In the summer of 2018, EPAM jointly with Pravo.ru website conducted a poll amongst in-house lawyers and external counsel.
We have undertaken this research to evaluate the experience and attitudes of the Russian market players towards cross-border dispute resolution.
Disputes with a foreign element are a common phenomenon in the practice of big business. It is important to understand which dispute resolution methods and forums are considered successful by users, which problems arise most often and what changes could make such practices more efficient.
The poll asked, among other things:
- In which areas do cross-border disputes involving Russian companies arise most often?
- Which methods and forums of cross-border dispute resolution are most popular in the Russian market? State courts or arbitration?
- What are market players’ criteria to opt for a particular method and venue of cross-border dispute resolution?
- What is it that the Russian market is not happy with as regards current practices?
- What tools help make cross-border dispute management more efficient?
This research is unique as it is the first attempt to collate the experience of Russian users: both in-house lawyers and counsel from Russian and foreign firms in cases with a foreign element both in state courts and arbitration tribunals without being bound by a particular method of proceedings.
The research has shown that:
- Sale and purchase and shipping account for about one half of all cross-border disputes. Predominance of disputes arising from supplies and shipping correlates with the specifics of the Russian economy and geography requiring to transport raw materials, power, and goods across vast distances. Cross-border corporate disputes rank second, followed by IP, finance, and construction disputes.
- International arbitration and negotiations are the most popular methods of cross-border dispute resolution among Russian parties. Two thirds of such disputes are resolved through one of these methods. International arbitration prevails among counsel, negotiations – among in-house lawyers. Furthermore, more experienced users tend to opt for arbitration.
- About one third of cross-border disputes are resolved in the state courts, both Russian and foreign. Generally respondents appeared to have the least experience in mediation, however, this method’s efficiency assessment has been on the rise.
- Moscow, London and Stockholm are the most popular venues for resolution of cross-border disputes involving Russian parties. Furthermore, most arbitration disputes are referred to ICAC, ICC, and LCIA. It suggests that ICC (forum) is not equal in popularity to Paris (venue) while Stockholm (venue) is much more popular than its SCC (forum). Singapore is becoming increasingly popular, leaving Hong Kong behind.
- Having selected, or been dragged into, a particular forum, Russian users are concerned about enforcement of awards, dispute financing and practical matters of running proceedings.
- In foreign courts and international arbitration, Russian parties are primarily attracted by their reputation, prospects of enforcement and broad procedural remedies – procedures for the collection, production and examination of evidence. Furthermore, many experienced users feel that a pressing problem is how to convey Russian specifics to foreign arbitrators and judges. High costs (and dispute financing issues) are seen as inevitable. We assume that companies specializing in third-party funding have strong prospects in our market.
- It is of interest that 40% of respondents believe that choosing Russia as a seat of arbitration will help avoid complications in cross-border proceedings. The percentage of those among experienced Russian users who wish to stay in Russia or appoint Russian arbitrators is lower. They tend to place confidence in Western Europe. However, insisting on a reduction in the scope of disclosure of evidence in smaller disputes (which causes discontent not only for Russians, but for other Europeans as well), respondents are not willing to give up cross-examination of witnesses, apparently valuing the potential of this tool in practice.
- The risk of applying a law without comprehensive analysis and evaluation of all facts and pieces of evidence is seen as a major drawback of the Russian jurisdiction.
- In order to raise the allure of our jurisdiction to resolve large commercial disputes with a foreign element, there is a long-felt need to introduce the concepts of evidence accepted in Western proceedings: rules of disclosure of evidence by the parties, submission of reports prepared by the experts engaged by the parties, submission of detailed witness statements with subsequent thorough cross-examination, a pragmatic approach to the recovery of litigation costs with potential for differentiation as regards disputes with the state.
- It would be interesting to assess whether users feel that it is advisable to apply Russian substantive (primarily civil) law to cross-border disputes, especially given its profound revision. As a matter of practice, parties are free to apply (incorporate into a contract subject to counterparties’ consent) Russian law that users are more familiar with, even if a dispute is decided in a foreign jurisdiction. The research has shown that for now this option is given a guarded welcome. This may have to do with the “applicable substantive law = country of dispute resolution” stereotype (the “forum-law” link). As for English law, users have confirmed that they are attracted by its broad remedies and respect for intentions of the parties expressed in a contract. It is noted, however, that in practice English law may be applied quite unpredictably.
The link to the brochure hosted on our website is here: http://epam.ru/files/documents/insights/Report_Cross-Border_Disputes_Research_Findings.pdf.