Peculiarities of Law, Governance & Politics In the CIS in English Litigation

1. Peculiarities of Law, Governance & Politics In the CIS in English Litigation Robin Wittering, Partner, Egorov Puginsky Afanasiev & Partners

2. (1) BILLIONAIRE WARS London has been the battleground of choice for big business disputes emerging from Russia and the CIS Berezovsky v Abramovich BTA v Ablyazov Cherney/Deripaska (the real “groundbreaker”) In 2012 more than half of the cases in the High Court commercial division involved Russia/CIS. A third of all cases at the LCIA involve a Russian-speaking party Rules governing jurisdiction have become topical and politically sensitive involving interventions from the Chairman of the Russian Supreme Commercial Court and perhaps certain retaliatory judgements on enforcement and contractual jurisdiction provisions 1

3. (2) WHY? Prevalence of English law (and jurisdiction of LCIA and now and increasingly the High Court) in Russian commercial deals above a certain level combined with structuring through common law jurisdictions Oral contracts, the absence of paperwork & recognition of trusts – Cherney v Deripaska (said to have hinged on two pieces of paper thought to contain a written agreement) and Berezovsky v Abramovich (case turned on oral testimony concerning the existence of oral contracts) Brussels regulation: EU-wide enforceability. And, generally, procedure to enforce is relatively straightforward in most western states and offshore jurisdictions. Strategy in London can be run in conjunction with global discovery including the US Availability of interim orders (freezing, disclosing, debarment from proceedings for non compliance) 2

4. (3) WHY? (II) Wide disclosure regime. Cross examination and the fundamentally adversarial system. But in the light of the Berezovsky v Abramovichjudgement high profile individuals may be put off from bringing claims that rely largely on oral testimony and opening themselves (and past dealings) to public exposure and judicial criticism Recovery of litigation expenses (but note reforms with effect from 1 April 2013). Before 1 April 2013 a loser faced the risk of having to pay quadruple costs (its own legal fees, the other side’s legal fees, a success fee of up to 100% of the other side’s costs and the other side’s insurance premium (which could be up to 100% of the fees incurred)) Publicity and combination with other measures to pressure assets Parties and assets based outside of the local jurisdiction and sufficient assets outside the jurisdiction to mitigate problems with enforcement which in theory apply less in respect of arbitration awards and judgements of other national courts where recognition treaties exist 3

5. (4) UK TAKING JURISDICTION Domicile and submission to jurisdiction – not controversial. The UK legal industry wants to be the centre for global international litigation (and arbitration) and nothing is going to change that “Appropriate Forum” – alleged reluctance to decline jurisdiction or stay proceedings on the ground that there is a more appropriate forum (where defendant is served within the jurisdiction) and willingness to assert jurisdiction on the ground that England (and Wales) is the proper place to hear the claim (where the defendant is served outside the jurisdiction) in cases where there is little or no real connection with England and Wales – controversial and often involving value judgements on the legal and political systems of other countries In Cherney v Deripaska it was held that because Cherney faced assassination risk, the risk of prosecution and state interference (the natural forum) England was appropriate. Effectively a political value judgement 4

6. (5) UK TAKING JURISDICTION (II) In BTA v Ablyazov, the judge acknowledged that most of the parties and likely witnesses were Kazakh nationals, the alleged wrongs were said to be breaches of Kazakh law, the majority of the allegedly fraudulent transactions took place in Kazakhstan and that the eight applicants had no real connection with England. Nonetheless, those considerations did not outweigh all other factors or render the English court an inappropriate, or less appropriate, forum England was the forum in which the whole dispute could be tried and it was more likely than any other to have before it the evidence of all relevant participants; it was "fanciful to suppose" that Ablyazov would take part in any claim in Kazakhstan; if a judgment was obtained in Kazakhstan, there was great scope for dispute over its enforceability in the light of allegations the defendants had made about persecution by Kazakh authorities; it was in the interests of justice for the claim to be brought in a court to whose jurisdiction the defendants (both domiciled in England) were "unquestionably subject" and before which there could be no good grounds for them not to appear 5

7. (6) UK COURTS IN FACT RELUCTANT In November 2012, 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 Ukrainian iron ore mines ought to be decided by Ukrainian courts, despite the fact that the English proceedings were properly brought against the English defendant companies ultimately owned by the Russian party (Ferrexpo v Gilson) 6

8. (7) CHERNEY EXCEPTION PROVES RULE? In VTB Capital v Nutritek the Supreme Court, in relation to a tort claim, found that the appropriate law was Russian law and the natural forum for the litigation was Russia (because the transaction had been run from Russia, the witnesses were Russian, the documents were in Russia and most of the events had occurred in Russia). There was no risk on the facts that the claimant could not obtain substantial justice in Russia. An English court was not the appropriate forum even though the tort claim was formulated under English law and in an underlying loan agreement there was non-exclusive English court jurisdiction This approach is likely to mean that fewer disputes between Russian and CIS parties will be heard in London. 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 The Court of Appeal in Deripaska v Cherney was at pains to stress how exceptional the taking of jurisdiction was (“allegations of a kind that impugn the integrity of the institutions of a friendly foreign state should neither be made nor entertained lightly”) 7

9. (8) CURRENT SITUATION Ordinary Cases – the court will look at what law applies to the dispute and the relevant agreements, where the events took place, where the evidence is located and where the witnesses are located. No presumption that UK will take jurisdiction. Extraordinary Cases – if there is good evidence that one party unlikely to receive a fair trial, that it is unlikely that one party would take part in proceedings in their local court and/or that there is absence of remedy/cause of action the UK may take jurisdiction UK judiciary has rowed back from what was seen as an imperialist model. There may be a reduction in the length and cost of hearings on whether the UK is the most appropriate forum as well as a willingness to entertain appeals on findings of jurisdiction. It may be that this will result in a willingness on the part of Russian courts to increasingly recognise UK judgements and more readily recognition international arbitration awards. But if in the Rosneftv Yukoscase (where a bias allegation against the Russian courts will be tried in English enforcement proceedings) the English court finds that the Russian court that set aside arbitral rulings was politically influenced this will have significant political and diplomatic implications 8