Extract taken from 'The Securities Ligation Review – edition 5'
Private enforcementi Forms of action
The form of actions for private enforcement of securities claims may be either an individual action or a joint action. Joint actions, although contemplated by Russian legislation, are used extremely rarely in Russian court practice for securities disputes because of the limited legislative guidance and controversial court practice in this field.
Normally an individual claim in a securities dispute is filed with the arbitration court at the location of the defendant. The claim is filed pursuant to general provisions of the Russian Arbitration Procedure Code (APC). Burden of proof and defences available generally depend on the provisions of the law involved, but, following the principles of the APC, normally each party bears its burden of proof and shall fully support its case with evidence.
Alternatively the claim may be initiated within a criminal case trial, where the injured party acts as a civil law defendant, seeking the award of damages.
Since 1 February 2017, most corporate disputes have been considered as unconditionally or conditionally arbitrable. Unconditionally arbitrable disputes may be settled by commercial arbitration bodies authorised as a permanent arbitration institution under Russian law (i.e., not ad hoc arbitration) provided that all parties have entered into arbitration agreement after 1 February 2017. This category of disputes includes cases connected with disputes related to ownership of shares, sale-purchase of shares and others. In addition to above the provisions, conditionally arbitrable disputes (e.g., disputes connected with issuance of securities) shall be settled in the territory of the Russian Federation under special rules of corporate disputes approved by an arbitration institution, deposited in the Ministry of Justice and published on the arbitration intuition's website. At present, however, there are only three arbitration institutions entitled to consider corporate disputes in Russia.ii Procedure
As noted, the filing of the claim and general procedure is the same as for other claims filed under the terms of the APC with arbitration courts. The claimant should file a written and signed statement of claim, which should contain a mixture of alleged fact and law, coupled with details of the evidence that the claimant proposes to adduce at trial. Mandatory pretrial dispute settlement does not apply to corporate disputes, including disputes relating to securities. The judge is responsible for preparing a case for trial, and will question the parties in an attempt to clarify the issues in dispute between them.
There is no pretrial disclosure per se in Russian legislation. Russian procedural legislation does not provide any special regulation similar to the discovery or disclosure procedure in the United Kingdom or the United States; because of fundamental differences in procedure law, a Russian court has a much more significant role in the court hearing and the examination of evidence. Each party has to prove its case based on the documents available to it. If any evidence is in the possession of other parties (including participants in the case), a party may petition the court to obtain the evidence from the party, and such petitions are normally granted.
Subject to the procedural legislation, evidence is considered as being legally obtained information about the facts constituting the claims and objections of the parties, as well as other circumstances that are important for the correct examination and resolution of the case.
This information may be obtained by the court by means of:
- explanations by the parties or third persons;
- testimony of witnesses;
- written or material evidence;
- audio and video materials; and
- expert examination.
No evidence may have its force established in advance. The court will assess the relevance, admissibility and authenticity of all evidence, as well as its sufficiency and interconnection.
Each party must prove the circumstances it refers to within the claim or objection. However, it is the court that determines which circumstances are relevant to the case and which party successfully proves it. The court may also propose that the parties bring additional evidence.
Explanations by the parties or third persons concerning the circumstances necessary to resolve the case are checked and evaluated like any other evidence. Thus, these explanations do not take precedence over other evidence such as witness or material evidence. In addition, if the party acknowledges any facts constituting the claim of the counterparty, the latter does not have to prove this later on.
Russian arbitration courts rarely rely on witness statements and written witness testimonies, relying mostly on documents and written evidence.
Judgment will be given orally and in writing, normally within a week of the oral decision being announced.
Decisions of the first instance arbitration court become enforceable after one month, and during this time a party has a right of appeal, on fact or law, to the appeals instance. The decision of the court of the appeal instance is further appealable to the court of cassation. The final court of appeal is the Russian Supreme Court, which has a supervisory appellate function (empowering it to revise the decision of any state arbitration court that is illegal or lacking in legal substance).
The costs of litigation include a court fee plus the costs related to the trial of the case. Losing parties are usually ordered to pay the winner's costs. Legal costs of the winning party may also be collected, but at a 'reasonable' level at the discretion of the judge.iii Settlements
Settlement may be reached at any stage of arbitration proceedings, including at the enforcement stage. The court considering the case is usually trying to force the parties to reach a settlement.
A settlement is usually formalised through a court-approved settlement agreement, which has the force of a court decision. The settlement shall also contain the provisions on allocation of court expenses and fees of each party, and in the absence of these provisions the court shall allocate the expenses by itself and reflect this in its ruling approving the settlement.
The settlement agreement may not affect the rights and obligations of third parties (including other participants in the securities market), otherwise it will not be approved by the court. For the settlement, the parties may use mediation proceedings, but such proceedings are very rarely utilised as mediation results do not have mandatory and binding effect pursuant to Russian legislation.iv Damages and remedies
Compensation of damage or loss caused by the violation of a right is a general tool of protection under Russian law. A person whose rights were violated may demand full compensation of damage or loss incurred. Both material and 'non-material' damages may be collected (i.e., compensation for pain and suffering for individuals, or 'loss of business reputation' for legal entities). Normally the full amount of direct damages shall be collected, although 'non-material' damages are usually awarded at the discretion of the courts and are of nominal value. The claimant shall prove the amount of claimed damages by means of relevant documents.
Damages to recover loss of profit can be claimed, but are difficult to prove in court. The courts are reluctant to award large amounts of damages in relation to loss of profits.
Other remedies are also available (performance in kind, orders to perform certain acts or refrain from certain steps, etc.).