In recent years London has seen litigants from Russia and other former Soviet republics (the Commonwealth of Independent States or CIS) flock to its commercial courts and play out in the public courtrooms of the Royal Courts of Justice details of the murky ‘wild capitalism’ years which followed the collapse of the USSR. In 2012, as much as 60% of the Commercial Court’s work involved parties from Russia or other CIS states in disputes which often had no connection with England. London law firms were quick to set up dedicated CIS dispute resolution teams to attract wealthy Russian and CIS clients.
The rules governing jurisdiction to resolve disputes with Russian parties have become topical and politically sensitive. The ‘unfair competition’ between Russian and other legal systems (first of all English and US courts) was complained of by Justice Anton Ivanov, chairman of the Russian Supreme Commercial Court, in a speech in May 2012 at the Second International Legal Forum in St Petersburg. He proposed protective measures to discourage the move of Russian litigation abroad, such as ‘collecting as unjust enrichment the adjudged amount from the party that appealed to the foreign court in bad faith’, and drafting a ‘blacklist of foreigners involved in the making of unlawful decisions’.
However, president Putin took a softer line in his December 2012 address to the Federal Assembly when he stressed that ‘the best way to make businesses patriotic is to ensure effective guarantees for protecting property and honouring contracts’. It is no surprise that 2012 was filled with important developments both in Russian and English courts concerning choice of forum.
Jurisdictional disputes in Russian courts
The ruling in Fringilla Co Ltd (No. 7805/12, 23 October 2012) by the presidium of the Russian Supreme Commercial Court (the highest court of final instance for commercial disputes in Russia) is now central to the approach of Russian courts to foreign litigation. A Cypriot company failed to have a judgment of the Cypriot court recognised and enforced in Russia. The Cypriot claimant loaned monies to a Russian company to purchase shares in other Russian companies. The loan provided for the Cypriot courts to have jurisdiction, and prohibited the borrower from alienating the shares without the lender’s consent. In breach, the Russian borrower sold the shares to a Russian purchaser.
The Cypriot court ordered the borrower to repay the loan and damages, and invalidated all purchase agreements made between Russian companies without the consent of the Cypriot lender. Notwithstanding the existence of a bilateral international treaty between Russia and Cyprus on reciprocal legal co-operation, the Russian court refused to recognise and enforce this Cypriot judgment and relied on three main arguments in support of its decision.
First, disputes related to validity of corporate decisions of Russian companies and thus were subject to the exclusive jurisdiction of the Russian commercial courts. Second, the court found the application of the Cypriot legislation relied on by the Cypriot court for transactions made between Russian parties in respect of the purchase of shares in Russian companies to be ‘extraterritorial’ and concluded that it could infringe the sovereignty of the Russian Federation and Russian public policy.
Finally, the court introduced a new legal test (not explicitly set forth in the Russian legislation), according to which a foreign judgment cannot be recognised and enforced in Russia if a foreign court has determined its jurisdiction using some basis which is not widely recognised on an international level (reference was made to the jurisprudence of the European Court of Human Rights) or under Russian procedural law.
The refusal of the Russian courts to enforce the Cypriot judgment is unsurprising. Had enforcement been sought in England, it seems likely that the same conclusion would have been reached as in Russia, because the Cypriot court was not a court of competent jurisdiction under English private international law.
The limits on referrals to arbitration by Russian companies have always been very controversial. It was well known that all disputes regarding Russian immovable property were considered non-arbitrable. However, the situation changed dramatically when the Russian Constitutional Court pronounced ruling No. 10-P, 26 May 2011. Interpreting the provisions of the Russian constitution and a number of Russian legislative acts, the Russian Constitutional Court took the view that disputes regarding Russian immovable property could be referred to arbitration. This ruling gave hope for the arbitrability of other private commercial disputes with Russian companies.
However, these hopes were not justified. In a number of recent judgments the Russian commercial courts of different districts have restated that all corporate disputes regarding companies incorporated in Russia are not arbitrable. Corporate disputes are understood by the Russian courts in a very broad fashion and include, inter alia, any disputes arising out of share purchase agreements, shareholders agreements and share pledges.
Enforcement is another headache for all practitioners dealing with disputes with Russian companies, even though Russia has acceded to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Under Russian company law any shareholder, public prosecutor or some other governmental officials may bring proceedings in the Russian commercial courts seeking the invalidity of a contract containing an arbitration clause. Such claimants are not bound by the arbitration agreement and can apply to the Russian state courts, according to the settled Russian case law. It would be very difficult to recognise and enforce in Russia a foreign arbitral award if a Russian commercial court hands down a decision invalidating the underlying contract. This was the scenario in the recent case of Ciments Francais v Siberian Cement.
Recent developments in English courts
The appeal of litigating in London rather than in, say, Russia lies in a combination of factors: confidence in English law; the calibre and integrity of the judiciary and the legal profession; the public nature of justice; the obligation on the opponent to disclose all information relevant to the dispute which, if necessary, can be enforced by a court order; the availability of effective interim remedies such as freezing orders; and the ease of enforcement of English judgments in other jurisdictions.
What is less clear is why the English courts appear to be so eager to open their doors to litigants whose disputes have little connection with England. In fact, English courts are very slow to allow claims arising out of the events that took place in Russia and CIS to proceed in England. Many CIS disputes are commenced in English courts because the defendant is domiciled in England. The corporate structures through which Russian and CIS businesses operate often include English companies. Other foreign defendants can then be joined as necessary parties to the English proceedings.
This tactic has, however, met considerable resistance from the English courts. In November 2012, the Chancery Division of the High Court held that a claim by TNK-BP, Russia’s second-largest crude oil production company, against its former employees for bribery should properly be heard in Russia rather than England. The judge pointed out that the claim’s only connection to England was artificially created by joining an English company controlled by the Russian defendants to the proceedings in circumstances where that company never carried on any business in England nor indeed had any assets in the jurisdiction.
In April 2012, the Commercial Court held that a shareholder dispute between a Ukrainian and a Russian businessmen concerning the ownership of one of Ukraine’s most valuable iron ore mines ought to be decided by Ukrainian courts, which were better placed to resolve questions of Ukrainian company law on which the dispute turned, despite the fact that the English proceedings were properly brought against the English defendant companies ultimately owned by the Russian party (Ferrexpo AG v Gilson Investments Ltd  EWHC 721).
Even if the applicable law of the dispute is English, that is not a strong factor in relation to the choice of jurisdiction. The UK Supreme Court recently confirmed as much in a dispute between VTB Capital plc (an English bank) and a Russian businessman, Konstantin Malofeev, together with a number of BVI companies controlled by him, including Nutritek (VTB v Nutritek  UKSC 5). VTB, or rather its Moscow branch, lent large sums to Russagroprom LLC to enable it to buy Russian dairy companies from Nutritek. When the loans were not repaid, VTB brought proceedings in England alleging that it was induced to enter into the loans by fraudulent representations made by Nutritek. The alleged wrongful acts were governed by English law.
Nevertheless, the Supreme Court found the factual focus of the case was in Russia: the common design on which the defendants’ liability for the alleged wrongs was formed in Russia; the alleged representations emanated from Russia; significant aspects of the facts said to have rendered the representations untrue existed in Russia; the loan was approved by the bank’s Moscow branch; and both oral and documentary evidence on both factual and expert matters was overwhelmingly Russian. The case could more conveniently be heard in Russia.
This approach is likely to mean that fewer disputes between Russian and CIS parties will be heard in London commercial courts in the future. Those who wish to litigate in London will have to present the courts with strong evidence that England is clearly the more appropriate forum for their case, such as non-existence of the relevant cause of action under Russian law, in order to succeed.
In recent years, only one CIS claimant, Michael Cherney, was able to persuade the English courts to hear his claim against a Russian billionaire, Oleg Deripaska, on such grounds. Cherney alleged that he was defrauded out of a significant chunk of his stake in Rusal, Russia’s biggest mining company currently owned by Deripaska (Cherney v Deripaska  EWCA Civ 849). The English court found that even though the natural forum for the resolution of the dispute was Russia, the risks inherent in a trial in Russia for Cherney, which included assassination, arrest on trumped-up charges and possibility of political pressure being applied on the judges hearing the claim, were sufficient to make England the most suitable place where the claim could be tried both in the interests of parties and the ends of justice.
This solitary decision, however, is the exception that proves the rule. The Court of Appeal went out of its way to emphasise the unusual facts of the case and warned the parties, and the English courts hearing similar claims in the future, that ‘the allegations of a kind that impugn the integrity of the institutions of a friendly foreign state should neither be made nor entertained lightly’. Thus, far from ‘dragging’ the disputes away from their natural forum, the English courts appear to be doing their best to frustrate the artificial devices used by foreign claimants to bring their disputes within the jurisdiction of the English courts.
Anti-suit injunctions effectively require the parties to cease their claims in the foreign courts and resolve their disputes through English courts or arbitration. In deciding whether to issue anti-suit injunctions, the English courts follow the rule that the stronger the connection of the foreign court with the parties and the subject matter of the dispute, the stronger the argument against intervention by the English courts. This, however, is subject to one exception. Where the parties themselves previously agreed to litigate or arbitrate their dispute in England, the English courts will not view an injunction as interfering with another court’s process. Instead, they will regard their involvement to be confined merely to requiring the other party to honour its contract to litigate or arbitrate in England.
When would an English court restrain a claimant not party to an English arbitration agreement from bringing proceedings in Russia? Where there was a serious issue as to whether two Russian companies with the same ultimate owner (who happened to be Deripaska) were in fact colluding in bringing proceedings in Russia to subvert an English arbitration agreement binding one of them, the English court was entitled to restrain both companies from pursuing the Russian proceedings: JSAMC Ingosstrakh-Investments v BNP Paribas  EWCA Civ 644. The English Court of Appeal paid tribute to the impartiality with which the Russian court dealt with the dispute. The ground for the injunction was simply the agreement by the parties that their disputes should be determined by arbitration in England.
There have been an impressive number of recent cases involving Russian and CIS parties in English courts. However, English courts display a strong preference for judicial comity and will refuse to hear cases that have little connection with England in the absence of evidence of the strongest kind that justice could not be done in a foreign court. Despite this tendency, the English courts have been subject to criticism by the Russian authorities, who came to view them as ‘dragging’ away the business of litigation from the native courts of the parties.
In Russia, political pressure to get the disputes back into the Russian courts has tended to influence and shape the Russian courts’ decisions on jurisdiction and enforcement of foreign judgments. As a result, last year saw the Russian courts develop some controversial legal concepts to protect the role that the Russian judiciary is eager to play in the resolution of international disputes involving Russian parties.
Anton Asoskov is a lecturer at the Lomonosov Moscow State University, professor of the Russian School of Private Law and arbitrator of the International Commercial Arbitration Court at the Russian Chamber of Commerce and Industry. Raymond Cox QC and Tetyana Nesterchuk are barristers in London, specialising in conflict of laws and commercial disputes, at Fountain Court Chambers