Arkady S. Lee is a Russian lawyer with extensive experience in international law. He works with Alinga in an advisory capacity.
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Problems in Providing Expeditious Judicial and Arbitration Proceedings:
What Russia Can Learn from Other Countries
Arkady S. Lee
JurExpert.ru

 

Problems surrounding the expediency of judicial proceedings are some of the most pressing in the legal field. It is important to realize that the problem is separate from the more general problem of protecting rights. According to Article 10 of the Civil Code of the Russian Federation, actions by citizens and legal entities, performed with the intent to cause harm to others or to abuse the rights of others are prohibited. The practical meaning of this regulation implies that, in cases of its violation, the court can refuse to protect a person’s rights.

 

The concept of "an abuse of rights" appeared in our legislation in 1995 (comparatively recently), when Part I of the Civil Code of the RF came into force. Since that time, methods of applying this normative law continue to be formed.

 

It should be noted that the problem of the hindrances to court cases is an immediate problem not only for Russia, but also for other countries. Examining cases handled outside of Russia should be of interest to Russian business persons who deal with foreign partners.

 

US courts have the right to publish "anti-suit injunctions," to any persons or entities under their jurisdiction. The essence of this injunction is that it demands that the person or entity to whom it is addressed discontinue another judicial proceeding. The injunction is used when one proceeding is preventing another from taking place. For example, this is used when a matter involving the same opposing entities being held before a court of commercial arbitration, i.e., a non-governmental law court, is brought before a governmental court. If the person or entity does not observe the injunction and end the proceeding, it is seen as contempt of court and prosecutable as such under the law.

 

Let us examine this injunction closer by looking at a representative case as seen in 2006 in a state court in New York.

 

A Norwegian company (T) and a Ukrainian company (S) founded a Ukrainian firm (K.) S had been founded, in turn, by two other by firms - A and X, which were daughter companies of yet another firm (L).

 

T and S signed the articles of incorporation, which had an arbitration clause stipulating that all disputes stemming from that agreement were to be examined by a commercial arbitration court in New York. 

 

A subsequent dispute arose between T and S over the execution of the articles of incorporation, and T called for the case to be seen before the commercial arbitration court under the terms of the arbitration clause. However, although S had originally agreed to the arbitration clause, S argued that the arbitration court was not competent to hear the case because the articles of incorporation, agreed upon between the two sides, including the arbitration clause, were themselves void.

 

The case had hardly been formed when A, a founder of S, brought the case before a Ukrainian court to have the articles declared officially void. Thus, there were two judicial procedures about the same conflict. The Ukrainian court, upon examining the case, did declare the articles and the clause void.

 

In spite of this decision by the Ukrainian court, the New York arbitration court concluded that it properly possessed the jurisdiction to try the case, i.e., it recognized the arbitration clause as still in effect.

 

Thus, practically simultaneously there were two "parallel" court trials: a commercial arbitration in New York and a legal trial in a national court of Ukraine.

 

Because T was not formally participating in the Ukrainian case, and had not been notified about the case being tried by a legal court, an injunction was requested at a jurisdictional US federal court against S, its founder A, and its parent company L to discontinue the legal trial being held in Ukraine.

 

The injunction was granted on the basis that the federal court found that S, A, and L were “affiliated entities,” or, in the words of the court “parts of the same whole.” In particular, they had a common owner, were financially interconnected, and operated with a unified policy on the selection and placement of personnel.

 

On giving its decision, the court started from the principles of federal law concerning commercial arbitration which work to support and uphold arbitrated decisions. The court established that Ukrainian proceedings to a considerable degree worked against these laws and represented to T a form of irreparable injury.

 

In considering the arguments of T, the court considered the problem of whether the injunction could be issued against S, which did not begin the proceedings in  Ukraine, but was in fact the defendant. Although there was no legal precedent, the court decided that S had, in actuality, been in agreement with A (the plaintiff) in initiating the court proceedings. Supporting this was the fact that S did not actually seek juridical protection of its interests (for example, it did not submit to the Ukrainian court a single written document in its defense nor hired an attorney to defend its interests, etc. The court also decided that the object of trial in New York and Ukraine was actually one and the same - an attempt to void the arbitration clause.

 

In Russia some who have an interest in seeing the court proceeding slowed down, will initiate a separate and sometimes several “parallel” court cases, attempting in this way to halt the consideration of a case which promises to drag out. Sometimes the purpose of these "parallel" trials is to obtain a judicial decision in which certain facts were already established and did not require proof. Lawyers refer to this formally as “res judicata.” The court case in  Ukraine that we have examined occurred under this pretext. The defendant S and its affiliated entities sought a kind of “expedited contest” in obtaining a favorable decision by creating a unique competition between the judicial organs.

 

So, the American practice of issuing injunctions to halt trials is nothing more than a specific means to protect rights and assure the expediency of a (in this case, arbitration) proceeding. As a rule, an injunction has force during the course of an arbitration trial, i.e., from the moment of it issuance until the final decision is made by the arbitration court. The injunction then loses force.

 

It is important to emphasize that the American court did not directly invade the jurisdiction of the Ukrainian court, since the injunction was addressed to specific entities and not to the court itself. However, some would argue that this represents an indirect invasion of the jurisdiction of a foreign court. Therefore, legislators and courts generally try to limit the application of such injunctions. For example, some countries have legislation stating that the persons or entities which requested such an injunction must reimburse the financial losses of the persons or entities affected by the injunction incurred as a result of the injunction (for example, such a law was passed in Czechoslovakia in 2005).

 

This form of judicial protection of rights is unknown to Russian legislation. It generally operates in those countries which operate on common law, which include the US. In the example examined, it is clear that American courts are ready to impose injunctions in cases of judicial proceedings (even those occurring in the courts of foreign countries) if those proceedings have been initiated to impede commercial arbitration proceedings from taking place on the territory of the US.

 

Between the countries of the EU, such injunctions are not possible because, in the opinion of the courts of the EU, the legal system of the EU is based on “mutual confidence and equality” (Turner v Grovit, 2004). Therefore such injunctions to halt court proceedings can only be issued against courts outside of the EU. 

 

Russian businesspeople should know about the existence of such injunctions, as such arbitration clauses can be included in their contracts signed with foreign partners. Ignorance of how proceedings are conducted in other countries can lead to unjustified legal expenses and influence the decision of the matter being arbitrated.

 

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