Presidium of the Higher Arbitrazh Court summarizes litigation practice involving foreign persons

CLIENT UPDATE
PRESIDIUM OF THE HIGHER ARBITRAZH
COURT SUMMARIZES LITIGATION PRACTICE
INVOLVING FOREIGN PERSONS
TO OUR CLIENTS AND FRIENDS:
On July 26, 2013 the Higher Arbitrazh Court of the Russian Federation
(the “HAC”) posted Information Letter No. 158 dated July 9, 2013 on
its website, adopting and recommending that lower courts apply the
Digest of Case Law on Certain Matters Related to the Consideration
by Arbitrazh Courts of Proceedings Involving Foreign Persons (the
“Digest”).
The Digest covers a wide range of topics arising in court cases
involving foreign parties, including whether or not Russian state
courts (“arbitrazh courts”) have jurisdiction to hear cases involving
foreign parties, and whether or not foreign law may be applied.
MOSCOW
Alyona N. Kucher
[email protected]
Alexey I. Yadykin
[email protected]
Dr. Anton V. Asoskov
Consultant
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We note the following important legal positions expressed in the Digest:
Jurisdiction
■ The Digest has formulated a number of legal positions in respect of prorogation clauses
(i.e., agreements by the parties on the choice of national court competent to decide on
existing or potential future disputes between the parties). The HAC considers a
prorogation clause to be autonomous by nature (like an arbitration clause). Because of
the autonomous nature of a prorogation clause, if the principal agreement (such as a
loan agreement that includes the prorogation clause) is deemed invalid, this does not
automatically render the prorogation clause invalid. The HAC also confirms that a
prorogation clause remains valid if an agreement is novated, i.e., the new obligor and
obligee continue to be bound by the prorogation agreement between the original
obligor and obligee.
■ The HAC upholds prorogation clauses that do not refer to a specific national court (e.g.,
an agreement that any future disputes will be heard by a Russian court), as well as
prorogation clauses which provide that any disputes must be heard in a court of the
party that will be acting as the claimant (or defendant).
■ The HAC recognizes prorogation agreements where disputes are to be heard by a
foreign court. Pursuant to the HAC’s legal position, in the event of such a prorogation
clause the arbitrazh courts must dismiss any claims without prejudice (“without a
hearing”), provided that the opposing party files a timely objection to the court’s
jurisdiction. At the same time, prorogation clauses where disputes (including disputes
not involving Russian persons) are to be heard by Russian courts are also deemed valid.
■ The Digest also treats a number of other important issues on the ascertainment of the
competence of Russian national courts. Thus, HAC’s legal position is that the filing of a
statement of claim and a corresponding statement of defense in which neither party
challenges the competence of the arbitrazh court rules out any further challenge to the
court’s jurisdiction.
■ The HAC also states that the arbitrazh court’s jurisdiction to hear a case may be
ascertained, inter alia, based on a strong connection of the legal relationship in question
with the Russian Federation (similar to the Anglo-Saxon doctrine of forum conveniens),
which may include such factors as the place of performance of the obligation, location
of the majority of the body of evidence, and the applicable substantive law.
■ In addition, the HAC states that if the defendant has set up a corporate management
body, branch or representative office in the Russian Federation, this only serves as a
ground to establish the competence of the arbitrazh courts (as provided for in
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Article 247.1(2) of the Arbitrazh Procedure Code of the Russian Federation) if the
dispute is related to the activities of the relevant corporate management body, branch or
representative office. To establish competence on this ground it is sufficient to prove
that the defendant engages in commercial operations through a permanent
establishment in the Russian Federation, regardless of whether the formal requirements
of registration of the relevant branch or representative office at the place where these
operations are carried out have been complied with.
Ascertaining and Applying Foreign Law
■ The Digest touches upon a whole range of important issues related to choice of law
applying to a dispute. Firstly, the HAC directs the courts to note that the parties’ choice
of a particular court as the venue to hear disputes does not mean that the parties have
also agreed to automatically apply the national law of the court to the dispute. The
HAC also points out some permissible methods of choice of law (including choice of
law of the country of the future claimant (or defendant), or choice of law by an
exchange of trial documents).
■ The HAC draws the attention of the courts to the fact that should the arbitrazh courts
apply foreign substantive law, in accordance with Art. 1192 of the Civil Code of the
Russian Federation certain mandatory norms of Russian law (the so-called
“supermandatory norms”) could prevail over foreign law. However, not all mandatory
norms in Russian law may be deemed supermandatory norms.
■ The HAC states that foreign law may be ascertained for pleading in arbitrazh courts
using the opinions of international law firms presented by the parties themselves (socalled
legal opinions or affidavits), which opinions are not subject to the “expert
review” provisions of the Arbitrazh Procedure Code of the Russian Federation. If one
party presents a legal opinion on the content of the norms of foreign law that is not
contested by the other party, the arbitrazh court may deem the foreign law as having
been ascertained.
Status of Foreign Persons
■ The HAC states that in establishing the legal status, competence and capacity of a
foreign person involved in proceedings (such as the right to engage in commercial
activities, or the right to act as a party to legal proceedings), arbitrazh courts apply the
rules of its lex personalis, i.e., the legal norms of the country of incorporation of the legal
entity. Official documents confirming the status of a foreign legal entity (such as a
certificate from the register of legal entities) must be issued by the competent authority
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of the foreign country, contain up-to-date relevant information as at the time of the
proceedings, be duly legalized or apostilled and be accompanied by a properly certified
translation into Russian. Documents establishing the tax status of a company are not
sufficient to establish its legal status and legal capacity.
Injunctive Relief
■ The HAC’s position is that arbitrazh courts may, on the parties’ petitions, grant
injunctive relief in support of proceedings in a foreign international commercial arbitral
tribunal or a foreign court, provided that the arbitrazh court has so-called “effective
jurisdiction” (for instance, where the court’s injunctive relief is granted at the location of
the petitioner or of the property in dispute);
■ Injunctive relief issued by a foreign court in the form of an anti-suit injunction in respect
of Russian courts does not prevent a case from being heard by an arbitrazh court.
Below we provide more detail on some of the more important provisions of the Digest.
COMPETENCE OF ARBITRAZH COURTS TO HEAR PROCEEDINGS INVOLVING FOREIGN
PERSONS
The Digest contains a number of important clarifications related to prorogation clauses.
Paragraph 1 of the Digest explains that a prorogation clause nominating arbitrazh courts as
the dispute resolution body may be concluded even if both parties are foreign persons.
Paragraph 2 deems prorogation clauses in which the parties do not specify a particular
competent court, but instead provide that any disputes must be heard in a court of the
party that will be acting as the claimant (or defendant), valid and enforceable. At the same
time, such permissible symmetrical agreements on the procedure for dispute resolution
(which assume that both parties have equal opportunity to choose a competent court or
arbitration tribunal) must be distinguished from so-called “asymmetric” or unequal
agreements (which give one party more scope in the choice of the competent court or
arbitration tribunal). The latter type of agreement on the procedure for dispute resolution
was deemed impermissible by the HAC Presidium in the Sony Ericsson case.1 Although
the original version of the Digest contained additional clarifications on asymmetric
agreements that were meant to throw light on issues related to certain findings in the Sony
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1 Ruling of the HAC Presidium of June 19, 2012 in Case No. 1831/12. See also our Client Update ARE ASYMMETRICAL
DISPUTE RESOLUTION CLAUSES VALID UNDER RUSSIAN LAWAFTER THE SONY ERICSSON
JURISPRUDENCE?
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Ericsson case that were not quite clear,2 the final version of the Digest does not contain
these clarifications.
Paragraph 3 of the Digest contains an important clarification, whereby it is not required
that a prorogation clause refer to a specific national court authorized by the parties to hear
disputes (e.g., the Moscow Arbitrazh Court): if the parties simply specified that disputes
are to be heard in Russian courts, then, to determine the specific competent arbitrazh court,
the prorogation clause can be supplemented by the norms on competence and jurisdiction
set forth in the Arbitrazh Procedure Code of the Russian Federation, using, say, the rules on
filing a lawsuit in an artbitrazh court in the district where the defendant, its branch or
representative office is located, or the district where the obligation was to be performed.
However, if the parties to a prorogation agreement choose arbitrazh courts to hear their
disputes, they may not alter the rules laid down by the Arbitrazh Procedure Code of the
Russian Federation on competence and exclusive jurisdiction if they are mandatory in
nature and not subject to amendment by agreement between the parties. E.g., the parties
may not provide in their agreement that a lawsuit is to be filed not with an arbitrazh court
of first instance, but to go straight to the cassation court of the HAC (paragraph 4 of the
Digest).
In accordance with long-established Russian court practice,3 if an agreement is novated
(assigned) the new obligee and obligor continue to be bound by an arbitration clause
providing for the resolution of any disputes in a particular arbitral institution. Now
paragraph 5 of the Digest also gives similar clear guidance in respect of the survival of a
prorogation clause in the event of novation.
The similarities in the legal nature of prorogation and arbitration clauses also leads to
conclusions on a number of other matters. In particular, previously there was uncertainty
about how an arbitrazh court should act if it is hearing a dispute arising from a contract
that has a prorogation clause designating a foreign national court and at the same time
precluding any disputes from being heard by courts of other national jurisdictions.4 The
Arbitrazh Procedure Code of the Russian Federation does not expressly deal with this
issue, while paragraph 7 of Ruling No. 8 of the HAC Plenary of June 11, 1999 on the
Application of International Treaties of the Russian Federation in Matters of Arbitrazh
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2 See original draft of the Digest on the official HAC website -
http://arbitr.ru/_upimg/A01992BA9752F783347696B18559B8F0_Jun.pdf
3 See, e.g., paragraph 15 of the Digest of Case Law on Certain Matters Related to the Consideration by Arbitrazh Courts of
Proceedings Involving Foreign Persons (endorsed by Information Letter No. 29 of the HAC Presidium dated
February 16, 1998).
4 So-called exclusive prorogation clauses.
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Proceedings contained an extremely vague instruction that “in the event of a prorogation
clause referring a dispute to the competent court of a foreign jurisdiction, the Russian arbitrazh
court will terminate proceedings in the case on the motion of the defendant between the same
parties, on the same subject and on the same grounds that it has accepted for hearing under general
jurisdictional rules”. Experts have noted that the option of terminating proceedings in the
case is not optimal, since it prevents with prejudice the filing of the same claim again with
the arbitrazh court in future, even if the foreign court nominated in the prorogation clause
does not accept the claim for consideration for whatever reason and finds itself to be out of
jurisdiction to hear the case.
Paragraph 6 of the Digest explains that proceedings may be terminated only if this is
expressly provided for by an international treaty. As a general rule, however, arbitrazh
courts must by analogy to the law apply the rule in Art. 148.1(5) of the Arbitrazh Procedure
Code of the Russian Federation, which is devoted to arbitration clauses, and dismiss the
case without prejudice, but only provided that the defendant files an objection against the
case being heard in the arbitrazh court before his first pleading on the merits of the case.
Application of the rule in Art. 148.1(5) of the Arbitrazh Procedure Code of the Russian
Federation by analogy to the law is noteworthy, given that the Arbitrazh Procedure Code of
the Russian Federation (as opposed to the Civil Procedure Code of the Russian Federation)
does not actually expressly provide for the application by analogy of the rules of
procedural law, rather than substantive law.
This same paragraph 6 of the Digest also sets forth that a prorogation clause (like an
arbitration clause) is autonomous in nature, and thus the invalidity of the principal
agreement (such as a loan agreement of which the prorogation clause is a part) does not
automatically render the prorogation clause invalid.
Paragraph 7 of the Digest points out that even if the Arbitrazh Procedure Code of the
Russian Federation does not provide for grounds to apply to an arbitrazh court in a specific
case, such court may nevertheless hear the dispute if the defendant does not file a timely
objection to the case being heard in the arbitrazh court. In other words, the filing of a
statement of claim and a corresponding statement of defense in which neither party
challenges the competence of the arbitrazh court creates its own ground for the case to be
heard in the arbitrazh court, and strips the defendant of the right henceforth to object to the
case being heard in the arbitrazh court.
Paragraphs 8 and 9 of the Digest are devoted to the frequently applied provision of
Article 247.1(2) of the Arbitrazh Procedure Code of the Russian Federation, which allows
the filing of a claim in the arbitrazh court if a foreign entity has a branch, representative
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office or corporate body based in Russia. On the one hand, the HAC is expanding the
purview of this rule, since it emphasizes in paragraph 9 of the Digest that a branch or
representative office can be any permanent place of operation through which the foreign
entity conducts its business, in whole or in part, in Russia, regardless of whether the
requirements of Russian law on accreditation or registration of the relevant operating unit
have been complied with. On the other hand, paragraph 8 of the Digest indicates that this
rule may apply only if the claim against the foreign entity relates to the operations of the
corporate body, branch or representative office of the foreign entity in question. However,
if the dispute is not related to the operating unit situated in Russia, this will not serve as a
ground to establish the competence of the arbitrazh court.
In Paragraph 10 of the Digest the HAC draws attention to an important but hitherto littleused
provision of Article 247.1(10) of the Arbitrazh Procedure Code of the Russian
Federation. This rule gives arbitrazh courts broad powers to establish their competence in
cases involving foreign entities: even if there are no other special grounds in a particular
situation, under Article 247.1(10) of the Arbitrazh Procedure Code of the Russian
Federation the arbitrazh court may accept a case for hearing if there is a strong connection
between the elements of the dispute and Russia. Paragraphs 8 and 10 of the Digest indicate
that in identifying such strong connection the arbitrazh court must take into account, inter
alia, the following factors: place of performance of the obligation, location of the majority
of the body of evidence, applicable substantive law. It is noted in relation to this rule that it
opens up the possibility of applying the Anglo-American concept of forum conveniens
(appropriate forum), which is not customary for Russian international civil law procedure,
having developed primarily along the lines of the approaches taken by continental Europe.
DETERMINATION BY THE ARBITRAZH COURTS OF APPLICABLE SUBSTANTIVE LAW
Paragraph 12 of the Digest focusses on the customary approach of Russian private
international law, pursuant to which the parties’ entering into a prorogation clause does
not in itself result in automatic applicability of the substantive law of the country in whose
court disputes are to be heard. In other words, it must be borne in mind that in the case of
disputes involving foreign entities the choice of the venue where the dispute will be heard
(the competent state court or international commercial arbitration) and the choice of
applicable substantive law are two entirely different things, and it is best to agree and set
down a clear understanding on both of them when signing an international contract.
Paragraph 13 of the Digest states that a governing law clause shall be deemed to have been
agreed, inter alia, if the parties to a dispute refer to one and the same governing law in
substantiating their stated claims and defense (e.g., in a statement of claim and statement
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of defense). It is noted therefore that, as a result of legal counsel’s insufficiently considered
actions in the course of legal proceedings, the applicable substantive law that was
originally agreed by the parties in the contract could undergo a change.
Paragraph 15 of the Digest approves of the choice of law clauses whereby the governing
law is defined as the law of the home country of the defendant (or the claimant) in a
possible future dispute whoever that party is. The HAC also notes that the risk inherent in
such agreements of uncertainty about the governing law until such time as a claim is filed,
because there is no way of knowing beforehand which of the parties will be the claimant
and which the defendant, is borne by the parties that entered into such an agreement on
the governing law. An important point is also made that the governing law is determined
upon the filing of the initial statement of claim on the basis of such agreement (the socalled
“crystallization” of the governing law), and therefore the subsequent filing of the
statement of defense does not change the governing law.
Paragraph 16 of the Digest points out that should the arbitrazh courts apply foreign
substantive law (e.g., if the parties have agreed to choose foreign law), in accordance with
Art. 1192 of the Civil Code of the Russian Federation certain mandatory norms of Russian
law (the so-called “supermandatory norms” (sverkhimperativnye normy)5) could prevail if
the mandatory norms themselves state so or their special significance requires that such
norms govern the relations, regardless of the governing law that is to be applied.
Paragraph 16 of the Digest cites as an example of such Russian supermandatory norms the
provisions of Federal Law No. 57-FZ on Foreign Investment in Commercial Entities with
Strategic Importance for National Defense and National Security dated April 29, 2008.
In addition, in this same paragraph the HAC draws the following important conclusions
on the application of the concept of supermandatory norms:
■ not all mandatory norms in Russian law may be deemed supermandatory. For example,
despite the fact that under Art. 198 of the Civil Code of the Russian Federation the
parties cannot agree to amend the statute of limitations and the way the limitation
period is calculated, Russian mandatory norms pertaining to the statute of limitations
(e.g., the general limitation period of three years established in Art. 196 of the Civil
Code of the Russian Federation) are not supermandatory norms within the meaning of
Art. 1192 of the Civil Code of the Russian Federation;
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5 This doctrinal term is not expressly referred to in the law, but is used frequently throughout the Digest. It must be borne
in mind that in the draft amendments to the Civil Code of the Russian Federation it is proposed that in Art. 1192
another term synonymous with the original be used: “direct application norms (normy neposredstennogo primeneniya)”.
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■ the application of Russian supermandatory norms to a dispute between parties that
invalidate certain provisions of a contract does not make the valid portion of a disputed
contract subject to Russian law and does not rule out the application to such disputed
portion of the foreign law chosen by the parties.
PROCEDURE FOR ASCERTAINMENT OF FOREIGN LAW IN ARBITRAZH COURTS
Paragraph 19 of the Digest is of much importance as it expressly permits the ascertainment
of foreign law in arbitrazh courts using the opinions of international law firms presented by
the parties themselves on the content of the norms of the relevant foreign law (so-called
legal opinion or affidavits). Paragraph 19 of the Digest expressly states that the provisions
of the Arbitrazh Procedure Code of the Russian Federation on expert review do not apply
to such opinions. This means that to invite a legal expert and present his opinion in the
arbitrazh court does not require that such expert first be approved or that the arbitrazh court
rule on the terms of reference for such testimony.
Paragraph 20 of the Digest points out that if one party presents a legal opinion on the
content of the norms of foreign law that is not contested by the other party by providing
evidence to the contrary, the arbitrazh court need take no further measures for the
ascertainment of the foreign law and may hand down its judgment based on the
conclusions set forth in the legal opinion. It is only in the event that the parties have
presented legal opinions on the content of the norms of foreign law that contradict each
other that an arbitrazh court need resort to other methods of ascertainment of the foreign
law, such as appointing an expert (paragraph 21 of the Digest).
Paragraph 22 of the Digest states that failure to perform, or undue performance, by an
arbitrazh court of its obligation to ascertain the foreign law serves as a ground for courts of
higher instance to amend or set aside the court judgment. This emphasizes that, contrary
to the approaches inherent in English private international law, the application of foreign
law is seen as a separate legal issue, rather than a matter of ascertaining the facts of a case.
PROCEDURE FOR ASCERTAINMENT OF FOREIGN ENTITIES’ LEGAL STATUS IN
ARBITRAZH COURTS
Paragraph 26 of the Digest clarifies an important practical aspect of the requirements for
certification of documents confirming the legal status of a foreign entity (including its
capacity to act as claimant or defendant in an arbitrazh court). This usually requires the
presentation of official foreign documents issued abroad. As a rule these documents
require consular legalization, or apostillation (for countries, that are, along with Russia,
parties to the Hague Convention, 1961, abolishing the requirement for legalization of
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foreign public documents).6 A practical question arises as to the possibility of legalizing or
apostilling documents that are not originals (e.g., a company’s certificate of incorporation,
which may only exist in the one original copy), but notarized copies. Paragraph 26 of the
Digest recommends that arbitrazh courts accept such documents where a notarized copy is
legalized or apostilled provided that as well as checking that the copy of the document
corresponds to the original, the notary has also authenticated the signature and seal of the
official issuing one or another public document. It can be expected that these clarifications
will be applied not only in arbitrazh court practice, but also in other Russian governmental
spheres.
At the same time paragraph 24 of the Digest indicates that proof of permanent domicile of
a company for tax purposes is not sufficient to establish its lex personalis and legal capacity
(capacity to sue or be sued in an arbitrazh court); proper proof requires the presentation of
a certificate of incorporation/state registration of the company, its constitutional
documents, extract from the register of legal entities or other similar documents.
Paragraph 27 of the Digest notes that a power of attorney issued on behalf of a legal entity
in a foreign country is not a public document, and therefore as a general rule does not
require mandatory certification in the form of consular legalization or apostillation.
However, if the power of attorney is notarized, in this case it will have to be legalized or
apostilled, since the notarial mark is considered a public document and thus requires
legalizing or apostilling for use in other countries.
GRANTING OF INJUNCTIVE RELIEF BY ARBITRAZH COURTS IN CASES INVOLVING
FOREIGN ENTITIES
The question of whether injunctive relief may be sought in Russia in support of legal
proceedings in a foreign court or in foreign international commercial arbitration is of vital
importance. The problem lies in the fact that in accordance with paragraph 33 of Ruling
No. 55 of the HAC Plenum dated October 12, 2006 on injunctive relief issued by arbitrazh
courts “foreign court rulings on injunctive relief are not eligible for recognition and enforcement in
the Russian Federation because they are not final judicial acts on the merits of a case handed down
in an adversarial proceeding”. In practice, a similar approach is taken towards injunctive
relief issued by an international commercial arbitral tribunal (regardless of whether the
injunctive relief is issued in the form of a procedural order or interim ruling at arbitration).
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6 There is no need to legalize or apostille foreign public documents if such formalities are waived in a special treaty to
which the Russian Federation is a party (see, e.g., Art. 13 of the Minsk Convention 1993 of the CIS Countries on Legal
Assistance and Legal Relations in Civil, Family and Criminal Matters).
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At the same time, the Arbitrazh Procedure Code of the Russian Federation does not
expressly provide for arbitrazh courts to provide injunctive relief in support of foreign legal
proceedings. For this reason it is very important that the HAC has explained that it is
permissible for parties in dispute to apply directly to the arbitrazh courts with a petition for
injunctive relief in support of proceedings being heard by a foreign international
commercial arbitral tribunal (paragraph 29 of the Digest) or a foreign court (paragraph 30
of the Digest). An arbitrazh court may issue injunctive relief if it has so-called “effective
jurisdiction”, namely: if it is local to the location of the petitioner, or the location of the
monetary funds or other property in respect of which the petitioner is applying for
injunctive relief, or the place where the petitioner’s rights were violated.
Finally, paragraph 32 of the Digest explains that injunctive relief issued by a foreign court
in the form of an anti-suit injunction in respect of Russian courts does not prevent a case
from being heard by an arbitrazh court, since such injunction is issued not in respect of the
arbitrazh court, but the relevant party to the dispute. Any natural persons or legal entities
in respect of whom an anti-suit injunction is issued and who continue with legal
proceedings in an arbitrazh court regardless should understand and bear in mind the risks
of any potential adverse consequences outside the Russian Federation. Such consequences
could loom very large and include criminal charges for contempt of the foreign court
issuing the anti-suit injunction.
October 4, 2013