The popularity of Western courts among Russian billionaires is not diminishing, despite attempts to make domestic legislation and the judicial system more attractive for the resolution of major disputes
Most recently, the dispute between Roman Abramovich #17 and the European Bank for Reconstruction and Development (EBRD) ended in an amicable settlement, which was to be heard by a Swiss court in Freiburg. This situation is different from the usual London disputes between Russian oligarchs. Several years ago, the debt of Runicom SA, a now bankrupt company that once handled oil trading for Sibneft, was transferred to the EBRD. Abramovich is a former director of Runicom SA. For several years, the EBRD tried to recover this debt in court, and the defendants argued that the debt had been repaid. But the case did not get to the merits, the dispute was settled amicably, and the details of the amicable agreement are not publicly available.
The appeal to the Swiss court was initiated by the EBRD and was due neither to special clauses in the agreement between the parties nor to mistrust of the Russian courts (which, incidentally, several years ago took the side of the EBRD in recognizing the original debt). Switzerland turned out to be the jurisdiction where Runicom SA was registered and where the EBRD saw an opportunity to recover the debt (according to the press, the EBRD claimed that Runicom SA’s assets had been withdrawn by its directors to a Gibraltar entity).
If we remember “how it all began,” it is necessary to start the narrative from Soviet times, when virtually all disputes between Soviet enterprises and foreign (especially American) counterparties were referred to the Arbitration Institute of the Stockholm Chamber of Commerce. The parties believed that Sweden was a neutral jurisdiction that would not trample on the interests of Soviet enterprises in favor of capitalist values.
But after the 1990s, the situation changed dramatically: more and more Russian businessmen began to seek legal protection in England. The judges in Foggy Albion are considered to be among the most independent and qualified in the world, and that is why people from all over the world submit their disputes to the British courts. Suffice it to say that a third of all disputes considered in England have no connection with the UK. The Russians, too, have understood the delights of independent justice, and have become regular clients of the English court and arbitration system. Moreover, the initial popularity of foreign courts, and especially of English courts, was the result of the widespread use of English law in agreements made as part of the creation and management of Russian assets. Russian law was not adapted to regulate the new legal relations in “capitalist” Russia, so the parties sought protection and predictability in the legal concepts of English law. Naturally, the application of English legal concepts was not very logical to trust Russian courts, so the parties signed clauses “sending” disputes to London – especially to the London Court of International Arbitration (LCIA).
However, the peculiarities of English law allowed the parties to go to court even in the absence of a written agreement. Under English law, the courts of England have jurisdiction to hear a dispute if the summons has been served in England (regardless of where the defendant lives or is located). Remember the legendary Berezovsky v Abramovich lawsuit (Berezovsky v Abramovich  EWHC 2463): the plaintiff managed to serve the summons on Roman Abramovich in a London store, as a result of which the English courts accepted the case for consideration. In essence, Boris Berezovsky claimed that by oral agreement between the parties, he was a shareholder in Sibneft and Rusal along with Roman Abramovich. But the English court in a multi-page decision acknowledged that Roman Abramovich paid money to Boris Berezovsky not as a partner in business, but for a political “roof”.
Over the years, more and more Russian businessmen (or their families) have acquired assets or even settled in London, making it even easier to appeal to English courts. Ultimately, the plaintiff wants to get the money, and for this it is desirable to sue in the jurisdiction where the money is located or whose court can trace and “freeze” the money, including in other countries. The famous English interim measures in the form of an order to freeze assets (freezing injunctions) have become quite a powerful tool in disputes involving Russian parties, if there is a risk of withdrawal of assets.
VTB and Bank of Moscow are actively pursuing their debtors through the English courts and, it must be said, are achieving largely positive results. For example, in April 2018, the English court ruled positively on the claim of the Bank of Moscow against Vladimir Kekhman (JSC BM Bank v Kekhman & Ors  EWHC 791 (Comm)). Kekhman was the first Russian businessman to ask an English court to declare himself bankrupt, whereby all his obligations were to be deemed discharged to enable the bankrupt to start life “with a clean slate.” But this rule is not unconditional. For example, if it is proven that the bankruptcy occurred as a result of fraud, then the existing debts of such a “bankrupt” remain outstanding. In the case in question, the Bank of Moscow alleged that Kekhman provided false information in obtaining loans from JFC Group companies, of which he was a beneficiary. Specifically, he knew the JFC financial statements were falsified, failed to inform the Bank of Moscow that approximately half of the JFC shares were pledged to Sberbank and began withdrawing assets from JFC when he realized that the group was in danger of financial collapse. The court found Kekhman guilty of fraud. Consequently, the bankrupt Vladimir Kekhman in Russia and England was left owing money to the Bank of Moscow.
And finally, most recently, the sensational decision of the English court in the Otkritie Bank dispute against Boris Mints’ companies – Nori Holdings Ltd & Ors v Public Joint-Stock Company ‘Bank Otkritie Financial Corporation’  EWHC 1343 (Comm) was released. Important for the London lawyers this decision became regardless of the identity and nationality of the defendants, but based on the significance of the judge’s conclusions about the interaction of processes in a single dispute in the state courts and international arbitration.
To put it simply, the essence of the dispute is as follows: The bank issued a $500 million credit to companies affiliated with Boris Mints against a pledge of shares in O1 Properties. The pledge agreements provided for the LCIA to consider disputes if they arose. In August 2017, the parties restructured the debentures so that the equity loan agreements were replaced by long-term unsecured bonds. The manager, acting on behalf of the bank, claimed that the transaction was the result of fraud by O1, and filed lawsuits in the Moscow and Cypriot courts. The Moscow court even put a security arrest on the shares of O1 Properties, a company registered in Cyprus, as part of the interim measures. However, this measure did not have any extraterritorial effect, and therefore turned out to be rather toothless.
Boris Mints’s companies filed lawsuits with the LCIA and asked the English Court to suspend the Russian and Cypriot proceedings as violating the competence of the London arbitration tribunal chosen by the parties to resolve disputes – to issue so-called anti-suit injunctions. With regard to the Cyprus process, the judge refused to do so because there is a precedent (the West Tankers case) according to which a court of one EU country has to respect all the other courts in the EU and cannot order a stay of the proceedings in them.
The rules of the game are different with regard to Russian proceedings: if a lawsuit is filed in violation of the arbitration agreement of the parties, the court may order the termination of the proceedings. Failure to comply with this order entails potential liability for the plaintiff and his directors (if any in England) in the form of imprisonment, confiscation of property, or a fine. In the case of Otkritie, the English judge ruled that the Russian proceedings should be terminated in favor of LCIA arbitration. Time will tell what the outcome of the case will be on the merits.
Russian businessmen are not the biggest “consumers” of court services in England and Switzerland – businessmen from all over the world go to England for a fair review of their disputes. But Russian parties litigate in the West with enviable regularity. Improving Russian law and building an independent and business-oriented judicial system in Russia may change this trend, but for now this is a very long-term prospect.