The Presidium of the Supreme Commercial Court (the “SCC”) has reviewed a case on the recovery of legal costs estimated at approximately RUB 3 million (approx. EUR 77,000) from the tax authorities.

A US company (the “Claimant”) challenged the ruling of the tax authorities to impose liability for a tax violation. A prominent consulting firm represented the Claimant in the court proceedings. The court found in favour of the Claimant and found the ruling to be illegal.

Consequently, the Claimant demanded the recovery of approximately RUB 3 million (approx. EUR 77,000) in legal costs from the tax authorities. The court of first instance found in favour of the Claimant and awarded it RUB 2.8 million (approx. EUR 72,000). However, the appeal and cassation courts considered this award to be excessive and reduced the award to RUB 100,000 (approx. EUR 2,500).

The SCC overruled the decisions of the appeal and cassation courts, and upheld the position of the court of first instance, which ruled:

  • the court may reduce legal costs only if they are overstated in particular circumstances; 
  • legal cost awards should not be reduced on the grounds of cost effectiveness: the “cheapest services” available should not be taken as a benchmark when estimating legal costs;
  • the complexity of a case should be determined from the perspective of the parties, not the court; and  
  • the burden of proof is not on the applicant to demonstrate that the legal expenses it has incurred are reasonable; but, rather, the defendant is required to prove that any legal expenses incurred are unreasonable.

The SCC will, in due course, provide a more detailed rationale for its ruling. This resolution, allowing the recovery of legal costs in full, is welcome news for companies that prefer to retain the services of expert and, therefore, more expensive lawyers, as well as for the consulting community as a whole.

[Resolution No. VAS-16067/11 of the Supreme Commercial Court of the Russian Federation, dated 2 February 2012. The text of the resolution is available in Russian here]