, LCIA, SCC or ICAC, we see that arbitral proceedings last two or three times longer. The same goes for foreign courts. In many Western countries, it is quite common for a court case to be pending for several years.

Argument Number Two: Cheap

It is commonly known that the maximum filing fee charged by Russian arbitration courts is 200,000 roubles [2]. Even if a dispute between major companies is worth billions, this is the upper limit. For a dispute worth €10m, the fees involved might appear as follows:

Court

Lawsuit value

Filing fee (approx.)

RF Arbitration Courts

€ 10 m

€ 4,500

SCC

€ 10 m

€ 200,000

ICC

€ 10 m

€ 275,000

English courts

€ 10 m

€ 5,000

It is evidently cheaper to have your case considered by Russian courts than by many other courts or arbitral tribunals.

Argument Number Three: Easy to Obtain a Writ of Execution

A writ of execution is available automatically about ten to 20 days after a decision of a court comes into effect, i.e., in most cases, either from the date of the appeal ruling upholding the decision of the first instance court or, if this decision has not been appealed against, upon expiry of one month from its date.

A writ of execution for an international commercial arbitral award takes from four to six months, on average. (Much has been written about problems applicants encounter in having an arbitral award recognised and enforced; however, we will not focus on this here.)

The situation with writs of execution for decisions rendered by foreign courts is still more complicated. The reason is that a writ of execution can be issued either if there is a treaty with the relevant state on mutual recognition of court judgments or on the basis of the principle of reciprocity or courtesy. Russia has such treaties with around 30 countries, mostly either the CIS countries, or former USSR republics or socialist countries. Other countries include Spain, Cyprus, Italy, Greece, Argentine, India and some others. Unfortunately, no such treaties have been signed with most major Western countries (USA, UK, Germany, France, etc.). The reciprocity and comity principles have served as a basis for recognition of a negligible number of decisions [3], so it is too early to speak of broad prospects for its application.

Argument Number Four: Multitude of Parties May Be Involved in Legal Proceedings

The Russian APC does not restrict the plaintiff’s right to involve, as defendants, any parties they specify in their statements of claim. Whether they are the proper defendants will only be decided at the judgement-rendering stage (Articles 46 and 47 of the Russian APC). Nor is it particularly difficult to involve, as third parties, all those whose rights and interests might be somehow affected by the court decision. The latest amendments to the Russian APC allow protection to be sought in court for the interests of a group of parties (Chapter 28.2 of the Russian APC). This is fairly similar to the so-called “class actions” that are common in the USA.

It is a well-known fact that one serious problem in international commercial arbitration is involvement of parties that are closely related to the case under consideration but did not sign an arbitration agreement.

Argument Number Five: Easier to Obtain Interim Relief

It is far from easy, of course, to obtain interim relief from Russian courts on cases pending with them but, in comparison with obtaining the same relief on cases considered by arbitral tribunals, the situation with Russian court cases is much more favourable. The Supreme Arbitration Court of the Russian Federation does not, unfortunately, publish any separate statistics on interim relief granted in favour of arbitral proceedings. In the author’s experience and that of other attorneys, interim relief measures granted on cases heard by arbitral tribunals are few and far between.

Concerning lawsuits filed with foreign courts, the Russian APC does not provide for interim relief on these at all.

Argument Number Six: Evidence

Any attorney would confirm that judges in Russian arbitration courts are not keen on such types of evidence, widely used in the West and East, as witness testimony; e-mail messages and other documents without the original signatures and stamps; opinions of experts not appointed by the court; photo and video materials. You can take advantage of all these specific features of the Russian judicial system if you believe that such evidence will be your opponent’s strong point while you would like to confine the case to strictly drawn-up documents. Given that, in most courts, the time taken to hear a case has lately been from ten to 20 minutes, the party that presents less complicated and more formal evidence comes out victorious, as the court just does not have time to go into all the details.

Argument Number Seven: The Unexpected

It is common practice among Russian attorneys to keep the most important arguments to themselves and put them forward at the last minute, during the main hearing, hoping that the opponent, being pressed for time, will be unable to come up with a worthy response and thus lose the case.

The provisions of the Russian APC requiring the parties to disclose evidence beforehand and submit a statement of defence do not actually hamper this practice. First, there are no sanctions for violating these provisions; second, a statement of defence may be called a written explanation on the case [4]; third, the worst thing that might happen to an attorney using such tactics is a court ruling to postpone the hearing so that the opposing party might familiarise itself with the new materials. Forfeiture of the right to submit belated evidence - a practice widely used in many Western courts and arbitral tribunals - is out of the question here.

Since Russian law and judges do not preclude blindsiding your opponent, these might prove to be quite efficient tactics.

Argument Number Eight: Easier to Prove Applicability of Russian Law

If there is a dispute over applicable law and you would like it to be Russian law, going to a Russian court will substantially raise your chances. A Russian court may, of course, apply the rules of any law it considers applicable to a dispute but the procedure for clarifying foreign law provisions is quite complicated. The court will send an inquiry to the Ministry of Justice but the latter has fairly limited resources. It is hard to imagine where the Ministry of Justice would obtain, say, an explanation of the content and application of a provision of Texas law. The court may make one of the parties responsible for proving the content of foreign law but there is a risk of this party using the judge’s lack of knowledge of the foreign law to manipulate him.

The law gives judges two loopholes for rejecting law that is strange to them and for applying domestic law instead. The first loophole includes cases when application of Russian law is mandatory by virtue of law (Section IV of the Russian Civil Code), this being interpreted quite broadly in practice. The second loophole is Art. 14(3) of the Russian APC, allowing judges to resort to Russian law in the event of failure to ascertain the content of foreign law within a reasonable time. The judge can decide at his own discretion what is actually meant by “failure” and “reasonable time”.

To conclude, from the viewpoint of a practising attorney, there is no such thing as a good court or a bad court, in general. There is a court that is either good or bad for a particular case. If a choice can be made between different bodies and methods for resolving a dispute, it would be a good idea to consider how important the above criteria are for your case. If they are important, it is quite possible that a Russian court will be the right venue for hearing your dispute.



[1] They are in fact state commercial courts but called “arbitration courts” just by some historical reasons.

[2] Before 29 January 2010 this was even less - 100,000 rubles.

[3] It should be noted that even the reciprocity principle is not applied by the courts directly but through interpretation of a number of international treaties that do not directly provide for mutual recognition of court judgments. See, for example, Resolution of the RF Supreme Arbitration Court dd 7 December 2009 No VAS-13688/09 on Rentpool v Podyemnye Technology; Resolution of the Federal Arbitration Court for the Moscow Circuit No. KG-А40/698-06-P on Citibank and others v YUKOS.

[4] Although this document may, in essence, be a statement of defence, the Russian APC does not require that it be submitted in advance.

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