The Russian people have an extremely effective supreme court. It is entirely independent of the Russian state, its judgments have a significant impact on the legal system, and — above all — the state will (eventually) comply with its judgments.
The only problem is that the court is not in Moscow, it’s in Strasbourg — it’s the European Court of Human Rights.
Russian business also has a highly effective commercial court: The English High Court in London. The court’s commercial division is awash in Russian cases, approximately half of them emanating from disputes involving the former Soviet Union. In part, this has to do with the unique flexibility of English Common Law, under which the doctrine of freedom of contract allows foreign parties to choose England as their governing legal forum.
President Dmitri Medvedev, who has sought to draw foreign investors with the promise of greater stability and increased rule of law, should reflect on the reality that Russian businesses and the Russian state are being increasingly guided by international treaties and commercial realities. While London has become a second home for much of the Russian business community, Russian business people are also using international arbitration forums in places like the Hague, Stockholm, Vienna and Paris. International arbitration clauses, commercial contracts and bilateral investment treaties are increasingly limiting the ability of Russian oligarchs and the Russian state to ignore the rule of law.
The Russian legal system is widely seen as one in which judges act under direct government orders, setting aside legal rules for political ends. The Yukos bankruptcy case is a classic example, and by no means exceptional. Moscow’s willingness to use tax law to bludgeon businesses into making payments to the authorities — whether legally due or not — is widespread.
Thus it is not surprising that foreign investors think long and hard before investing in Russia. Nor is it surprising that opinion polls indicate that Russians have little faith in their courts. A 2004 survey by the Russian Public Opinion Foundation found that 67 percent of respondents thought that the majority of Russian judges took bribes.
Despite the problems of judicial delay, nonenforcement and corruption, it is increasingly possible for Russian businesses to find recourse in foreign courts. Large numbers of private and state-owned businesses have significant assets outside Russia, providing them with a way of enforcing contracts without reference to Russian law.
Even in situations in which both parties are Russian, they can agree that their contract will be governed by English law and subject to the English courts. Under the Common Law principle of freedom of contract, if a party chooses English law as the law of the contract and the law of the forum, then English law applies. As long as there are assets outside Russia, an English judgment can be enforced.
Another less public — and therefore popular option — is to submit a disputed deal to arbitration outside of Russia. Any legal battle will then take place behind closed doors. Usually there will be a settlement before the arbitrators rule. If the arbitrators do make a ruling, then the losing party pays up. If for any reason the losing party does not settle, the arbitrators’ ruling can be registered as a judgment and then enforced.
Huge numbers of Russian citizens and businesses also seek redress before the European Court of Human Rights in Strasbourg. As of December 2010, there were over 40,000 Russian applications, almost 29 percent of the total pending (followed by Turkey, with almost 11 percent, Romania, with 8.6 percent, and Ukraine, with 7.5 percent.) The Strasbourg rulings are not merely symbolic; under a fully ratified treaty, the Russian Federation is legally bound by the European rights court’s rulings, and the court’s case law is supposed to be integrated into the Russian legal order.
This can cause huge distress to the Russian political establishment. Once an application is made in Strasbourg, the Russian state seeks to attempt to remedy the complaint. After some equivocation the Russian state usually pays up for fear of further rulings of non-compliance.
The European rights court’s impact is reinforced by the publicity given its rulings, which in turn bring in more cases brought by Russians who have long-running legal disputes with the state. Examples range from high-profile cases like those involving Chernobyl workers seeking redress for the government’s failure to pay sickness benefits, to those involving single mothers in the Russian city of Vorenzh obtaining back payments of their €10-a-month maternity pay.
This international legal dimension is having an impact on Russian society, high and low. Lawyers arguing before Russian commercial courts are increasingly crafting their arguments to make a case in Strasbourg, thereby creating pressure for the Russian judiciary to act in compliance with the European Court of Human Rights.
However, while more cases are being filed in Russian courts, and while judges now rule against the state in many more cases, local pressure against litigation and long delays in judgments actually being satisfied remain a reality, as do the problems of corruption and political pressure.
In major commercial cases, Russian litigants are still likely to go to English courts or foreign arbitration tribunals. Boris Berezovsky, for example, is seeking some $3.3 billion in damages from Roman Abramovich over the sale of Sibneft. Since January, the London International Court of Arbitration has had 17 filings by litigants involving the former Soviet Union.
Large numbers of young Russian lawyers are moving to London, where they are learning modern commercial law procedures in a strong rule-of-law environment. Many will become the legal troops who could build and strengthen the Russian legal system. President Medvedev says he recognizes that the rule of law is vital to the modernization of Russia. Does he want to continue to rely on the Strasbourg and London courts, or does he want those lawyers — and the rule of law — to come back home?
By Alan Riley, a professor of law at City Law School, City University, Grays Inn, London.