How much do you know about the Russian legal system? Are Russian courts suitable for resolving large and complex commercial cases or is it better to agree to arbitrate or litigate in another jurisdiction? Even if you don’t choose to litigate in the Russian courts what happens if you need to obtain evidence, serve documents or enforce judgments in Russia?
In this first article in a two part series, Roman Khodykin provides an overview of the Russian court system and explains some of the advantages and disadvantages of litigating in Russia.
General overview of the Russian Court System
There are three types of courts in the Russian state judicial system: (1) the Constitutional Court; (2) Courts of general jurisdiction; and (3) Specialist commercial courts called arbitrazh courts.
The Constitutional Court resolves disputes between organs of the state over their respective competence and provides interpretations of the Constitution of the Russian Federation. The Constitutional Court deals exclusively with questions of law.
Courts of general jurisdiction deal with disputes where at least one of the parties is a natural person, not a business.
The arbitrazh courts deal with economic disputes between corporate entities or individual entrepreneurs (the equivalent of sole traders). Large commercial disputes are most likely to be brought in arbitrazh courts. In 2011, a specialist branch of arbitrazh courts was created to deal with intellectual property disputes.
Since the Soviet era Russia has had two independent branches of judiciary – general jurisdiction courts and so called “arbitrazh” (in other words – commercial) courts. Each branch has had its own highest judicial authority: the Supreme Court and the Supreme Arbitrazh Court.
However, recently the Supreme Arbitrazh Court was liquidated and all arbitrazh courts are now subordinated to the Supreme Court. However, this reform has received a great deal of criticism among Russian lawyers.
The advantages of the Russian Court System
There are two main advantages of Russian courts in general and the arbitrazah courts in particular; the speed and cost of litigation.
Speed: The Russian Procedure Code imposes short deadlines for the delivery of judgments. Article 152 of the Arbitrazh Procedure Code states that cases must generally be resolved on their merits within 3 months of the statements of claim being received by the court. This may be extended to 6 months but, to get an extension, the judge must make an application to the President of the court explaining why an extension is needed.
Costs: The general principle in Russia is that costs should follow the event, in other words the successful party is entitled to recover its costs from the losing party. Success fees are not enforceable by the courts in the Russian Federation on the grounds that they are essentially regarded as a bet and, under Russian law, it is not possible for a party to compel another party to perform its obligation under a bet. If the client pays a success fee voluntarily, it can be recoverable from the losing party. However, if the client refuses to pay the success fee, the lawyer cannot compel payment through the court and it cannot be recoverable as costs from the losing party.
In practice, Russian judges tend to reduce the amount of costs awarded to a level they deem reasonable. On a recent costs application for fees of £200,000, the judge awarded costs of £400-500, on the grounds that this was what the judge considered to be reasonable.
The disadvantages of the Russian Court System
While speed and cost are seen as the main advantages of the Russian court system, they can also been seen as disadvantages.
As legal costs do not serve as a constraining factor, it is common for parties to bring meritless claims for the purpose of obtaining injunctive relief or to increase pressure on the other side.
Res judicata and lis alibi pendens rules are very narrowly defined and there is no Russian equivalent to the English law rule in Henderson v Henderson that prevents a party from filing multiple claims by amending the grounds of the claim or the relief sought.
As it is possible to resolve disputes quickly and with limited financial detriment (as only a small proportion of legal costs is recoverable) all Russian disputes find their way to courts. As a result, Russian courts are snowed under with workload. The average judge in the Moscow City Arbitrazh Court hears approximately 50-90 cases per month. With that average, it is virtually impossible for a judge to consider each and every case properly, particularly bearing in mind the time limits for delivery a judgment.
That is why a large number of Russian businesses prefer arbitration or other forms of ADR.
A fuller version of this article appeared in the 2014 edition of the European Business Law Review. For more information on any of the issues raised in this article please contact Roman.Khodykin@blplaw.com