Changing Times for Russian Disputes in London

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Changing times for Russian disputes in London Ben Rigby - 24 October, 2016

A report by a City think tank illustrated continued growth for law firms in the UK; but will London retain its position as a centre for Russian dispute resolution? Ben Rigby investigates the attractions.

Fifth time works a charm, it seems. The launch, in July 2016, of City lobbyist, TheCityUK’s UK Legal Services 2016 report, showed continued financial growth for UK-based law firms, with gross fees up 1.3% to a record GBP 30.9 billion in 2014/15 – the fifth successive year of growth.

Net exports of UK legal services were up 11% in 2014 to a record GBP 3.6 billion; the report estimated that the UK accounted for around 10% of the global market for legal services, second only to the US. It is also the largest market in Europe, accounting for around a fifth of its legal services fee revenue.

Such news was welcomed by Law Society of England & Wales president Robert Bourns who noted “the substantial contribution the legal sector makes to the country’s bottom line”, hailing the fact as “something to celebrate and something to promote especially in the wake of Brexit”.

LONDON AT THE CENTRE

London was the epicentre of much activity; the report found that 70% of claims in the Admiralty and Commercial Courts in the first half of 2016 were international in nature.

Many of such cases have historically been Russian in origin; the celebrated 2012 litigation between Russian oligarchs Roman Abramovich and the late Boris Berezovsky, and that between two millionaire Russian and Uzbek business partners in Cherney v Deripaska, are all examples of that trend. The long sequences of claims against Kazakh fraudster Mukhtar Ablyazov, alone, led to over 100 interlocutory hearings at first instance and in the Court of Appeal with over 50 reported decisions.

Add in the ongoing Pugachev civil fraud litigation, and it is easy to see why a significant proportion of 2016’s cases are likely to contain Russian claims. Although a breakdown by nationality was not cited, overall, 32% of all claims across the London court’s flagship Rolls Building in the six-month period from January to June 2016 were international in nature, equating to about 500 claims.

This would include, for example, current ongoing litigation between Russia and Ukraine over a GBP 3 billion bond claim, and the Yukos recovery litigation, among many other examples.

Bar Council chairman Chantal-Aimée Doerries QC, who spoke at CDR’s Summer Arbitration Symposium, commenting on

the report, pointed out that data issued in 2013-2014 demonstrated that “a foreign party was involved in about 80% of the commercial claims issued, and in about 45% of cases all parties were from outside the UK”, calling it “a reflection of the high regard in which our judiciary are held and the expertise of our barristers and solicitors”.

DEMAND REMAINS STRONG

Is this likely to continue? Another experienced commercial litigator, Andy McGregor of RPC, agrees with Doerries and Bourns, telling CDR that “London has been the jurisdiction of choice for a number of high profile ‘local’ disputes”, as well as international ones, for the same reasons.

Daniel Hayward, the secretary of the Russian and CIS Arbitration Network (RCAN) and a senior associate at Fieldfisher, sees no reason for change, saying “the London market for CIS-centred disputes has remained strong over the past few years and this is likely to remain the case for the foreseeable future”.

It is a view shared by Dominic Pellew, an arbitration partner at Dentons, who says he does not see London losing its perceived attractions for CIS users, even if there may be challenges ahead.

Maria Gritsenko, counsel at Bryan Cave, agrees with Pellew; demand remains constant, she says, although “the focus may shift slightly from one CIS country to another”. She suggests that lawyers may see more Kazakh-related disputes at some stage for example rather than Russian, but does not expect a significant reduction, or increase.

Others, however, like partner Justin Michaelson, at US law firm Fried, Frank, Harris, Shriver & Jacobson, see an increase in demand which is driven primarily by two factors: “The first is that there are a lot more high-net-worth Russian businessmen moving to London to live, or have a holiday home. This makes them targets for the service of process, which may not be the determinative factor in the end, but is a good start.”

Echoing the CityUK report, he says: “The second is that a lot of contracts involving Russian ultimate beneficial owners select English law as the governing law, or the English courts and arbitration in England as the mode of dispute resolution.”

From his perspective in assisting a strong Russian banking litigation practice, Richard Lewis of Hogan Lovells, a veteran of the Ablyazov and Pugachev litigations, shares some of Michaelson’s bullishness, saying that “client demand appears at present to be constant, if not slightly increasing”.

That said, many of those CDR spoke to sensed shifts in market behavior. Hayward suggests that the days of High Court ‘super-cases’ of yesteryear, proceeding all the way to trial, like Berezovsky v Abramovich, were arguably fewer; such cases, he says, were unique for their size, cost and legal scope.

Referencing Lewis’s own caseload as an exception, Hayward says while there are still a few cases on this scale that persist (including Ablyazov, and to a lesser extent Pugachev and Naftogaz), “most CIS litigation in London is now, typically, less ‘headline-grabbing’”.

He sees another trend towards bigger multi-jurisdictional actions with additional recognition of awards and enforcement actions being a common occurrence. Tetyana Nesterchuk of Fountain Court Chambers agrees, saying “due to their often bitterly fought nature, CIS disputes provide fertile ground for precedents both on matters of enforcement and procedure and on issues of substantive law”.

Michael Leeds of Grant Thornton has also watched the market, agreeing that “the nature of the disputes is evolving”, particularly on the enforcement side, on asset recovery, where there are “far more cases” now occurring in the post-litigation phase.

THE VIEW FROM THE BAR

One group of lawyers which has adapted to the needs of Russian work is the Bar, as Doerries herself has acknowledged, saying “barristers’ earnings from international work have been rising steadily for over a decade”.

This, she said, “was a testament to the fact England and Wales remains a world class centre for international dispute resolution”, and Hayward agrees that “the breadth of technical and commercial expertise available to CIS clients, often in their own language, is extremely high”, including in chambers, which, he says, can offer “full-service, CIS-tailored legal services across their networks and this is a great ‘tick’ in London’s favour”.

He cites some examples: “Fountain Court, for instance, has two Russian-speaking barristers (Alexander Milner and Tetyana Nesterchuk, the latter also a Ukrainian speaker). Similarly, Essex Court’s Anton Dudnikov and 3 Hare Court’s Alexander Halban also offer Russian language skills – this development is by no means unique.”

Nesterchuk herself says she understands, thanks to clerks like Fountain Court’s Paul Martenstyn, like Hayward, a founding member of RCAN, the volume of instructions received her set remains constant, again thanks to its reputation, particularly in CIS disputes.

“Chambers’ ability to offer clients two Russian speakers helps to ensure that even the biggest cases, such as Pugachev litigation, can be appropriately resourced, and to consider CIS clients’ papers in their original language and respond promptly with appropriately tailored advice illustrates [our] strength in this area of practice,” she notes.

THE WINDS OF CHANGE

For his part, Pellew says there are negative signs on the horizon, citing the effect of European Union (EU) sanctions, which he says have had a dampening effect on Russian work; one upshot of this, as CDR has reported, is seeing more arbitration clauses specifying Singapore and Hong Kong as jurisdictions of choice.

That said, Pellew says it does not affect all users “and probably has yet to feed through into actual caseloads”; but he is not the only one to notice it. Leeds acknowledges that “London is an expensive place to do business and sanctions have had an impact”, in also referencing Asian jurisdictions.

Likewise, McGregor adds that Russia’s own reforms will have an impact on the number of claims as “there has been significant progress in ensuring access to justice in local Russian or CIS courts and in the future there will be an increasing willingness for such Russian or CIS parties to resolve national disputes before national courts and we will see less of such disputes in London”.

Hayward supports this view, saying “the courts in many CIS countries are also actively trying to retain disputes that have previously gone overseas through various initiatives”.

Pellew admits that the depreciation of the ruble and other CIS currencies has also made it more expensive to litigate abroad for CIS parties, noting: “We sometimes see clients not litigating or arbitrating, who otherwise might have done.”

Both Leeds and Pellew speculate as to whether recent falls in sterling, compared to the dollar, or euro, will help that; Leeds says that post-Brexit devaluation means that it is now cheaper to do business in the UK, “so there may be a shift back if the currency position remains”. For Pellew, Brexit itself is “still just a question mark, although some Russians view it positively given antagonistic relations between Russia and the EU”.

Yury Babichev, head of litigation for Goldsblat BLP in Russia, however, suggests that from a Moscow perspective “there is no reason why London should suffer; in particular, he questions whether “international arbitration with a seat in London will start diminishing in the foreseeable future, regardless of sanctions and the recent Brexit vote”.

He agrees with Michaelson that, “despite, or owing to, the current economic environment in Russia and Ukraine, the number of cases originating from these and other CIS countries has increased, rather than decreased in the past three years”.

“We have witnessed dozens of such cases litigated in English courts in the last several years and we expect this number to grow further,” notes Babichev.

THE POWER OF ARBITRATION PREVAILS

Likewise, Nadia Hubbuck, an associate in Berwin Leighton Paisner’s London office, stands up for arbitration. She says the “choice of London as the seat is dependent on the English Arbitration Act being one of the world’s most supportive”, in reflecting user demands, a choice supported in the CityUK report, which cited London’s popularity in the recent White & Case/ Queen Mary University of London’s 2015 survey on international arbitration.

She reminds readers that “court intervention is discouraged, and the English courts respect this. Lastly, the presence in London of one of the world leading arbitration institutions such as the London Court of International Arbitration (LCIA), which remains one of the most popular choices of CIS users, according to its recently published statistics, will ensure a steady flow of work from this region”.

Hayward, from RCAN’s side, agrees, noting: “The LCIA recently stated that every third case that it handles currently involves a CIS related party. Over the last two years the LCIA has also noted that there has been a slight increase in the number of CIS related disputes registered with them after a stable five-year period.

“The number of treaty claims involving CIS states also appears to be constant despite the difficulties that the former shareholders of Yukos continue to face in their own massive action against the Russian state,” he says.

CHALLENGE AND CONCLUSION

Overall, Hayward is optimistic, noting that as the market has changed, so too have clients; predictions, he says, are always difficult, if not dangerous, but he acknowledges the sentiments of others in confirming greater pressures recently on CIS clients to fight and fund major disputes through London, largely as a result of global economic and political factors.

“CIS clients have also generally become far more knowledgeable about the legal expertise available to them in London,” he says, “and rival disputes venues elsewhere in the world”.

“Many clients are now very clear how much they expect a dispute should cost, and how long they want it to take. This rightly creates more pressure on legal service providers in London but it appears to be a challenge that lawyers are rising to.”

Hayward adds: “The emergence of third-party litigation funding, to a greater extent in London than in some other important global disputes hubs, has also been welcomed by CIS clients in recent years and may well be a further positive ‘pull’ factor for parties in the years to come.”