• Why Litigate in Russia: Pro’s and Con’s of Referring Your Dispute to a Russian Court
  • February 7, 2011 | Author: Andrey Zelenin
  • Law Firm: Lidings - Moscow Office
  • Timelines

    The term of the case examination in Russian state courts, even taking into account possible appellate proceedings, are considerably shorter than the time the trial of a dispute takes in international arbitration tribunals or in many foreign courts. Furthermore, it is necessary to remember that foreign judgments and arbitral awards, must be recognized executed in a Russian court prior to being enforced against the debtor (see section 3 below for details). This is very important to take into account because our practice suggests that Russian debtors do not voluntarily perform their obligations even after an award or a judgment has been passed abroad. It is realistic to receive a final judgment in 4 months from the moment of initial filing to the court. And 1 year is an approximate term for all possibilities to challenge the decision to be withdrawn. These timelines are incomparable with the possible terms of arbitration proceedings (even without taking into consideration the necessity to enforce the award thereafter).

    Cost1

    The state duties in the Russian courts are substantially lower than expenditures for process in the international arbitration tribunals or in many foreign courts. The size of duties is stipulated in the Tax Code of Russian Federation (article 333.21) as a percentage to the claim amount (for some types of claims a fixed duty amount is indicated). As a general estimation the state duty will be below 4% of the sum in dispute but in any case it cannot be higher than 100,000 Roubles (below EUR 3000). The state duty for the appeal proceedings is fixed as 1,000 Roubles (below EUR 30). Approximately 15.000 Roubles (EUR 400) is required for postage, notary and miscellaneous expenses for a case.

    Enforcement of Judgments and Awards

    The undisputable advantage of Russian courts is that their judgments are subject to direct execution in Russia by the Bailiff Service. While in order to enforce an arbitral award or a foreign judgment in Russia it is necessary to first initiate process in the Russian law court for its recognition and enforcement (which in its turn may take at least from 2 to 4 months). Thus, even having won the trial abroad, it is still necessary to go through the trial in Russia (with a possibility for a debtor to go for appeal even if the court of first instance has granted enforcement¿ plus 2-3 months to the timeline). Moreover for foreign court judgment recognition, presence of an international treaty with a specific country is required. It is necessary to mention that Russia lacks such treaties with most of foreign countries including US, England, Germany and France.

    Enforcement of arbitral awards may look easier because Russia is a part to the New York (United Nations) Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958. Therefore, if the conditions defined in the Convention are met, then an award rendered abroad can be recognized by Russian courts and enforced against the debtor.

    Russian legislation doesn’t provide for any additional rules regarding this subject. The provisions of the New York Convention are incorporated in the Arbitration Code and in the Law on International Commercial Arbitration (which is based on the Model UNCITRAL Law). Still the court practice is of great significance for the issues of concern. It happened to be that Russian judges have formed a very conservative and almost a protectionist approach to recognizing and enforcing of the foreign arbitral awards. Following this approach on December 22, 2005 The Higher Arbitration Court of Russia has issued an Informative letter No. 96 titled as a “Review of the court practice on recognition and enforcement of foreign judgments, on canceling the arbitral awards and on enforcement of the arbitral awards”.2

    Six sections of the Informative letter No. 96 are directly connected to international arbitration. Special attention is paid to issues of award dismissal on public policy grounds, which are of a prime consideration (and debtor’s objection No. 1) in the process of recognition and enforcement of arbitral decisions in Russia.

    Russian legislation doesn’t contain a precise definition of circumstances that can qualify as a public policy obstacle. The Higher Court in Informative letter No. 96 (sections 29 ¿ 31) gives three possible examples:

    • The consequences of enforcing of the award will be contradictory to the principles of equity of the parties, good faith, and adequacy of the liability to the consequences of the contract breach.
    • An award may be dismissed, or the claim for its enforcement may be rejected if it is based on counterfeit documents.
    • If a sum awarded is evaluated in a foreign currency that doesn’t constitute a ground for denial in its enforcement, because that doesn’t contravene Russian public policy.

    These provisions (especially the first one) in some way increase the possibility to use Public policy objection as compared with internationally recognized arbitration practice because they imply that the court will reexamine the award on its merits which cannot be regarded as admissible.

    Some other Higher Court’s recommendations are arguable. For instance its position that disputes regarding real estate situated in Russia cannot be subject to international arbitration is inconsistent not only with the worldwide attitude, but also with the strict sense of Russian law.

    To summarize, the recognition proceedings required for foreign judgments and arbitral awards in Russia represents a major risk and disadvantage as compared with national court justice not only in terms of loosing time for enforcement, but also because of a possibility that the case will be reexamined and “lost”.

    Typical Objections to Resolving Dispute in Russian State Courts
    Recovering of damages and lawyers fees

    As one of the disadvantage of resolving disputes in Russian courts one can consider their reluctance to recover damages and lawyers fees. Indeed, Russian courts are usually not awarding big sums of moral damages or lost profits and the lawyers fees requested for recovery are double checked for adequacy and often decreased.

    Still if recovery of damages under a contract is requested the courts are likely to award all reasonable and documentarily proved harm to counterparty, as well as penalties provided in the contract if not excessive (usually the Central bank rate, currently 13% is used as a criterion). As to the lawyers fees they are quite modest in Russia and in some cases / to some extent may be conditioned by the successful recovery of the debt.

    Judgment enforcement

    It is not unreasonable to argue that Russian Bailiff’s Service works quite ineffectively now. However, it is something you cannot avoid even if you use foreign court or arbitration in the case the debtor doesn’t pay the awarded sums (unless you can approach its assets located abroad which is not common for mid-size business).

    Moreover, qualitative legal support, can increase the effectiveness of recovery by using legal means to control and stimulate bailiffs in their activities.

    Corruption and lobbying

    Even under the conditions of well known high levels of corruption in the Russian state authorities, the judgment carried out by a court must be legal and well-grounded. Obviously illegal judgment will be cancelled by the courts higher instance (at that the lower court’s judge may be imposed with a number of disciplinary measures). Therefore, the main question is having a clear and legally perfect position for the case.

    Another risk ¿ when dealing with big state-related corporations ¿ is that for political reasons the court practice or even legislation can be altered for the sake of protecting Government’s (and its companies’) interests for one case. This is the situation when arbitration (as a neutral forum) may be the only choice. Still the risk of political influence remains for the phase of enforcement of the award in Russia.

    To summarize, it is obvious that litigation in a Russian state court is an acceptable method of dispute resolution especially for small and mid-sized contracts between foreign and Russian counterparties. Obtaining a judgment in Russian state courts is normally faster and cheaper than in foreign courts or international arbitration tribunals. This judgment would be more easily enforceable in Russia. While the disadvantages of resolving disputes in Russian state courts such as corruption, poor enforcement system and reluctance in recovering damages, can be over passed by qualitative legal support.
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    1. We are not considering here the fees of legal counsel during the proceedings, because they are hard to define and to compare. This notwithstanding it is evident that legal services cost in Russia is lower than in many European countries.

    2. It is important to note that despite of the fact that Higher Court’s Informative letters are not mandatory to follow, the lower courts and judges consider them as an instruction on the way they are supposed to rule in the similar cases. Therefore the mentioned Informative letter No. 96 has substantial impact on the court practice regarding the enforcement of foreign arbitral awards.