The Plenum of the Supreme Court of the Russian Federation (the “Supreme Court”) recently published a Resolution “On commercial courts’ consideration of cases on economic disputes arising from relations that are complicated by a foreign element” (the “Resolution”).
The Resolution contains a number of important clarifications and a detailed analysis of many practical aspects of the judicial practice in previous cases that involved foreign elements.
Those who are involved in litigation complicated by a foreign element should take into account the Supreme Court’s explanations in order to minimise the procedural risks that are associated with legal proceedings involving Russian national courts.
We have outlined below some of the most relevant aspects of the Resolution. The full text of the Resolution is available here (in Russian).
Exclusive competence of Russian commercial courts
In accordance with the Resolution, disputes complicated by a foreign element include economic disputes and other cases connected with business activities and other economic activities with the participation of foreign companies, foreign residents (and stateless persons) who do these activities, as well as international organisations and foreign states or cases arising from the relations complicated by a foreign element (e.g. the realisation by a Russian organisation of the rights to property which it holds in a foreign country).
The Supreme Court has noted that the exclusive competence of the Russian commercial (“arbitrazh”) courts is applicable to the economic disputes with a foreign element concerning:
- Russian state or municipal property, including disputes on privatisation and expropriation of property for public use;
- immovable property located in Russia or the rights over it, when the claim filed against it has been granted and the execution of the court’s order requires state registration of the corresponding changes or making entries in the Unified State Register of Legal Entities (except for disputes that fall within the jurisdiction of courts of general jurisdiction). It is important to note here that air and sea vessels (including inland navigation vessels) are considered to be located in Russia if the rights to them are registered in a Russian state register;
- registration or issuance of patents, certificates or registration of rights to the results of intellectual activity in Russia;
- invalidation of records in the Russian state registers; and
- creation and liquidation of legal entities on the Russian territory and challenging decisions taken by their bodies and also registration of Russian individual entrepreneurs. Note that according to the new rules of arbitration courts in Russia (Please click here to read our Alert on the theme) some types of corporate disputes can now be heard by arbitration courts provided there is an appropriate arbitration agreement and subject to a special procedure for the consideration of such disputes. In particular, it refers to disputes on creation of legal entities in Russia, participation in such companies and management issues.
The validity of a choice of court agreement
Participants in international economic relations can agree that all or certain disputes will be reviewed by a Russian commercial court (i.e. to conclude so called a “choice of court agreement”). In that case the competence of a corresponding court will become exclusive for the parties to the choice of the court agreement, provided that it does not change the exclusive competence of a foreign court. A similar agreement can be concluded between two foreign entities.
The exclusive competence of Russian commercial courts cannot be changed by a choice of court agreement on the transfer of a dispute to a competent court of a foreign state or a derogation agreement to exclude the competence of Russian commercial courts. For example, the Commercial Procedure Code states that claims for real estate titles are filed to a Russian commercial court at the location of such real estate. For this provision, a choice of court agreement cannot change this rule and cannot establish that such lawsuits will be considered in national courts of the Great Britain or in the Arbitration Institute of the Stockholm Chamber of Commerce.
The choice of court agreements remain valid when the individuals or entities whose obligation in respect of which such agreements were concluded change, unless otherwise agreed by the parties and provided such dispute remains within the jurisdiction of the commercial court and does not violate the exclusive competence of a foreign court. Thus, if an initial creditor and a debtor decide upon the settlement of disputes over a delivery contract in a Russian commercial court, such a choice of court agreement will be valid for their successors to this delivery contract, unless otherwise agreed by the parties.
By virtue of the autonomy of the disputes resolution procedure agreement, the invalidity and/or non-conclusion of the main contract do not, on their own, lead to the invalidity and non-enforcement of the choice of court agreement.
The choice of court agreement must be concluded in writing. This also includes the exchange of letters and other documents, including electronic ones and by other means that can help reliably establish that the sender is the other party.
The choice of court agreement is also deemed to have been concluded by exchanging procedural documents, where e.g. a plaintiff declares in the lawsuit the existence of such agreement while the other party – a defendant – does not object to it in the statement of defence.
Filing a claim against branches and representative offices of a foreign company
Generally, Russian commercial courts consider cases that involve foreign commercial organisations through their local branches or representative offices in the country rather than through their branches and representative offices settled in a foreign jurisdiction and which activity does not have close ties with Russia.
That is why when a legal action is brought against such a “foreign” legal branch or a representative office of a foreign organisation, a commercial court may, with the consent or at the request of the claimant, allow them to replace the wrong defendant with the right one. In this case, this means replacing the “foreign” branch/representation with the parent organisation. If the claimant is against such substitution, the proceedings in the case must be terminated as not subject to proceedings in a Russian commercial court.
Disputes from relationships that arise from using the internet
The Resolution also explains the meaning of the Russian Commercial Procedure Code provisions of so called “Internet Disputes” with a foreign element, which definitions were quite controversial.
Thus, The Supreme Court has pointed out that domain disputes connected with the protection of intellectual property rights and complicated by a foreign element, are subject to commercial courts provided that (i) the domain name is registered in the Russian domain zones, for example “ru.”, “su.”, “рф.” or in the domain zones of the second level, oriented to the Russian market, e.g. “.ru.com” or (ii) if the domain name is registered by a Russian register in other domain zones such as “.com” or “.org”.
The definition of close ties with the Russian territory
The Supreme Court has explained that unless there are clear orders in the Russian Commercial Procedure Code or in a choice of court agreement, commercial courts, in determining their competence to consider a dispute that involves a foreign element, must determine the presence of close ties between the company with the disputable legal relationship and the Russian territory in each specific case, taking all the circumstances of the case into account.
The following factors can (among others) serve as a confirmation of the presence of a foreign company’s close ties with Russia:
- a significant part of the company’s obligations from the legal relationship is performed in Russia;
- he subject matter of the dispute is closely connected with Russia;
- the main evidence in the case is located in Russia or Russian law is the law applicable in the contract;
- the website domain name towards which the dispute has raised (but for domain names in the Russian domain zone, e.g. “.ru”, “.su”, “.рф”) mostly targets a Russian audience;
- the chief executive of the foreign company in Russia is registered at the place of their residence (or registration) in Russia.
Waiving the right to object
The participation of a foreign company in a court process and the absence of an objection on its part regarding the competence of the Russian commercial court before the first statement on the merits of the case confirm its consent to consider the dispute in Russia. This, in turn, entails such company’s loss of the right to invoke the lack of competence of the Russian court.
The validity period of documents confirming the status of a foreign company in court
The Supreme Court has indicated that documents confirming the legal status of a plaintiff – a foreign entity – and the right to conduct business and other economic activity in Russia should, as a general rule, be received not earlier than thirty days prior to the claimant’s application to the commercial court, unless these documents require consular legalisation or apostilles.
If such documents require consular legalisation or an apostille to be obtained, those procedures are to be held not earlier than thirty days before filing the claim in a commercial court and the document must be received within a reasonable time before the start of the procedures of council legalisation or affixation of apostille.
The Supreme Court has also explained that the absence of relevant, sufficient and reliable evidence in the materials of the court case that confirm the status of a foreign company can serve as grounds for annulling the decision in cassation and referring the case for a new consideration.
Serving legal notices on foreign entities
The procedure for serving notices of judicial proceedings and other judicial documents on a foreign entity located outside Russia may be regulated by bilateral treaties on the provision of legal assistance or by multilateral international agreements, such as the Hague Convention on Civil Procedure of 1 March 1954 on civil procedure.
The Supreme Court has directed Russian courts, when providing international legal assistance, to use such means of communication between the competent authorities of Russia and foreign governments that facilitate the fastest and most informal mode of cooperation.
At the same time, if there is a representative of a foreign company that is authorised to receive judicial documents in Russia, such documents are to be sent under the standard procedure to the representative’s address. In this case, there is no need to send judicial documents to the company’s address in a foreign country.
Russian courts’ application of foreign laws
The Supreme Court has explained that the designation of the Russian courts in contracts as the forum for reviewing disputes does not mean that such contracts are automatically subject to Russian substantive law. The courts, guided by the conflict-of-laws rules, will determine the applicable law in such a situation when there is no prescription about the law to apply in a contract.
The court has the right to impose on the parties the obligation to provide the information on the content of the norms of the foreign law that should be determined in a court order. At the same time, the imposition of this obligation on the parties does not mean the courts are relieved of their duty to establish the content of the norms of the foreign law.
The content of a foreign law can be confirmed by the texts of the legal acts, references to their sources of publications and reports on the foreign law that are prepared by persons with special knowledge.
In order to establish the content of the norms of a foreign law, a court may seek the assistance and clarification from competent authorities (such as the Ministry of Justice of Russia and other authoritative bodies or organisations located in Russia or abroad, e.g. a consulate of a foreign state on the Russian territory) or organisations and appoint a specialist or an expert. The court may entrust the establishment of the content of a foreign law to a Russian or foreigner with the relevant knowledge on this topic. The qualifications of such experts must be supported by the appropriate documents.
In this case, an expert may be asked questions relating only to the content of the norms of the foreign law, but not about the legal assessment of the parties’ relations and the evidence they have presented. If the expert’s report is an analysis of the parties’ relationships and evidence, such report is deemed inadmissible evidence and will not be accepted by the court.
Russian courts’ interim measures
Interim measures for a claim that is considered on its merits in a foreign court can be taken by a Russian commercial court, if it has the effective jurisdiction. Such jurisdiction may be established by a reference to the location of the person requesting the application of the interim measures, the location of the assets to be seized or the place where the applicant’s rights have been violated.
The Supreme Court has also explained that jurisdiction is deemed effective if the adopted interim measures can be executed swiftly and appropriately. In this regard, the jurisdiction for the application of interim measures may not coincide with the jurisdiction for the substantive review of the dispute. Even the Russian court’s lack of competence to review the main dispute does not prevent it from taking interim measures to secure the claim in a case that has been duly considered by a foreign court.
At the same time, the Supreme Court specified that a Russian commercial court may refuse to execute the order of a foreign court to take interim measures aimed at providing legal assistance as the application of these interim measures exceeds the legal assistance provided.
The interim measures taken by a foreign court in the form of a prohibition to participate in the consideration of a dispute in Russian courts do not prevent a Russian commercial court from considering the dispute, if such dispute, according to the Russian law, falls within the exclusive competence of the Russian commercial court.