Business

How to Sue, Win and Execute Judgements in Russia – Really!

In Russia, many potential plaintiffs whether they be companies or individuals, foreigners or Russians, hesitate to bring law suits against companies or individuals that wrong them. Fraud and disrespect of shareholder and corporate governance laws are frequent gripes. There are two basic concerns: 1) The “whole system” is corrupt, and 2) even if you win you can’t collect.

By the time you finish this article you may modify your opinion about the Russian legal system, as Russia is becoming a more promising place to bring a cause of action when necessary. Corruption is less and less prevalent in the Russian judiciary and, using the right strategy, collection can be had relatively simply. This last comment, while hard to believe, is becoming more and more the case in Russia.

Where did all the corruption go?

In order to discourage corruption and create a rule of law it is not easy to achieve that without reducing judicial corruption. There are at least three elements to that:

• Punish those who take and offer bribes
• Increase judges salaries to reduce the bribe-taking temptation
• Make the bribing party have to bribe a lot of judges to make it more likely he will get caught and less likely he will succeed

In the November 2007 issue of Passport it was mentioned that monthly salaries for judges have increased from several hundred dollars a decade ago to a few thousand dollars a few years ago to now over $4000. According to Avenir Recruitment’s Managing Director, Maxim Stepanov, “for a lawyer with several years’ experience, that is an excellent salary. And for a lawyer who does not speak English (which is usually the case with Russian judges since it is not required to execute their job) that is very good compensation package, and if we speak about the regions a very handsome package indeed.” In parallel to raising salaries, there has been a multi-prong anti-corruption campaign to raise public awareness of bribe taking; by publicizing cases where judges and bribers are caught, in order to increase the deterrent for all potential parties. In general, bribing and corruption cases are receiving mass media attention for every aspect of the public sector.

In Russia there are four levels of courts: a) Arbitrage (trial court) b) appeals court c) court of Cassation and d) the Supreme Court.

In order to use money as a means to sway the outcome of a court decision, it is necessary to first start off by bribing the young Arbitrage court judge. These recent law school grads may not have years of legal experience under their belts but, their relatively modest salary makes them seem fairly well off compared to their peers. Recent experience shows that these judges don’t warm up to bribes as easy as one would think. Even if a party succeeds in bribing the Arbitrage sole judge, the next task is to bribe the next three levels where there are at least 3 judges in each (the Supreme Court may have more than 3 judges). So the bribing party will need to bribe up to 10 or more judges to get his decision tailor-made. How does someone approach each and every one of these civil servants? Does one just approach them during the hearing?

Collecting Judgements

It is true that losing defendants can find easy ways to hide their assets through friends and relatives. However, defendants of civil actions who are guilty of fraud and other civil infractions are also criminally liable as well. If a defendant refuses to pay, the threat of going to jail can be a good tool to force settlement.

Litigator Ilya Lisovkiy has confirmed that there is a changing trend in Russia with respect to litigation. “It is true that in view of various changes in the judiciary we are seeing more cases being brought and a higher rate of sat isfied plaintiffs with legitimate causes of action”. Another American litigator from a major Western firm in Russia has also indicated that litigation practices are expanding extremely rapidly for the same reasons.

Also according to some recent changes to the law, debtors may have difficulty traveling by air, if they have bad debts.

Rough Justice?

Unlike the onerous and expensive discovery system in the US, Russia is not plagued with this problem. While justice may be a bit rougher not having all the facts in front of the court, it is quicker and a lot cheaper. It is so quick that it may be possible to bring a case through all four levels in a 18 months, or even less. So next time you have been cheated don’t be so quick to dismiss the potential valid claim, since courts may not be so quick to do so either.

Not all plaintiffs and defendants the same

This is not to say that it is always wise to bring or even defend an action. One needs to carefully consider who the counter-party is. Just like in the US especially, there seems to be a two-track system, where the wealthy parties are able ensure a higher likelihood of success for their actions depending on their social stature, fame and/or wealth. Especially in many Western countries, where litigation costs can run tens of thousand or even hundreds of thousands of dollars per month, there is a sort of natural survival of the well-to-do in terms of their success in Western courts.

This situation is intensified in the criminal arena where, for example, about 40% of prisoners in the US are of African descent, even though their share of the overall population is around half of that. It is well known that those who have the means have a much better chance of avoiding criminal conviction or losses in civil litigations. Obviously in the US that is changing, and it is more challenging for wealthy litigants and criminal defendants to ‘buy’ a victory through hiring big-gun attorneys.

We have seen a spate of criminal actions (especially) being brought against anyone, no matter their wealth, in the US. Whatever the methods wealthy Russian litigants may use to ensure victory or avoid loss (of the other side), the result is the same in Russia as in many Western countries: that is, wealth may help ensure some sort of protection in the legal world.

Just how cheap is it?

Basically, depending on the firm one uses, the whole process for a multi-million dollar action should run about $15,000 including court costs to the first level and up. Appeals should cost several thousand dollars and up per appeal depending again on what caliber of litigator is chosen.

In what kind of actions are companies applying this new approach to falling out with counter parties? In general where both parties are Western, or where the counter party is not a massive conglomerate, Western and Russian companies alike are turning more and more to the courts to seek redress.

The courts are less and less seen as a place of last resort and more and more as a means to enforce contracts and other business relations. At last, Russia is getting its own rule of law, which can only lead to greater confidence in the investment community.

Finally, as Dmitry Medvedev will be taking over as the next president of Russia, his heavy legal background and strong rule of law interests will likely result in more and more transparency and integrity in the local courts.