Russia: Litigation

There are several statutorily regulated methods of resolving commercial disputes. The first of them is mediation, i.e. amicable pre-trial settlement reached by the parties with the assistance of a professional mediator (available also after the trial is commenced). Although this institute was introduced in Russia fairly long time ago, it is still rarely applied among companies and entrepreneurs.

Another resort for resolving business controversies available in Russia is arbitration (which shall not be confused with arbitrazh, i.e. commercial litigation administered by state courts – the subject-matter of this guide). The legal framework applicable to arbitration varies to certain extent depending on whether the case at hand is purely domestic or cross-border (involving a foreign party or where a place of performance of substantial obligations is abroad). Recently, the major changes were introduced into Russian arbitration law aimed at making the arbitration procedure more consistent with the best world practices and trends. However, there are certain limitations to the types of disputes which can be arbitrable under Russian law (e.g. some kinds of corporate disputes and all public procurement disputes are non-arbitrable, concession disputes are arbitrable with certain reservations).

The vast majority of commercial disputes arising in Russia are settled in state commercial (arbitrazh) courts. It should be noted, that in 2016, the mandatory pre-trial procedure was introduced into the proceedings before commercial courts in respect of certain categories of disputes – the claimant is allowed to apply to the court only after expiry of 30 days after sending a pre-trial complaint (see Section 7).

The main procedural rules governing commercial litigation are as follows:

• the Commercial Procedural Code No 95-FZ dated 24 July 2002 (the “Commercial Procedural Code”);
• the Federal Law No 229-FZ “On enforcement procedure” dated 2 October 2007;
• the Federal Law No 127-FZ “On insolvency (bankruptcy)” dated 26 October 2002.

Besides that, relevant Resolutions of Plenary Sessions of the Supreme Court (and of the Higher Commercial Court, currently merged into the Supreme Court) provide guidance on how those rules shall be interpreted and applied.

The system of commercial courts in Russia consists of four levels. The first instance courts are the courts of the regions of the Russian Federation, their total number is 85. Save for several exceptions (e.g. the Saint-Petersburg and Leningrad Region, the Nenetskiy Autonomous Circuit and some other) there is one such court in each republic, region, federally subordinated city, etc in Russia.

Decisions of the first instance courts may be appealed to one of the 21 Commercial Appellate Courts. Subsequently, cassation appeals may be filed with one of the 10 Circuit Commercial Courts. Since there are two cassation stages under the Commercial Procedural Code, second cassation appeal may be submitted to the Chamber on Economic Disputes of the Supreme Court.

Ultimately, decisions may be challenged on the very limited number of grounds (e.g. due to violation of certain fundamental rights and freedoms by lower courts’ decisions) before the Presidium of the Supreme Court (see Section 17).

In addition to this general structure of commercial courts, there is also the Intellectual Rights Court. That court acts as the first instance court in relation to specific categories of cases involving intellectual rights. The Intellectual Rights Court also considers cassation appeals against decisions of the first instance and appellate courts on intellectual rights disputes.

Some commercial disputes can be resolved by courts of general jurisdiction (generally, they are dealing with criminal, non-commercial civil cases and some other categories of cases). For instance, it is possible where connected claims are brought which are within the competence of different courts but cannot be subject to different proceedings.

In accordance with recent amendments, the statutory deadline for the whole consideration of a case has been increased to six months from the date of filing of a statement of claim. In practice, this is achievable only for simple cases and for more complex disputes the period can be extended to nine months or even a year (for example, for corporate disputes).

In general, a first preliminary hearing is held one month after filing of a statement of claim. A hearing on the merits is ordinarily scheduled within one month after the preliminary hearing. However, depending on the circumstances of a case, the court may adjourn a hearing on the merits, which often happens in practice.

As a general rule, hearings are public and all court decisions are placed in a special electronic system, which is publicly accessible (https://kad.arbitr.ru/). However, documents filed at court by the parties are not available to the public.

Under certain circumstances, the parties may request the court to close the proceedings to preserve the confidentiality of their relationship or prevent disclosure of a state, commercial or other statutorily secured secret (e.g. banking secret).

The general limitation period is 3 years from the date when the claimant became aware or should have become aware of violation of its right and of the proper defendant for the claim, but in no case may a limitation period exceed 10 years from the date of violation.

The legislative acts may provide for different limitation periods in respect of certain types of claims (for example, a claim for challenging a voidable transaction may be filed within one year).

As opposed to some foreign jurisdictions, limitation periods cannot be changed by agreement of the parties. Notable that limitation periods in Russia are a matter of substantive rather than procedural law.

After amendments adopted in 2016 and 2017, the mandatory pre-trial procedure was introduced with respect to monetary claims, except for certain categories of disputes (e.g. corporate disputes). Before initiating court proceedings, the claimant is required to send a pre-trial complaint to the opponent and wait for 30 days, unless the other period is agreed or specified by the law.

Should the pre-trial procedure be not met, the court may refuse to consider a claim. Also, the court may direct the claimant to reimburse all costs of the proceedings.

A copy of a statement of claim should be sent by a claimant to a defendant prior to commencement of an action. The documents evidencing the dispatch have to be attached to the statement of claim when it is filed with the court. A court commences proceedings within five days after filing a statement of claim. Following that, the court officially notifies the parties by sending a court ruling by which the proceedings were commenced.

However, once such initial notification of the parties is made, it is subsequently a burden of each party to monitor the conduct of proceedings and the dates of hearings – the lack of further notifications cannot be a ground for challenging a court’s decision. Such monitoring has to be done through an online court system (https://kad.arbitr.ru/), which also allows to make electronic filing of a statement of claim, a statement of defence and other procedural documents.

When the court takes a decision on jurisdiction it inter alia considers whether:

• it has competence over a claim, e. whether a dispute at hand is of commercial nature, but not purely a civil one with no involvement of companies and individual entrepreneurs;
• it has a territorial jurisdiction over a claim.

If the court finds that it has no jurisdiction over a claim, it refuses to commence proceedings or terminates them if a case has already been opened.

The general conflict of law rule is that the court applies the law which was chosen by the parties of a contract. Where there is no agreement of the parties on applicable law, court applies the law of the country where, at the time of the conclusion of the contract, the place of residence or principal place of business of the party making the decisive contractual performance is located. For most types of contracts, the national legislation provides which party’s performance is considered to be of decisive importance.

However, if so follows from the legislation, substance of a contract or from totality of relevant circumstances of the case, court will apply the law of the country, with which the contract has the closest connection (the doctrine of proper law).

In case a foreign law is applied, a court is obliged to establish the content of its rules in compliance with the official construction, application practices and doctrine thereof. For the purposes of the latter, a court may either use expert services or apply to the Ministry of Justice of the Russian Federation for assistance and clarification of foreign law. Also, the parties may present documents confirming the content of foreign law – in practice, expert reports of foreign lawyers are often produced by the parties.

The Commercial Procedural Code provides for two types of procedures, which do not suppose a full trial: summary proceedings (uproschennoye proizvodstvo) and writ proceedings (prikaznoye proizvodstvo). The new rules are applicable since 2019.

Summary proceedings are inter-partes proceedings which are conducted solely on documents without a hearing. Inter alia, they are available for monetary claims not exceeding RUB 800 000 against companies and not exceeding RUB 400 000 against individual entrepreneurs.

Writ proceedings are ex-parte proceedings – the court issues a writ of execution within 10 days after receipt of a claimant’s application and then notifies a debtor. If the debtor files its objections, the writ of execution should be cancelled, and the claimant may initiate ordinary proceedings. The core concept here is that writs are, in essence, issued when the claimant’s case is prima facie rather unquestionable. Inter alia, writ proceedings are available for contractual claims not exceeding RUB 500 000.

Interim remedies include: (i) attachment of debtor’s assets, (ii) prohibitory injunction, (iii) mandatory injunction (imposition of certain duties (duties to perform certain acts or to omit them)), (iv) temporary transfer of assets in dispute to the claimant or a third party, (v) stay of enforcement. This list is not exhaustive, and the parties may request the court to grant any other interim measures provided they are proportionate to the amount of claim.

After receipt of a statement of claim, a respondent is obliged to submit a statement of defence. The Commercial Procedural Code does not specify a deadline for this but quit often a time limit is set by the judge.

In practice, after initial exchange of a statement of claim and a statement of defence parties often provide further written submissions clarifying their positions, either at the request of the judge or on their own initiative.

Russian procedural law does not provide for a mechanism of disclosure as in common law countries. The general rule is that each party bears a burden of proof in respect of its position, and therefore should provide the necessary supporting evidence. However, the court may order a respondent or a third party to provide a particular evidence under the party’s request if the following requirements are met:

• the evidence is relevant to the case;
• a requesting party is unable to get the evidence by itself;
• location of the evidence is identified.

Such mechanism does not allow to request categories of documents and the evidence requested should be clearly specified. Generally, the confidentiality of documents does not prevent their disclosure under a court’s order, but the parties may request the court to close the proceedings due to the confidentiality reasons.

Under the request of a party, the court may call a witness to testify at the hearing. Testimony is provided in an oral form, but at the suggestion of the court a witness may provide a written statement. The procedure for examining a witness is not regulated. In practice, a witness is first examined by the judge and then by the parties. Deposition are not known to the Russian system of law.

In general, witnesses are rarely used in the commercial courts and the judges prefer to rely on documentary evidence.

Expert opinion is a commonly used type of evidence in Russian proceedings. Often parties provide expert reports to support their positions. While such reports may be accepted by the court, they do not formally qualify as an expert opinion, because under the Commercial Procedural Code an expert should be appointed by the court. Each party may provide candidates to be nominated as an expert, but the final decision is taken by the judge, who can appoint an expert even disregarding the parties’ nominations. In most cases, the courts appoint professional experts employed by experts’ organisations, both state and private.

An independent expert opinion must be provided to the court in a written form. After that, an expert may be called to a court hearing to clarify his/her opinion and answer questions of the judge and the parties. By law, an expert evidence is of equal weight with other types of evidence that must be examined by the court as a whole. However, in practice the courts rely heavily on expert opinions.

Final decisions (judgements) of the courts of first instance may be challenged in the appellate courts. An appeal may be submitted within one month from rendering the judgement. The appellate court may accept the appeal if it finds that the reasons for missing this deadline are justified.

Provided the case has been reviewed by the relevant appellate court or such court has refused to restore the time limit for filing an appeal, the appellate court’s resolution or first instance judgement may be challenged in one of the circuit commercial courts within two months from entry into force of the relevant resolution or the date of judgement.

As discussed in Section 3, there are two cassation stages under the Commercial Procedural Code. Following the first cassation above, a second cassation appeal may be submitted to the Chamber on Economic Disputes of the Supreme Court within two months from entry into force of latest decision on the case. Firstly, an appeal is reviewed by one of the judges to decide whether it can be referred for consideration of that chamber. The grounds for a second cassation appeal are limited and require proving gross violation of law. If the permission to cassation has not been given by a Supreme Court judge, the Chief Justice of the Supreme Court or his/her Deputy is entitled to disagree and refer the case to the chamber.

Finally, the last resort within commercial litigation proceedings is the review by the Presidium of the Supreme Court (supervision proceedings). That option is available within three months from entry into force of the latest decision on the case. Before being passed to the Presidium of the Supreme Court a motion for supervisory review is considered by one of the Supreme Court’s judges, similarly to the second cassation appeal. The grounds for appeal before the Presidium of the Supreme Court are also limited, being: (i) violation by the decision of human rights and freedoms guaranteed under the Constitution of the Russian Federation, Russia’s treaties or rules of international law; (ii) damage inflicted by the decision to the public interest or (iii) non-observance of uniformity of application and/or construction of the legal provisions by the courts. According to the official statistics, the Presidium of the Supreme Court has considered only one commercial dispute during a year of 2019, although 306 motions for supervisory review have been submitted thereto.

Interim decisions of the courts may be appealed by the parties only if challenging of a particular interim decision is allowed by the Commercial Procedural Code. By way of example, the parties may appeal a decision on interim measures, a decision to stay or terminate the proceedings, a decision refusing involvement of third parties.

The recognition and enforcement of foreign judgements is carried out under the relevant international treaty between the Russian Federation and the state where the judgement was made. In the absence of such treaty, the recognition and enforcement are performed on the grounds of reciprocity, i.e. if the courts of the respective foreign state recognize and enforce decisions of the Russian courts. Even if the reciprocity cannot be established and verified, there are cases when foreign judgements have been recognised and enforced on the basis of the principle of international comity.

The court may refuse to recognise and enforce a foreign judgment only on limited grounds which relate primarily to procedural issues (for example, such as lack of due notification of the respondent, violation of the exclusive competence of Russian courts). In exceptional cases, the recognition and enforcement can be denied if a foreign judgment contradicts the Russian public policy.

Judgments that do not require enforcement (declaratory judgments) are recognised without any special proceedings if its recognition is provided by international treaty and Russian federal legislation. However, interested parties can file objections against recognition of such judgments with Russian courts within one month after they learn of the foreign judgment.

Litigation costs can be recovered from the losing party in accordance with the “loser pays” principle. Generally, if a claim is upheld only partially, both parties cover the expenses proportionately. At the same time, regardless of the outcome, the court is entitled to allocate all costs of litigation on the party abusing its procedural rights. An application for recovering the litigation costs may be filed within three months from the day of entry into force of the latest decision issued on the merits of the case. Litigation costs consist of the stamp duty and other expenses connected with the consideration of the case, including witness, interpreter and expert expenses, attorneys’ fees. However, recovering the full attorneys’ fees may be difficult as they are subject to review by the court as to the reasonableness of the amount. It is rare for a party to recover 100% of its costs and the courts tend to significantly reduce the attorneys’ fees.

Class actions are regulated by Chapter 28.2 of the Commercial Procedural Code. The procedure is applicable in case at least five persons have joined the claim of the applicant by the day of its submission. The Commercial Procedural Code expressly permits class actions within corporate disputes. Within the preparation of the case for a hearing the court via the applicant may set the deadline for other potential interested persons to join the claim. Otherwise, any other interested parties, in general, are not allowed to file independent claims on similar grounds. The court may inter alia order the respondent to inform all interested parties (including those who have not joined the claim) of the outcome of the case.

Third parties may be joined to the case on the court’s initiative, at the request of the parties or their own application. The criteria for joining third parties is that the outcome of the case may affect their rights and obligations. Also, a third party may intervene into the proceedings by filing its separate claim if it relates to the subject matter of the case.

Two or more sets of proceedings may be consolidated if the court finds this appropriate in case the parties and/or claims within the disputes coincide. The decisive factor for the court is to exclude the risk of conflicting judgements.

At this moment, there is no regulation in regard to litigation funding. Therefore, third parties are allowed to fund litigation, however due to the absence of any regulation, they are not legally recognized as funders. That being said, there are no restrictions and liabilities for the costs incurred by the other side.

1. commercial disputes in your jurisdiction?

Compared to other jurisdictions, Russian commercial litigation is rather fast and allows to get an enforceable judgement within nine months (the time for consideration in both first and appellate instance courts). Also, over the recent years Russian commercial courts have developed electronic systems of filings and databases for monitoring of cases, which significantly simplifies the process.

The main disadvantage is the high workload of the judges and, as a consequence, more complex cases may not be given a required attention. Also, Russian commercial ligation still remains to be predominantly based on documentary evidence, paying less attention to the parties’ witnesses and experts. For many years Russian judges have been known for rather formalistic approach in application of law, however now the situation is changing due to the approaches and guidance of the Supreme Court.

First of all, due to certain turbulence in Russian economy and negative financial factors, it is likely that the growth of insolvency litigation will continue. Thus, in each year starting from 2015 commercial courts have been taking about 12-13 000 decisions (other figures may be available in certain public resources) on commencing insolvency procedures in relation to Russian companies. It is expected that in the year of 2020 due to the consequences of the COVID-19 situation the number of bankruptcies in Russia will significantly increase.

Also, recently a new category of disputes relating to crypto technologies has emerged. In 2018, the Ninth Appellate Commercial Court has recognized a crypto currency as an asset and included it into the bankruptcy estate of the debtor. Conversely, in the beginning of 2020 the same court has dismissed a claim for unjust enrichment seeking reversal of crypto currency. Due to the rapid development of crypto technologies, the courts will have to further deal with various crypto technologies issues not directly regulated by law.

Over the last 10 years, different technologies significantly facilitated the conduct of commercial litigation:

• In 2009-2010, the Higher Commercial Court launched an electronic court system allowing parties to monitor all court cases and review judgements (https://kad.arbitr.ru/);
• At the same time, another system was launched, which provided for electronic filing of statements of claim and other procedural documents (https://my.arbitr.ru/);
• In 2010, procedural amendments allowed to participate in the hearing in the one court through the videoconference arranged by the other court. Also, some hearings are broadcasted publicly;
• Since recently, in relation to some cases it is possible to get an electronic access to case materials.

It is expected that the rise of modern technologies, including, first of all, artificial intelligence, will continue to simplify the work of the courts, especially with respect to routine operations.

Due to the spread of COVID-19, the Supreme Court of the Russian Federation implemented measures in order to ensure both the safety of court employees and the stable work of the courts in the new circumstances.

On 18 March and 8 April 2020 (as revised on 29 April 2020) the Presidiums of the Russian Supreme Court and of the Russian Council of Judges adopted joint resolutions containing recommendations regarding the work of the courts.

The abovementioned resolutions set out (among others) the following measures to be implemented in every Russian state court:

• personal presence in courts must be limited;
• procedural documents shall be submitted via the Internet or by Russian state post (the timely reception, processing and registration of incoming documents is ensured);
• courts may consider only (i) urgent cases (for example, cases regarding arrests, medical interventions, etc.), cases considered in (ii) summary proceedings or (iii) writ proceedings, (iv) cases in which all the participants have filed motions for consideration of the case in their absence, unless the court finds that their participation is necessary;
• where possible, all courts should use video conference facilities when considering cases (8,000 court sessions were held from 18 March to 20 April of this year with the use of videoconferencing);
• access to the court by third parties who are not party to any proceedings should be limited.

While observing these recommendations, from 18 March to 20 April of this year the courts have considered over 2 million cases and materials. Nonetheless, it should be noted that most cases (which are not included in the abovementioned categories) are not considered and were postponed until the end of quarantine measures. Moreover, the access to case files is rather limited in most state courts and will be resumed after cancellation of the precautionary measures.

On 21 April 2020, the Presidium of the Supreme Court of the Russian Federation adopted a Review of Certain Issues of Judicial Practice pertaining to the Application of Legislation and Measures Aimed at Preventing the Spread of the Novel Coronavirus Infection (COVID-19) in Russia (No. 1), containing answers to 26 questions regarding the application of procedural law, civil and criminal legislation, legislation on administrative offences and on bankruptcy. Its goal was to clarify the manner of calculation and restoration of procedural terms and statutes of limitations, issues of performance of obligations, recognising the epidemiological situation and the restrictive measures as force majeure, the grounds on which obligations can be changed or terminated, the application of new elements of crimes and administrative offences connected with the pandemic, and other issues. For instance, it clarified that the introduced quarantine period is not deemed non-working days in the context of procedural periods.

However, this review contains a large number of exceptions and offers large discretion regarding such questions as whether the current COVID-19 situation can be considered force majeure circumstances or material change in circumstances. The effect of such circumstances should be considered on a case by case basis. In this situation, we recommend collecting all supporting documents evidencing the influence of the current pandemic situation on performance of contractual obligations and negotiate amendments to the terms of the affected obligations until the end of the pandemic situation.

On 30 April 2020, the Presidium of the Supreme Court adopted a second review of judicial practice pertaining to COVID-19. It contains another portion of clarifications of questions related to civil and criminal legislation, legislation on administrative offences and on bankruptcy.

Since most of the courts have been practically suspended for more than two moths (save for the urgent cases) and a uniform approach as to returning to an ordinary workflow has not been fixed among the courts in different regions, an actual impact of the COVID-19 pandemic upon the Russian courts is yet to be seen…