March 2013: Russia Litigation Update

Jurisdictional conflicts between courts of different countries are an unavoidable consequence of developed global trade. This has led to an increase in multi-national forum shopping. Some Russian courts however, view the adjudication of Russian-related disputes in foreign courts as a direct threat to Russian state sovereignty.

Background. Recently, there has been a large increase in litigation between Russian businessmen in foreign jurisdictions. For example, between 2008 and 2012, the number of Russia-related cases litigated or arbitrated in London tripled. These include a high profile dispute in the London High Court between Russian ex-business partners Boris Berezovsky and Roman Abramovich. Russian President, Vladimir Putin, commented on this lawsuit, stating that Messrs. Berezovsky and Abramovich should have met in a Russian court instead. “That would be more honest—for them and for our country,” Mr. Putin said. “The money was made and stolen here—let them divvy it up here too.” President Putin’s comment reflects a growing sentiment that Russian-related disputes should be adjudicated in Russian, not in foreign jurisdictions.

In May 2012, more than 2,000 representatives from 51 countries took part in the 2nd Saint Petersburg International Legal Forum to discuss issues concerning global legal policy in the 21st century. This supposed threat to Russian state sovereignty by court decisions and arbitration awards rendered in other countries was a central issue in the discussions. Anton Ivanov, the Chairman of the Russian Federation Supreme Commercial Court, delivered a noteworthy speech openly criticizing foreign litigation and arbitration proceedings involving Russian parties and assets.

Key Points of Mr. Ivanov’s Speech. Mr. Ivanov stated that Russia must protect its citizens and companies from being unfairly prejudiced in foreign judicial systems. Mr. Ivanov addressed the issue of “dragging” a dispute from one jurisdiction to another, particularly where the parties use allegedly far-fetched pretexts to establish jurisdiction in the desired court.

As specific examples, Mr. Ivanov cited an injunction issued by the High Court in London in favor of BNP Paribas S.A. against the Basel Group company, Russian Machines, in support of LCIA arbitration (BNP Paribas SA v. Open Joint Stock Company Russian Machines and another [2011] EWHC 308 (Comm)) and a damages award granted under the Germany-USSR BIT in a Stockholm arbitration, subsequently enforced in Germany, and resulting in the seizure of real estate previously used by the KGB. Mr. Ivanov said these cases exemplify violations of basic human rights and freedoms, particularly the right to have a dispute considered by a competent court. He added that they breach the principle of legal certainty and also encroach on sovereign immunity.

Mr. Ivanov made proposals to prevent forum shopping for Russian-related disputes by “guarantee[ing] its citizens and entities protection from the unfair competition of foreign jurisdictions.” These proposals include giving Russian judges the right to set aside foreign judgments and arbitration awards if they feel that Russian parties are unfairly prejudiced in any way, taking punitive measures against those who interfere with Russian interests abroad, and in extreme cases, denying entry into Russia and freezing assets of foreigners involved in rendering unlawful judgments. Mr. Ivanov’s proposals are designed to create a disincentive for foreign courts to hear Russian-related cases. The sanctions are designed to create a disincentive for international law firms with offices in Russia to bring disputes to foreign courts because punitive sanctions—such as possible assets confiscation—would apply to them directly, the Chairman added. Russian Prime-Minister, Dmitry Medvedev, speaking at the same forum endorsed Mr. Ivanov’s suggestions, describing them as “civilized means of resolving issues”.

Reflection. It is yet unclear how Mr. Ivanov’s proposals will affect Russian legislation and commercial courts’ practice. One might expect that more claims in Russian-related disputes would be brought in Russian courts and that Russian courts will issue anti-suit injunctions against parties pursuing foreign litigations or arbitrations. It is worrisome that Russian courts appear intent on issuing legislation to prevent anyone from litigating Russian-related disputes outside the boundaries of Russia.

This is not a new issue. Russia has long struggled with the sentiment that forum shopping through international arbitrations was competing with the Russian court system. More than ten years ago, the Russian courts addressed the question of whether it was necessary to recognize arbitration agreements. At an educational program for judges, a Supreme Commercial Court judge urged that all disputes be litigated in Russian courts regardless of arbitration clauses. Some judges formed an “anti-arbitration” party, however, it was unable to change the law and state courts took a more reasonable approach to international arbitration and awards.

Mr. Ivanov’s proposals appear to be a troubling resurgence of the “anti-arbitration” sentiment. There are established procedures in place to resolve conflict between the sovereign interests of diverse jurisdictions and to counter attempts to initiate proceedings in improper jurisdictions. These procedures have existed for decades and are sufficient to prevent the alleged evils raised by Mr. Ivanov.