Baturina v Chistyakov

Both the claimant (“Ms Baturina”) and the defendant (“Mr Chistyakov”) are of Russian nationality. In 2007 and 2008 each had extensive business interests. On 28 February 2008 they met at Ms Baturina’s Moscow office and signed a written agreement made between them in the Russian language. The title of the agreement has been translated into English as “Principle Provisions of the Project Implementation Transaction”. I shall refer to it as “the principal agreement”.

The principal agreement concerned a joint venture relating to the implementation of development projects (“the projects”) in Morocco. A recital at the start of the agreement recorded that the parties intended to establish a joint venture and to conclude a shareholders’ agreement. Clause 12 of the principal agreement provided, as translated:

The parties have agreed that these Principle Provisions, and also the Shareholders’ Agreement shall be governed by English law, regardless of any conflict between its provisions and the law.

This provision as to governing law, however, was not accompanied by any provision dealing with how disputes were to be resolved. In particular, there was no provision concerned with court jurisdiction. The parties did not confer jurisdiction to decide disputes upon the courts of any particular country, nor did they confine jurisdiction to the courts of any particular country.

In the claim form in these proceedings, Ms Baturina says that Mr Chistyakov made fraudulent representations to her which led to her signature of the principal agreement, and to her participation in the joint venture. In that regard she claims rescission of the principal agreement, or damages in lieu of rescission, along with “repayment” of a sum of €97,750,049 and damages for deceit. Alternatively, Ms Baturina says that Mr Chistyakov is liable to pay damages to her for breaches of express and implied terms of the principal agreement.

At the time that the principal agreement was made both parties were resident in Russia. Ms Baturina’s husband, Yuri Luzhkov, was mayor of Moscow. However in September 2010 he was dismissed from this position by the President of the Russian Federation. Ms Baturina says that she and her husband were criticised by state television, that in 2010 she left Russia, and that in 2011 she and her daughters moved to London, where they have resided since. She also owns a property in Austria.

Mr Chistyakov, while remaining resident in Russia, makes visits to London for business reasons. It was during the course of such a visit that, on 14 March 2013, he was served with these proceedings.

On 27 March 2013 Mr Chistyakov filed an acknowledgement of service stating that he intended to contest jurisdiction. For that purpose on 24 April 2013 Mr Chistyakov issued an application notice. The application notice included assertions that this court has no jurisdiction, that service on Mr Chistyakov should be set aside, and that the claim should be dismissed. However Mr Chistyakov now accepts that, so far as the rules of this court are concerned, his presence in London when the proceedings were served conferred jurisdiction. Accordingly he confines his application to the last head of relief sought in the notice, namely a stay of these proceedings.

Mr Chistyakov’s application notice explains that a stay is sought because:

For the reasons set out in the Witness Statement of Irina Babirenko dated 24 April 2013 and the expert report of Dr Anton Asoskov dated 24 April 2013:

(1)

Russia is the natural forum for the instant dispute, as it is the country with which this claim has its most real and substantial connection;

(2)

The Russian Court is competent to hear this dispute and is the forum where the dispute can most suitably be tried in the interests of the parties and for the ends of justice; and

(3)

Justice does not require the claim to be heard in England.

Oral argument of the application took place before me on 11 and 31 July 2013. Outline submissions were lodged beforehand on 8 July 2013 by Mr Stephen Moverley Smith QC for Mr Chistyakov. In answer a skeleton argument was filed on 9 July 2013 on behalf of Ms Baturina by Miss Barbara Dohmann QC and Mr Tom Mountford. The hearings on 11 and 31 July were fully taken up with the opening oral submissions of Mr Moverley Smith and oral submissions in answer by Miss Dohmann. A written reply was lodged for Mr Chistyakov on 2 September 2013. Short written submissions in rejoinder were lodged on behalf of Ms Baturina on 10 September 2013.

The structure of this judgment is as follows:

Introduction 2

The factual allegations 4

Issues and questions 17

English law as to the grant of a stay 60

Is Russia “clearly more appropriate”? 62

Alleged injustice 66

Conclusion 67

Postscript 67

In section B2 below I summarise the main factual allegations advanced by Ms Baturina in her particulars of claim and submissions, and in written evidence of Ms Michelle Duncan on her behalf. By contrast, in section B3 below I summarise the main factual allegations advanced by Mr Chistyakov in a letter dated 10 November 2012, in submissions and in written evidence of Ms Irina Babirenko on his behalf. Accordingly the whole of these sections should be treated as matters of allegation only. Nothing in these sections of my judgment should be read as resolving any dispute as to the facts or law.

Ms Duncan is a partner in the firm of Paul Hastings (Europe) LLP (“Paul Hastings”), solicitors for Ms Baturina. Ms Duncan has made three witness statements in these proceedings. Ms Duncan’s first witness statement was made on 30 January 2013 in support of an application to serve the claim form out of the jurisdiction. It was not in evidence at the hearing before me, and I say no more about it. I shall refer to her second witness statement dated 22 May 2013 as “Duncan 2”, and to her third (wrongly described as her second) witness statement dated 27 June 2013 as “Duncan 3”.

The main points of Ms Baturina’s account, as set out in Duncan 2, are as follows:

In Duncan 3 Ms Duncan added that:

As noted in section A above, Mr Chistyakov’s acknowledgment of service relied upon a witness statement and an expert report in support of his application for a stay. The witness statement was made on 24 April 2013 by Ms Irina Babirenko (“Ms Babirenko”). She is a Russian qualified lawyer who works for Mr Chistyakov.

As preparations for the hearing proceeded Ms Babirenko made further witness statements. I shall refer to the statement of 24 April 2013 as “Babirenko 1”, to a second witness statement dated 5 June 2013 as “Babirenko 2” and to a third witness statement dated 4 July 2013 as “Babirenko 3”.

At paragraph 5 of Babirenko 1 Ms Babirenko stressed that Mr Chistyakov does not accept that he has committed any wrongdoing or has any liability to Ms Baturina, and denies her claim in its entirety. She added, however, that in so far as she touched upon matters going to the merits of the case this was solely for the purpose of Mr Chistyakov’s application for a stay.

Mr Chistyakov’s account as set out in Babirenko 1 can be summarised:

Exhibit “IVB 1” included a copy of Mr Chistyakov’s letter of 10 November 2012. The letter made the following, among other, assertions:

Further, in the letter of 10 November 2012, Mr Chistyakov:

Returning to the evidence of Ms Babirenko, in Babirenko 2 she added, among other things:

Additional matters asserted by Ms Babirenko in Babirenko 3 include the following:

I deal in section D with English law as to the grant of a stay. Other potential issues and questions which emerge from the hearing before me fall into three categories. First, on a number of factual issues there are disagreements which will or may have to be determined at the trial (see section C2 below). Second, what facts will be relevant at trial, and what legal consequences arise from those facts, will depend upon the approach taken by the court of the forum. That approach will be determined by the conflicts principles that the court applies and the rules of whichever legal system those principles identify, including the court’s own domestic legal system. The parties largely agree on the approach that would be taken in England, but they disagree in certain respects in that regard (see section C3 below, where I resolve those disagreements so far as material for present purposes). The parties disagree in many respects on the approach that would be taken in Russia (see section C4 below, where I give an account of the evidence, and section E below, where I reach conclusions on that evidence so far as material for present purposes). Third, the court must consider whether there are issues of fact as to other matters which may have a bearing on the grant of a stay.

Ms Baturina’s rescission claim, her claim to repayment and damages for deceit, and her alternative claims for breach of contract, all seem likely to involve similar factual issues. From the accounts set out in section B it seems that they will or may include the following:

What principles of law would be engaged if the case were tried in England? On most aspects of the case it was not suggested by either party that any issue of law would arise. Neither party suggested there was any doubt under English domestic law as to when a claim to rescind a contract for misrepresentation may arise. Nor was there any suggested doubt as to the principles of English domestic law which determine whether a claim to rescission would be successful. Similarly, there was no dispute as to the domestic legal principles the court would apply when deciding if a representation, express or implied, had been made. Nor was there any suggested doubt as to the principles of English domestic law which determine whether a claim for deceit would arise and would be successful.

At an early stage in the evidence Ms Duncan said that Ms Baturina would claim damages by reference to the decision of the House of Lords in Johnson v Gore Wood [2002] 2AC 1. She described this principle as being that where a company suffers loss but has no cause of action to sue to recover its loss, the shareholder in the company may sue in respect of it (if the shareholder has a cause of action to do so) even though the loss is a diminution in the value of the shareholding. In addition, Ms Duncan said that the claim for damages could also be quantified on the basis of the profits which Ms Baturina would have earned (or the loss which she would have avoided) had the principal agreement been properly performed by Mr Chistyakov. Those sums, said Ms Duncan, would have been received by Ms Baturina in her capacity as a shareholder and she was entitled to bring such a claim under English law.

Expert evidence of Russian law was prepared on both sides which included discussion of how Russian law would approach a claim to damages of the kind suggested by Ms Duncan. At a late stage, however, it became apparent that Ms Baturina’s claim to damages would be said by her for the purposes of the present hearing to be “at large”. The result was that I did not hear argument on whether Ms Baturina would indeed be able as a matter of English law to claim for damages in the manner suggested by Ms Duncan.

In argument, opposing stances were taken on an important issue of English private international law. This issue concerned what system of law would govern Ms Baturina’s claims in tort. It was common ground that for this purpose an English court would apply the Private International Law (Miscellaneous Provisions) Act 1995, which I shall refer to as “PILMPA”. Sections 11 and 12 of PILMPA, so far as material, provide:

11.

Choice of applicable law: the general rule

(1)

The general rule is that the applicable law is the law of the country in which the events constituting the tort or delict in question occur.

(2)

where elements of those events occur in different countries, the applicable law under the general rule is taken as being –

…

(b)

for a cause of action in respect of damage to property, the law of the country where the property was when it was damaged; and

(c)

in any other case, the law of the country in which the most significant element or elements of those events occurred.

…

12.

Choice of applicable law: displacement of general rule

(1)

If it appears, in all the circumstances, from a comparison of

(a)

the significance of the factors which connect a tort or delict with the country whose law would be the applicable law under the general rule; and

(b)

the significance of any factors connecting the tort or delict with another country

that it is substantially more appropriate for the applicable law for determining the issues arising in the case, or any of those issues, to be the law of the other country, the general rule is displaced and the applicable law for determining those issues or that issue (as the case may be) is the law of that other country.

(2)

The factors that may be taken into account as connecting a tort or delict with a country for the purposes of this section include, in particular, factors relating to the parties, to any of the events which constitute the tort or delict in question or to any of the circumstances or consequences of those events.

For the purposes of the present application, I have no doubt that I should proceed on the footing that section 11 of PILMPA, when applied to this case, has the result that what English conflict of law rules would characterise as Ms Baturina’s tort claims are governed by Russian law. Mr Moverley Smith rightly points out that the negotiations in relation to the projects took place in Moscow. Ms Duncan in her evidence adds that representations were made in Morocco as well, but what she says in that regard is that the representations made in Morocco reiterated representations previously made to Ms Baturina in Russia. Insofar as Ms Baturina was induced by the representations to make the principal agreement and to cause Inteco to make the initial loans, it seems clear that she did both those things in Russia.

Ms Dohmann submitted that the location of the projects in Morocco, and the site visit there, pointed away from Russia. On the material before me, however, it is the making of representations at a time when they were known to be false that is the most significant element of the events constituting the alleged tort. Although the particulars of claim lack particularity in many respects, when taken with the evidence of Ms Duncan the claimant’s case is that the representations in Moscow played what was, in effect, a crucial role. Without those representations there would have been no site visit.

Ms Dohmann recognised that it might be necessary to have a fall back position. In that regard she relied on section 12. She submitted that, applying that section, English law should govern because it was substantially more appropriate for the applicable law to be the law of England. In that regard she placed great weight upon the fact that Ms Baturina and Mr Chistyakov, following representations, entered into the principal agreement, which was expressly stated to be governed by English law. Thus the representations had involved precisely the same people who had made the principal agreement with its governing law clause. Moreover that agreement was not a standard form agreement, the parties had specifically considered the matter and decided that their transaction was to be organised according to the principles of English law. Further, application of Russian law would carry with it a one year time bar, which in the present case would result in Ms Baturina being deprived of any ability to sue on the representations.

I am not persuaded that section 12, when applied to the facts of the present case, has the consequence asserted by Ms Dohmann. First, the principal agreement was indeed carefully drafted. It could have been drafted in a way which applied English law to tortious claims connected with that agreement. But that did not happen. Nor can it be suggested that the transaction was “organised” by reference to English law. On the contrary, it involved numerous contractual agreements, almost all of which were governed by Russian law and provided for Russian court jurisdiction. As to the consequences of applying Russian law of limitation, the representations were made in Russia, by an individual of Russian nationality with extensive Russian business interests to another individual of Russian nationality with extensive Russian business interests. I do not consider that in those circumstances it is substantially more appropriate that English law should govern. On the contrary, in my view all these factors make it substantially more appropriate that Russian law should govern, including Russian law as to limitation of actions.

Under heading C4 I give an account of the evidence on matters concerning Russian law and practice, including Russian principles of the conflict of laws (“conflicts principles”) identified by the parties. I deal in section D below with questions as to how, if at all, such matters may have relevance to the question of a stay. In the present section of my judgment I am concerned only to identify matters said to be relevant and to give an account of the evidence on those matters. In section E below I reach conclusions on that evidence so far as material for present purposes.

The position in Russia was dealt with in written reports of Dr Asoskov for Mr Chistyakov and Dr Labin for Ms Baturina. I shall refer to the reports of Dr Asoskov dated 24 April, 5 June and 3 July 2013 as “Asoskov 1”, “Asoskov 2”, and “Asoskov 3”. Similarly I shall refer to the reports of Dr Labin dated 22 May and 26 June 2013 as “Labin 1” and “Labin 2”. Dr Asoskov holds the degrees of LL.D. and Ph.D., and is a Lecturer of the Civil Law Department of the Law Faculty of the Lomonosov Moscow State University, a Professor of the Private International Law Department of the State Educational Institution “Russian School of Private Law”, and an arbitrator of the International Commercial Arbitration Court at the Chamber of Commerce and Industry of the Russian Federation. Dr Labin has a doctorate in law and is a Professor in the Department of International Law, Moscow State Institute for International Relations – University of the Ministry of Foreign Affairs of the Russian Federation, a registered attorney of the Moscow Region of the Russian Federation, and an arbitrator of the Arbitration Tribunal of the Moscow Chamber of Commerce and Industry. He is the managing partner of Dmitry Labin Legal Bureau and has practised as a lawyer in Russia since 1997, regularly appearing before the Russian courts.

Reference was made in the reports to the Civil Procedure Code of the Russian Federation (“RC PC”), the Arbitrazh (Commercial) Procedure Code of the Russian Federation (“RA PC”) and the Civil Code of the Russian Federation (“the Civil Code” or “RF CC”). Unless the context otherwise requires, references in the remainder of this judgment to an “Article” or “Articles” are to provisions in the Civil Code.

On certain questions Dr Asoskov and Dr Labin disagree. There was no application that either of them should be cross-examined. Nor should there have been. The approach regularly taken in applications of the present kind is that the court should seek, where possible, to form a view for the purposes of the application on relevant points. In considering whether to form a view, and if so what that view should be, the court may have regard to matters such as the qualifications and experience of the experts, the extent to which they have complied with the duties on experts imposed under CPR 35, the validity of the reasoning in the light of materials cited to support it, and the extent to which points made by the other side have been acknowledged and addressed.

In Asoskov 1 a structured series of questions was identified. However, as the evidence developed there were departures from that structure. I have accordingly adopted my own structure in the discussion which follows.

Dr Asoskov and Dr Labin differed on numerous general and specific questions. I consider that three of the general questions are best dealt with after a description of the evidence on other points on which Dr Asoskov and Dr Labin differ. Those three general questions are whether a Russian court would in practice ever apply English law, if it did then whether its conclusion on English law could be appealed, and the extent to which an English judgment in the present case would be enforceable in Russia. Accordingly, I begin with the approach that Russian courts would take to an individual’s ability to recover losses by reference to monies advanced by companies owned or controlled by that individual. I then examine other differences of view between Dr Asoskov and Dr Labin before turning to the three general points mentioned above.

This aspect of the expert evidence was said by Ms Baturina, at a time when reliance was placed on Johnson v Gore-Wood, to have particular importance. Asoskov 1 at paragraphs 3.10 to 3.13 said that, under Russian conflicts principles, issues as to legal remedies available to a claimant are treated as issues of substantive law. Thus if English law governs, Russian courts will apply remedies available under English law, unless the consequences manifestly contradict Russian public policy. Such a manifest contradiction would, in the context of recovery of losses, only arise if the Russian court concluded that the English remedy had as its purpose not compensation for loss but punishment of the defendant. In this regard, Asoskov 1 paragraph 3.13 stated:

3.13

Important interpretations of the notion of Russian public policy were given recently in the Review of Commercial Court Practice in Applying the Public Policy Exception as a Ground for Refusal to Recognize and Enforce Foreign Judgments and Arbitral Awards (this Review was approved by the Information Letter of the Presidium of the Russian Supreme Commercial Court No.156 dated February 26, 2013). The Review sets forth that a foreign court decision or arbitral award recovering losses, damages or penalties under foreign law could violate the Russian public policy only in a case when the Russian court comes to the conclusion that the respective legal remedies have as its purpose not a compensation of the claimant’s losses, but the punishment of the defendant. Thus, only the remedies with manifestly excessive punitive nature could be potentially considered as contradicting the Russian public policy.

Asoskov 1 noted at paragraph 3.14 that in the particulars of claim Ms Baturina was seeking compensation. Accordingly if the Russian court concluded that English law governed then the Russian court would apply remedies available under English law.

Dr Asoskov turned to identify a cause of action under Russian law for deceit which he considered was similar to the claim made under English law for misrepresentation. I discuss this in more detail at section C4.5 below. For present purposes, I note that in paragraphs 3.29 to 3.31 of Asoskov 1, dealing with the remedies that would be available under Russian law, Dr Asoskov did not at this stage mention the question whether Russian law would permit a claimant to recover damages assessed by reference to financial effects on a company owned by the claimant. However at a later stage, when dealing at paragraph 4.12 of Asoskov 1 with a similar question concerning a Russian law claim for breach of contract, Dr Asoskov made a general observation in footnote 10 applicable to Asoskov 1 as a whole:

I should make clear that in this Report I am not addressing the question of whether Ms Baturina would be entitled under Russian law to sue on claims that are the claims of the company under her control, INTECO, or whether she would be entitled to recover for losses that are suffered by this company. Nothing in this Report should be taken to express an opinion on these issues.

Labin 1, paragraphs 20 to 24, discussed Russian law as to the legal personality of companies, and how this affected recovery of losses. Dr Labin there said that Russian law in general does not recognise attribution of actions of legal entities to a “founder (participant) or owner”, an expression which I shall loosely translate as “shareholder”. This stance, said Dr Labin, reflects an absolute approach to the “corporate veil” doctrine. Thus the Civil Code at Article 56(3) provides that a shareholder is not liable for the obligations of a legal entity, and the legal entity is not liable for the obligations of the shareholder. There are exceptions concerning insolvency, but they have no application to the present case. Attempts to make the law less formalistic have failed.

Labin 1 at paragraph 25 asserted that there was therefore no prospect of Ms Baturina successfully recovering damages under Russian law by reference to monies advanced by companies owned or controlled by her (rather than monies she personally advanced). At paragraph 26 Labin 1 made two further points:

Accordingly Dr Labin said that Ms Baturina’s misrepresentation claim could not be brought by her in Russian law proceedings, and that as regards her contractual claim the Russian court could not grant the remedies for breach of contract which English law would provide (Labin 1, paragraphs 35(b) and 37 and 38 respectively).

At paragraph 44 Labin 1 made an additional point, based upon Article 12 of the Civil Code, in relation to Ms Baturina’s contractual claim:

… I do not believe that there is a cause of action under Russian law which is similar to the Breach of Contract Claim. This is because, as I have explained in paragraphs 18-26 above, under Russian law Ms Baturina is not able to recover indirect loss and damage that she has suffered, including loss that she has suffered based on money advanced by companies owned and/or controlled by her, but may only recover loss and damage in respect of money that she has personally advanced. This is clear from article 12 of the RF CC which sets out the rights that are available to an individual or entity whose contractual rights have been breached. Pursuant to article 12, an individual or entity who has a claim for non-performance or improper performance of a contract may be entitled to have his or its losses reimbursed, but the losses referred to in that article are direct losses. It is against public policy in the Russian Federation to recover indirect loss.

Asoskov 2 at paragraph 22 noted that Dr Labin had focussed on Russian law restrictions on shareholders recovering damages in respect of the company’s loss. Dr Asoskov agreed with Dr Labin that, under Russian company law, a shareholder is prevented from claiming for losses that are properly the losses of the company. In addition:

As to Dr Labin’s contention that Russian courts would apply Russian law but not English law to the misrepresentation claim, Dr Asoskov recalled that in his first report he had said that he could not reach a definite conclusion as to which law would be applied by Russian courts in respect of the misrepresentation claim, since there were two possible options open for the Russian courts in that regard.

Labin 2 at paragraph 9 asserted that Dr Asoskov had agreed with him that it would not be open to Ms Baturina to seek before a Russian court applying English substantive law an award of damages made by reference to money advanced by companies owned and/or controlled by her (rather than monies that she personally advanced).

As to the possibility of a shareholder bringing a derivative suit, Labin 2 at paragraph 10 commented that such a suit would be aimed at protection of the rights of the company, and not of its shareholders. It would not be open for Ms Baturina to seek to bring such a suit for her own benefit, nor was it his understanding that she would wish to do so.

Turning to Dr Asoskov’s footnote 5, Labin 2 at paragraph 11 described it as “unfounded,” adding:

Dr Asoskov does not identify any principle of law or authority in support of this statement. I am not aware of, and do not believe that there is, any such legal principle in contract law which could allow Ms Baturina to bring such a claim in the Russian Courts.

At paragraphs 19 to 23 Labin 2 reiterated that Russian courts would apply Article 1210(5) of the Civil Code so that Russian law mandatory rules would be applied to the contractual claim. Even if that were not so, the Russian courts would apply Article 1193 of the Civil Code, because the contractual remedies claimed were unknown to Russian law and would be considered contrary to public policy. In practice, the strict distinction between companies and their shareholders constituted a part of Russian public policy. Thus in practice there was almost no chance that a Russian court would allow a claim by an individual for recovery of damages for breach/non performance of a contract by reference to the actions of a controlled company. This was of fundamental importance as it meant that Ms Baturina’s claim would be defeated even if English substantive law were applied by a Russian court.

Asoskov 3, as regards Ms Baturina’s misrepresentation claim, said that the question of remedies if the Russian courts applied English substantive law had been addressed fully in Asoskov 1 and Asoskov 2.

As to Dr Labin’s assertion about Russian public policy, Asoskov 3 stated at paragraph 19:

… There is no basis for such a broad interpretation of Russian public policy. As I have mentioned in para 3.13 of My First Report, in the recent Review of Commercial Court Practice in Applying the Public Policy Exception as a Ground for Refusal to Recognize and Enforce Foreign Judgments and Arbitral Awards (approved by the Information Letter of the Presidium of the Russian Supreme Commercial Court No.156 dated February 26, 2013) the Russian highest court instance used rather narrow definition of the Russian public policy. In this Review there are no provisions which could come close to Dr. Labin’s conclusions and I note that Dr. Labin failed to cite any other authorities in support of his contentions.

Asoskov 1 at paragraph 3.16 identified an issue as to which Russian conflicts principles would be determinative as to the law governing Ms Baturina’s misrepresentation claim. Article 1187 of the Civil Code stipulated that, unless otherwise provided by a statute, the interpretation of legal concepts was to be made in accordance with Russian law. Paragraph 2 of Article 1187, however, said that where legal concepts requiring characterisation were not known to Russian law, or were known under another verbal designation or with another content and could not be determined by interpretation in accordance with Russian law, then foreign law could be applied in their legal characterisation. Option one, described in detail at paragraph 3.17 to 3.20, was that Ms Baturina’s claim to rescission by reason of misrepresentation would be given a Russian law characterisation as falling within conflicts principles concerning material invalidity of a transaction. Under Article 1210 the parties were committed to choose the law applicable to the principal agreement, but Russian case law had not resolved what conflicts principles applied to material invalidity of transactions. Article 1215(6) explicitly provides that the law governing the contract applies to “the consequences of the invalidity of the contract”. Dr Asoskov cited academic writing in support of an assertion that the prevailing opinion is that the law governing the contract should be applicable to most of the grounds of material invalidity of transactions. In those circumstances he considered it most probable that the Russian court, if it characterised the matter on the basis of Russian law, would apply the law chosen by the parties. In footnote 6, however, it was noted that there were reservations as to whether a Russian court would hold that English law was applicable to the principal agreement.

On the other hand, Asoskov 1 at paragraph 3.16 stated that it was probable that the Russian court would conclude that the English legal concept of rescission for misrepresentation was not known to Russian law, or was known under another verbal designation or with another content. In that event Dr Asoskov could not exclude that the Russian court would adopt an English law characterisation and apply the conflict of law provisions concerning delicts. Asoskov 1 at paragraphs 3.21 and 3.22 explained that Article 1219(1) would normally as regards delicts look to the law of the country where the action or other circumstance serving as the basis for the claim for compensation took place. However, by Article 1219(2) if the parties were citizens of the same country, then the law of that country was to be applied to obligations arising as a result of causing harm abroad. Paragraph 3.22 of Asoskov 1 expressed Dr Asoskov’s conclusion, in the event that the Russian court adopted an English law characterisation:

Thus, taking into account that both the Claimant and the Defendant have Russian nationality, it is, in my view, most probable that the Russian court would apply Russian law, if it makes characterization of the legal concept of rescission of a contract on the basis of English law.

Labin 1 dealt with the legal system governing Ms Baturina’s misrepresentation claim in paragraph 27. This was immediately after paragraphs 18 to 26 of Labin 1, asserting that a Russian court could not grant Ms Baturina remedies for misrepresentation available under English law, in particular an award of damages made by reference to monies advanced by companies owned and/or controlled by her (rather than monies that she personally advanced). In that context he had stressed the formalistic approach adopted by Russian law: see section 4.3 above.

Labin 1 at paragraph 27 dealt with the law governing the misrepresentation claim in this way:

27.

In my view the Russian courts would most likely apply Russian law and not English law to the Misrepresentation Claim. Therefore I agree with the conclusion set out in paragraph 3.22 of the Asoskov Report.

Asoskov 3 at paragraphs 23 and 24 to 26 responded to paragraph 27 of Labin 1. He noted that paragraph 27 of Labin 1 mis-stated his conclusion. It was only in relation to option two, the option of adopting English law characterisation, that he had concluded that Russian substantive law would apply. Asoskov 2 recapitulated the points that had been made on the two options, including the reasons why option one, characterisation according to Russian law, would lead the Russian court to apply English substantive law. As to which of the two options would be applied by a Russian court, Asoskov 2 repeated that Dr Asoskov did not consider it possible to reach a definite conclusion on the point.

Dr Labin asserted in paragraphs 8 and 12 of Labin 2, that he was aware that Dr Asoskov had said that he could not express a view as to which option would be adopted by the Russian courts.

Labin 2 at paragraph 13 then turned to Dr Asoskov’s discussion of Article 1215, and stated as follows:

… this Article deals at subparagraph (6) with "the consequences of the invalidity of the contract". However, Article 1215 does not deal with the anterior question of invalidity itself. So in my view there is only a clear basis for suggesting that the consequences of invalidity rather than the question of invalidity itself should be considered as a matter of the contracting law.

Asoskov 3 noted at paragraph 10 that he had explained why Articles 1210 and 1215 applied not only to the consequences of the invalidity of the contract, but also to grounds of invalidity of the contract. Dr Asoskov noted that Labin 2 at paragraph 13 cited no case law or other authorities to the contrary.

In relation to Ms Baturina’s misrepresentation claim, Asoskov 1 stated at paragraph 3.23 that there was a cause of action under Russian law similar to the claim made under English law. Paragraph 3.24 of Asoskov 1 stated:

As far as I can see from the documents available to me, the claim of Ms. Baturina (paragraphs 33-34 and 36 of the Particulars of Claim) has the following elements:

•

Mr. Chistyakov’s alleged deceit in the form of the false representations alleged;

•

such alleged false representations were allegedly made by Mr. Chistyakov at the moment of entering into the Principal Agreement or before this;

•

Ms. Baturina seeks the rescission of the Principal Agreement and the repayment of various loans.

Paragraph 3.25 of Asoskov 1 acknowledged that Russian law does not know concepts of rescission of a contract and of misrepresentation “in the pure sense attributed to them under English law”. However the legal elements identified in paragraph 3.24 matched a Russian cause of action for invalidity of a transaction made under the influence of fraud under Article 179. In particular, Article 179(1) states that:

… [a] transaction made under the influence of fraud, duress, threat, an ill-intentioned agreement of the representative of one party with another party, and also a transaction that a person was compelled to make as the result of the confluence of harsh circumstances on conditions extremely unfavourable for himself that the other party used (an oppressive transaction) may be declared invalid by a court on suit of the victim.

Dr Asoskov’s analysis and conclusion on this aspect were set out at Asoskov 1 at paragraphs 3.27 and 3.28:

3.27

This Russian cause of action has the same legal elements:

alleged fraud (deceit) of one party to an agreement towards the other party:

such allegedly fraudulent statements or declarations are made at the moment of entering into a contract or before this;

such circumstances give the injured party an opportunity to invalidate a contract made under the influence of fraud (deceit). Such a contract is considered voidable (not void ab initio).

3.28

Thus, a conclusion can be made that there is an equivalent cause of action under Russian law similar to the claim made by Ms. Baturina - claim of invalidity of a transaction made under the influence of fraud (deceit).

At paragraphs 3.30 and 3.31 Asoskov 1 dealt with the remedies available if a claim were made under Article 179(1) that the principal agreement had been made under the influence of fraud on the part of Mr Chistyakov. If the principal agreement were declared invalid for that reason, then remedies were set out in Article 179(2) as follows:

… the other party shall return to the victim everything it received under the transaction and, if it is impossible to return it in kind, its value in money shall be compensated. Property received under the transaction by the victim from the other party and also due to it in compensation for that transferred to the other party shall be transferred to the income of the Russian Federation. If it is impossible to transfer the property to the income of the state in kind, its value in money shall be taken…

In addition the victim shall be compensated by the other party for the actual damage caused to him.

Asoskov 1 added at paragraph 3.31:

3.31

Thus, under Russian law Ms. Baturina could seek the application of the following remedies under Russian law:

invalidation of the Principal Agreement. In accordance with Art.167(1) of RCC an invalid transaction does not entail legal consequences except for those that are connected with its invalidity and is invalid from the time of its making;

recovery of all property (assets) received by the other party (Mr. Chistyakov) under the Principal Agreement. If it is impossible to return the property in kind, the Defendant shall compensate its value in money;

compensation of additional actual losses caused to Ms. Baturina.

Labin 1 at paragraph 35 identified three reasons why Ms Baturina’s misrepresentation claim could not be brought by her in Russian law proceedings. Taking them in reverse order, the third concerned a time bar which I discuss in section C4.8 below. The second concerned recoverability of losses, discussed at section C4.3 above. The first, which I discuss in the present section, asserted that even if in theory a Russian domestic law claim for deceit could be advanced, in practice that claim would only succeed if there had been a criminal conviction.

The need for a criminal conviction was first advanced in Labin 1 at paragraph 30 as a matter of general practice:

In my experience…only if there has been a finding of fraud against the guilty party in the criminal court. The civil court will not make its own finding of fact in this regard. I am not aware of any case in which a successful claim has been brought under article 179(1) without there first having been a successful criminal prosecution.

Labin 1 at paragraphs 31 and 32 identified a rule of evidence which resulted in the Russian court insisting on a criminal conviction, which under Russian law was said to be “prejudicially binding”:

31.

It is also relevant to note that the position of the Russian Commercial Courts is that evidence of fraud should be of indisputable character. The Supreme Commercial Court of Russia made such a finding in a recent judgment. This judgment goes beyond the preceding rules which did not classify evidence by its force but instead vested the courts with full discretion to evaluate evidence. The significance of this recent judgment is that for all cases under article 179(1), the court will now require evidence of fraud to be evidence of indisputable character.

32.

As regards what constitutes “evidence of indisputable character”, the Russian courts will rely on the procedural rules set forth in Article 69 (4) of the RA PC and Article 61 (4) of the RC PC pursuant to which a criminal judgment is binding on all courts in respect of all findings of fact set out in the judgment. It is important to note that according to Russian procedural rules a criminal judgment is not evidence in a formal sense but is a prejudicially binding document. I have no doubt that the Russian courts will consider a criminal finding of fraud as indisputable evidence for the purpose of article 179(1). I also believe that a Russian court will not accept anything less than a criminal finding of fraud as evidence of indisputable character for the purpose of article 179(1).

Paragraphs 33 and 34 of Labin 1 explained that while Ms Baturina could complain about Mr Chistyakov to the police, she would have no influence over, or involvement in, the prosecutor’s decision on whether he would be prosecuted for fraud in criminal proceedings in Russia.

Asoskov 2 at paragraph 7 said there was no legal basis for Dr Labin’s proposition about the need for a criminal conviction, and that analysis of Russian court practice showed that it was wrong. Dr Asoskov explained his reasons in detail at paragraphs 28 to 34:

28.

It is true that Russian Courts in their practice use a rather strict standard of proof when applying art.179(1) of RCC. It is a natural consequence of the fact that fraud (deceit) implies proof of the intent of the party to defraud its counter-party.

29.

However, there are no indications in the Russian court practice or academic writings that Russian Courts can satisfy civil claims to invalidate transactions made under the influence of fraud only after criminal findings of fraud. Dr. Labin tries to make his assertions more persuasive by saying that he is “not aware of any case in which a successful claim has been brought under article 179(1) without there first having been a successful criminal prosecution” (para 30 of Labin Report).

30.

These assertions are manifestly incorrect and without basis as is evidenced by Russian case law. There are examples from the Russian court practice when the Russian Courts invalidated the transactions with reference to the influence of fraud, applying Art.179(1) of RCC in situations where no criminal prosecutions preceded such civil law claims. I refer below to two such decisions. These are Ruling of the Supreme Commercial Court No.VAS-4974/12 dated 28 April 2012 (i.e. a case that was heard by the system of Russian Commercial Courts) and Appeal Ruling of the Samara District Court dated 13 September 2012 under the case No.33-8579/2012 (i.e. a case that was heard by the system of Russian courts of general jurisdiction).

31.

In the first case cited above, the court relied on Art. 179(1) in reaching judgment in respect of a claim for fraud against an insured party under an insurance contract. The salient point is that the judgment in question does not refer to any prior criminal prosecution against the insured as it would have done had there been one, yet a successful claim was brought under Art 179(1) despite this.

32.

In the second case cited above, the Russian courts came to the conclusion that a seller had defrauded a purchaser. The Russian courts invalidated the purchase agreement with reference to Art.179(1) of RCC (invalidity of a transaction made under the influence of fraud). Again, the salient point is that no reference was made to any prior criminal prosecution in the text of the court ruling rendered in this case which, in my experience, there certainly would have been had there been a prior criminal prosecution against the seller.

33.

Dr. Labin invokes the Ruling of the Russian Supreme Commercial Court dated 27 February 2013 trying to substantiate his statement that the Russian Courts will not satisfy the civil claims based on Art.179(1) of RCC without previous criminal findings of fraud (para 31 of the Labin Report). I believe that this reference cannot be relied upon by Dr. Labin in support of his thesis for the following reasons:

- careful reading of this Ruling shows that when mentioning the “indisputable character” of the evidence of fraud, the panel of the Russian Supreme Commercial Court judges just cited the content of the ruling of the Appeals court in that case without expressing its own attitude towards this statement;

- there is no indication in this Ruling that fraud can only be evidenced by findings of a criminal prosecution; and

- Dr. Labin grossly exaggerates the role of this Ruling by stating that “the significance of this recent judgment is that for all cases under article 179(1), the court will now require evidence of fraud to be evidence of indisputable character” (para 31 of the Labin Report). Dr. Labin fails to disclose the difference between various types of decisions rendered by the Russian Supreme Commercial Court. In reality, only the rulings of the Presidium of the Russian Supreme Commercial Court have precedential (or quasi-precedential) value, since the legal positions expressed by the Presidium are binding for the inferior courts and their violation could constitute a ground for revocation of a decision. To the contrary, the rulings of the panels of the Russian Supreme Commercial Court’s judges (and the Ruling cited by Dr. Labin relates to this latter type) do not have such precedential value. In such rulings the judges do not decide whether the inferior court decisions shall be quashed or not – they just determine whether to allow the case for re-examination by the Presidium of the Russian Supreme Commercial Court or not. These rulings are made using the simplified procedure without a hearing and even without giving the opposite party the opportunity to comment upon the request for re-examination (such an opportunity is given if the panel allows the re-examination of the case before the Presidium of the Russian Supreme Commercial Court). That is why, in any event, the Ruling of the Russian Supreme Commercial Court dated 27 February 2013 could not significantly influence the Russian case-law since the inferior courts have no obligation to take into account the statements made in this ruling.

34.

Thus, I believe that Dr. Labin’s conclusion that “an English law claim for misrepresentation is not a self-standing claim in Russia but is, in practice, dependent on a criminal finding of fraud” (para 35 a) of Labin Report), is without legal basis. I can only confirm my conclusion made in para 3.23 of My First Report that there is a cause of action under Russian law which is similar to the Misrepresentation claim made by Ms. Baturina under English law.

In Labin 2 at paragraph 14 Dr Labin confirmed his opinion that Russian civil courts would only invalidate a transaction on the grounds of fraud if there had been a prior finding of fraud against the guilty party in the criminal courts. At paragraph 15 he said this:

15.

The cases to which Dr Asoskov refers do not assist on this point. This is because the cases cited have legal and/or factual contexts far-removed from the present case:

(a)

In paragraphs 30 and 31 of Asoskov 2 Dr Asoskov refers to a ruling of the Supreme Commercial Court Number VAS-4974/12 dated 28 April 2012. This case is based on Article 944(3) RF CC, not Article 179 per se. Article 944 concerns "Information Provided by the Insured upon the Conclusion of a Contract of Insurance". Article 944(3) provides that if it is established that a policyholder knowingly gave to the insurer false information within the scope of the article, then the insurer has a right to demand the invalidation of the contract and the application of "the consequences provided for in Article 179 (2) of the Civil Code". Thus, Article 944(3) is a lex specialis specific to the policyholder - insurer relationship. I therefore consider that this case has no application to the present situation.

(b)

In his paragraphs 30 and 32, Dr Asoskov refers to a ruling of the Samara District Court dated 13 September 2012 under case number 33-8579/2012. This case concerned a private agreement between two brothers in relation to the transfer of shares in an apartment. In this case the Samara District Court (a Court of General Jurisdiction and not the Commercial Court) proceeded to treat a failure to discharge an obligation to pay money as a deceit claim. I do not consider that Russian Courts generally would adopt such an approach. Furthermore, the party accused of the fraud did not "substantively contest" the circumstances of the case. I therefore consider that reference to this case is also inapposite.

Dr Asoskov responded at paragraph 14 of Asoskov 3:

14.

In the Second Labin Report, Dr. Labin states that the ruling of the Supreme Commercial Court No.VAS-4974/12 dated 28 April 2012 is not applicable as it was based on Article 944(3) of RCC and not Article 179 per se (para 15a of the Second Labin Report). This is incorrect because Article 944(3) of RCC is a reference rule which sets forth that if after concluding of the contract of insurance it is found that the insured communicated to the insurer knowingly false information, the insurer shall have the right to invalidate the contract in accordance with Article 179 of RCC. Thus, Article 944 of RCC does not introduce a new ground of invalidity of the contract – instead, it explains that this situation gives rise to application of the general rule on invalidity of transactions made under the influence of fraud, i.e. the rule contained in Article 179 of RCC.

Asoskov 1 asserted that Ms Baturina is able to bring an English law claim for breach of contract in Russia (paragraphs 4.1 to 4.4), and that when applying English law the Russian court would be able to grant such types of remedies as are available under English law (paragraphs 4.5 to 4.7). As to relevant Russian conflicts principles, paragraph 4.8 of Asoskov 1 recalled what had been said earlier (see section 4.4) about the provisions of Article 1210 that, as a general rule, the law chosen by the parties themselves will be considered as applicable to the contract. The final sentence of paragraph 4.8 stated:

This means that in the situation at hand the Russian courts would most probably come to the conclusion that English law is the governing law.

However, paragraph 4.9 of Asoskov 1 said that a reservation needed to be made in this respect. It concerned Article 1210(5), a provision which in some cases Russian courts had applied [resulting in the application of Russian law] to contracts with a foreign element (e.g. one of the parties had foreign nationality), if such foreign element was considered not to be substantial. What Article 1210(5) states is as follows:

If from the totality of the circumstances of the case existing at the time of the choice of applicable law it follows that the contract is in fact connected only with one country, then the choice by the parties of the law of another country may not affect the operation of the imperative norms of the country with which the contract is in fact connected.

Asoskov 1 at paragraph 4.10 then stated:

4.10

Taking into account that at the time of choice of applicable law both Parties were Russian citizens and resided in Russia, there is a probability that the Russian courts would qualify the Principal Agreement as a contract which was “in fact” at the time of its conclusion connected with Russia only. This would mean that all Russian imperative norms are to have priority over the provisions of English law chosen by the Parties.

Labin 1 identified a number of reasons for concluding that an English law claim for breach of contract could not be brought in Russia. The first was Dr Labin’s assertion that the Russian courts would apply English law only in very rare circumstances. I discuss this at section 4.10 below. The second was Dr Labin’s claim, discussed at section 4.3 above, that Ms Baturina cannot obtain damages by reference to monies advanced by Inteco. The third was an assertion that imperative norms of Russian law would hold the principal agreement to be invalid and unenforceable. I deal with this in section 4.7 below.

As to what had been said at paragraphs 4.8 to 4.10 of Asoskov 1, Dr Labin, at paragraph 39 of Labin 1, said:

39.

I agree with Dr Asoskov (paragraph 4.10) that the Russian imperative norms or mandatory provisions will prevail over the parties’ choice of English law…

Asoskov 2 took issue with this. It did so in two stages. The first stage was in paragraph 48 of Asoskov 2, where what had been said in Asoskov 1 was clarified:

48.

As set out in paragraph 4.5 of My First Report, it is my view that it would be open to the Russian courts to apply English substantive law and grant such types of remedies that are available to the claimant under English contract law. To clarify My First Report, my conclusion was that the Russian courts could possibly come to the conclusion that English law is the applicable law (paragraph 4.8 of My First Report). In paragraph 4.10 of My First Report, I indicated there was a possibility that the Russian courts might apply Russian imperative norms if, on the basis of Art.1210(5) of RCC, it reached the conclusion the contract was connected with Russia only. The possibility of the Russian courts applying Art.1210(5) of RCC is difficult to assess, since the application of this provision depends on the overall estimation by the court of the circumstances of the case. There are, therefore, two possibilities, either the Russian courts will apply English law or they will apply Russian law, depending on whether Art. 1210(5) is applied.

Having clarified the first report, Asoskov 2 at paragraph 49 continued:

… I should note that Dr. Labin incorrectly cited my conclusions on this question. Actually, in para 4.8 of My First Report I took the view that “in the situation at hand the Russian courts would most probably come to the conclusion that English law is the governing law”. Dr. Labin mentioned only my reservation which was made in paras 4.9-4.10 of My First Report (see para 39 of Labin Report). In this reservation I explain the possibility that the Russian courts could apply Art.1210(5) of RCC and decide that all Russian imperative norms are to have priority over the provisions of English law chosen by the Parties as clarified above.

Dr Labin responded at paragraph 24 of Labin 2:

24.

In paragraph 4.10 of Asoskov 1, Dr Asoskov said that there is a "probability" that "...all Russian imperative norms are to have priority over the provisions of English law chosen by the Parties", in accordance with Article 1210(5) RF CC. This is what I understood Asoskov 1 to mean when I referred to it in paragraph 39 of my First Report. If, by reference to paragraph 49 of Asoskov 2, Dr Asoskov is now saying that it is only a "possibility" and not a "probability", I firmly disagree. I consider that under Russian conflict of law rules, Russian imperative norms and mandatory provisions would be applied to Ms Baturina's Breach of Contract claim, thereby defeating it.

Asoskov 3 noted at paragraph 20 that Russian conflicts principles concerning the contractual claim had been addressed in his previous reports. No specific comment was made on paragraph 24 of Labin 2.

Asoskov 1 at paragraphs 4.11 to 4.24 asserted that there was a cause of action under Russian law similar to Ms Baturina’s contractual claim under English law and that the remedies under Russian law would be similar to those under English law. As noted in section C4.3 above, it was in this context that Dr Asoskov made it clear that nothing in Asoskov 1 should be taken to express an opinion on the questions whether Ms Baturina would be entitled under Russian law to sue on claims that were claims of Inteco, or whether she would be entitled to recover for losses suffered by Inteco. Subject to that clarification, paragraphs 4.11 to 4.20 of Asoskov 1 asserted that there was a cause of action under Article 450(2) under which a court decision could alter or terminate a contract where there was “a substantial breach of the contract by the other party”. Article 450(2) explained what was meant by “substantial” in this way:

A breach of a contract by one party shall be considered substantial if it entails for another party such damage that it to a significant degree is deprived of that which it had the right to expect at the conclusion of the contract.

Asoskov 1 at paragraph 4.14 said that this Russian cause of action had the same legal elements as Ms Baturina’s English law contract claim. He noted in that regard that the Russian law claim gave an opportunity to terminate the contract, to claim “the recovery of the property transferred under the contract without consideration,” and to claim “compensation of incurred damages.”

At paragraphs 4.15 to 4.19 Dr Asoskov explained that in addition to a general norm in Article 450, the Civil Code included provisions on special types of contracts. In that regard he said this:

4.15

Article 450 of RCC is a general norm applicable to all types of contracts. However, RCC also includes provisions on special types of contracts and such provisions could have special rules about termination (avoidance) of the particular type of contract. That is it is necessary to give qualification of the Principal Agreement under Russian contract law in order to check the existence of such special provisions.

4.16

The analysis of the mutual obligations of the Parties under the Principal Agreement shows that the qualification of the Principal Agreement as a Russian contract of simple partnership (or a contract on joint activity) is the most viable option. Pursuant to Art.1041(1) of RCC “(u)nder a contract of simple partnership (a contract on joint activity) two or more persons (the partners) undertake the duty to join their contributions and act jointly without the formation of a legal person to acquire profit or achieve another purpose not contrary to a statute”.

4.17

Articles 1050, 1051 and 1052 of RCC provide special grounds for termination of a Russian contract of simple partnership that could be relevant to the situation at hand. In particular, Art.1050(1) of RCC specify that a contract of simple partnership shall be terminated as the result of, inter alia:

- withdrawal by any of the partners from further participation in a contract of simple partnership concluded without a time limit;

- rescission of the contract of simple partnership concluded with an indication of the time period on demand of one of the partners in the relations between him and the remaining partners.

4.18

Article 1051 of RCC sets forth that “(a) declaration of withdrawal of a partner from a contract of simple partnership without a time limit must be made by him not later than three months before the proposed exit from the contract. An agreement on limitation of the right to withdrawal from a contract of simple partnership without a time limit is void”. Pursuant to Art.1052 of RCC, “(a)long with the bases indicated in Article 450(2) of the present Code, a party to a contract of simple partnership concluded with an indication of the time period or with an indication of a purpose as a condition for cancellation, shall have the right to demand rescission of the contract in the relations between himself and the remaining partners for a compelling reason with compensation for the remaining partners for the actual damage caused by the rescission of the contract”.

4.19

It is not clear how these special grounds of termination of the contract of simple partnership correlate with the general ground of Art.450(2) of RCC which was cited above. The prevailing opinion is that the general provision of Art.450(2) of RCC (termination due to substantial breach of the contract by the other party) may be invoked directly in addition to the special grounds specified in Articles 1050-1052 of RCC.

In support of his assertion in the last sentence of paragraph 4.20, Dr Asoskov cited a legal text concerned with contract law and another legal text concerned with the law of obligations.

When setting out his conclusion on this aspect at Asoskov 1 paragraph 4.20, Dr Asoskov added that under Russian law Ms Baturina would have to elect between pursuing a claim that the contract was invalid under Article 179 and a claim under Article 450(2) for termination of the contract for substantial breach.

In Labin 2, paragraph 39, in a section dealing with Russian conflicts principles as to the applicable law governing the principal agreement, Dr Labin asserted that the Russian court would first need to determine whether the principal agreement complied with mandatory provisions of Russian law including limitation, which I deal with at paragraph C4.9 below, and the ability of a party to claim and recover for indirect losses, which I deal with at section C4.3 above. Dr Labin then identified additional mandatory provisions of Russian law which, he said at Labin 2 paragraph 40, would require the principal agreement “to fall within certain formalistic and technical requirements in order for it to be categorised as a particular type of contract…”. He added that unless the principal agreement could be brought within one of these categories, “it would not be valid and enforceable as a matter of the imperative norms of Russian law and any claim for breach of contract advanced by reference to it would fail.”

Paragraph 41 of Labin 1 identified four possible categories that might be relied on, and the reasons why Dr Labin believed it unlikely that the principal agreement would fall within them. They were as follows:

On category (1), a Simple Partnership Agreement, Dr Labin gave detailed reasons at paragraph 42(a) of Labin 1:

Pursuant to article 1041 (1) of the RF CC, under a simple partnership agreement (contract on joint activities) two or several persons (partners) undertake to pool their contributions and jointly operate without forming a legal entity in order to derive a profit or attain any other goal that does not contravene the law. I believe that the Principal Agreement could be considered as a Simple Partnership Agreement under the RF CC. However, the Principal Agreement does not fulfil all of the mandatory provisions of the RF CC that are applicable to Simple Partnerships. In particular, article 1041 (2) of the RF CC stipulates that the parties to a simple partnership agreement must be sole proprietors and/or for-profit organisations. However it appears that neither Ms Baturina nor Mr Chistyakov were sole proprietors under Russian law when they signed the Principal Agreement, nor did they enter into the Principal Agreement in this capacity. In this regard it is important to note that pursuant to the provisions of the RF CC and the Federal Law “On State Registration of Legal Entities and Sole Proprietors”, an individual must be registered as a sole proprietor in order to have the status of a sole proprietor and at the time the Principal Agreement was signed it appears that neither Ms Baturina nor Mr Chistyakov was so registered.

On (2), a Preliminary Shareholders Agreement, Dr Labin gave detailed reasons at paragraph 42(b) of Labin 1:

The Russian court may also consider whether the Principal Agreement is a preliminary shareholders agreement. However, pursuant to article 429 (1) of the RF CC, the sole goal of a preliminary agreement, including a preliminary shareholders agreement, is the subsequent conclusion of a main agreement. Accordingly, other rights and obligations, such as financing pursuant to article 3 of the Heads of Agreement, are not to be included in this type of contract. Accordingly I do not believe that the Principal Agreement would be considered as a preliminary shareholders agreement as it includes matters that are not supposed to be included in a preliminary agreement and therefore also fails to comply with the mandatory provisions of Russian law.

On (3), a Shareholders Agreement, Dr Labin added at footnote 13 in paragraph 42(b) of Labin 1:

I do not believe that it would look at the Principal Agreement as a shareholders agreement because the parties were not shareholders in any joint entity when the Principal Agreement was signed.

On (4), a Contract on the Formation of a Legal Entity, Dr Labin gave detailed reasons at paragraph 42(c) of Labin 1:

It is also possible that the Russian courts will consider whether the Principal Agreement is a contract on the formation of a legal entity. This would be by reference to article 4 (1) of the Principal Agreement, pursuant to which “the Parties found the joint company in accordance with Moroccan legislation in order to implement the Project.” Again however I consider that the Russian court would determine that the Principal Agreement does not comply with the mandatory provisions on the RF CC. This is due to the fact that pursuant to article 1214 of the RF CC, a contract on the establishment of a legal entity with foreign participation is subject to the law of the country in which the legal entity is to be founded pursuant to the contract. Therefore, the RF CC permits the existence of contracts on the formation of legal entities, but does not determine the material terms and conditions of such contracts. I believe however that the Russian court would determine that the Principal Agreement does not comply with the mandatory provisions of the RF CC on the formation of a legal entity because it is not clear from the Principal Agreement which specific legal entity is to be established in Morocco. In this regard I note that although the Principal Agreement refers to the establishment of a HoldCo it does not specify the name of that Holdco.

Asoskov 2 at paragraph 8 said that Dr Asoskov disagreed with Dr Labin’s conclusion that the principal agreement did not comply with the mandatory requirements of Russian substantive law. At paragraph 50 of Asoskov 2 he drew attention to two provisions in Article 421 concerned with freedom of contract. They were as follows:

421(2): The parties may conclude a contract provided for or not provided for by a statute or other legal acts.

421(3): The parties may conclude a contract that contains elements of various contracts provided for by a statute or other legal acts (a mixed contract).

Paragraph 50 of Asoskov 2 explained that contracts that are not provided for by a statute or other legal acts are known in Russian doctrine as “unnamed contracts”. In that regard Dr Asoskov cited a passage by Professor Suhanov in volume three of his textbook on civil law. Dr Asoskov asserted that it was evident that the principal agreement “would be qualified by the Russian courts as unnamed or mixed contract which does not influence per se its validity or enforceability.”

As to Dr Labin’s first category, dealt with in Labin 1 paragraph 42(a), Asoskov 2 said at paragraphs 51 to 53:

51.

Dr. Labin puts emphasis on the provision of Art.1041(2) of RCC “(o)nly individual entrepreneurs and/or commercial organizations may be parties to a contract of simple partnership concluded for the conduct of entrepreneurial activity” (para 42 a) of the Labin Report). This provision has as its purpose prevention of violation of some Russian public-law legal acts according to which entrepreneurial activity is required to be exercised on the territory of Russia in the legal forms prescribed by Russian legislation (in the forms of commercial entities or after obtaining the status of individual entrepreneur).

52.

I do not accept that this Russian mandatory rule has any relevance to the situation at hand. Firstly, the Principal Agreement provides that the Development Projects (as they are defined in Section 1 of the Principal Agreement) would be implemented not by the Parties themselves, but via a joint company (“HoldCo”) to be incorporated under the Moroccan law (Section 4 of the Principal Agreement). Section 6 of the Principal Agreement sets forth that for the purposes of implementing separate projects the Parties may establish companies as holders of projects whose sole shareholder will be HoldCo. Thus, the Parties were not going to conduct the entrepreneurial activity themselves within the meaning of Art.1041(2) of RCC. Accordingly, this is not a contract to which Art. 1041(2) of RCC applies. Secondly, according to the Principal Agreement, all Development Projects were to be implemented on the territory of Morocco. Thus, Russian public-law interests that are safeguarded by the imperative rule of Art.1041(2) of RCC remain unaffected.

53.

Furthermore, the Principal Agreement obviously contains some elements typical of contracts for the formation of legal entities and shareholder agreements. Russian law does not prevent individuals (who do not have the status of entrepreneur) from being the parties to such contracts.

As regards contracts containing elements typical of contracts for the formation of legal entities and shareholder agreements, Dr Asoskov added in paragraph 53 at footnote 15 that in Russian doctrine such contracts are also qualified as contracts on joint activity (contracts of simple partnership), but the provisions of Chapter 55 of the Civil Code apply to such contracts to the extent such application does not contradict the nature of these contracts. Here, too, Dr Asoskov cited Professor Suhanov’s work on the law of obligations, on this occasion by reference to chapter 63, written by Dr VS Em and NV Kozlova.

As to Dr Labin’s categories (2), (3) and (4), dealt with in paragraph 42(b) and (c) of Labin 1, Asoskov 2 said at paragraph 54:

I also cannot agree with conclusions made in para 42 b) and 42 c) of the Labin Report. Again, Dr. Labin does not take into account that the Principal Agreement can be qualified as a mixed contract having elements of all contractual types that he mentions in his Report (simple partnership agreement, preliminary shareholder agreement, contract on the formation of a legal entity). The conclusions of Dr. Labin have no application to such mixed contract.

Dr Labin replied at paragraphs 25 to 27 of Labin 2. In paragraph 25 of Labin 2 Dr Labin acknowledged that Article 421(3) of the Civil Code allowed the conclusion of so called unnamed/mixed contracts, but he maintained that in the present context the principal agreement would not satisfy necessary, relevant elements such as to give rise to an un-named/mixed agreement recognised by Russian law. Paragraph 25 of Labin 2 added:

… Dr Asoskov does not cite the key mandatory rule contained in Article 432(1) RF CC, which states as follows:

"The contract shall be regarded as concluded, if an agreement has been achieved between the parties on all its essential terms, in the form proper for the similar kind of contracts.

As essential shall be recognized the terms, dealing with the object of the contract, the terms, defined as essential or indispensable for the given kind of contracts in the law or in the other legal acts, and also all the terms, about which, by the statement of one of the parties, an accord shall be reached."

Dr Labin added at paragraphs 26 and 27 of Labin 2:

26.

This mandatory rule of Russian law requires that any contract contain all essential terms to be valid as a matter of Russian imperative norms and mandatory provisions. According to Article 421(3) RF CC, what the essential terms are is defined by law. The requirement of the law that an agreement on certain terms must be reached is a mandatory rule. I consider it to be unlikely that a Russian Court would classify the Principal Agreement as a mixed or unnamed contract.

27.

In paragraphs 42 - 43 of my First Report, I described why the Principal Agreement does not satisfy the essential elements of any of the types of contract recognised by Russian law. It remains my opinion that, even before any decision to apply foreign (English) law, it is most probable that a Russian Court would conclude that the Principal Agreement does not correspond to any recognised category of contract under Russian law, and in accordance with this formalistic approach, would not therefore be treated as a recognisable concluded contract, and the claim based upon it could not therefore proceed.

In Asoskov 3 Dr Asoskov confined himself to saying at paragraph 20 that he strongly disagreed with paragraphs 26 and 27 of Labin 2 for the reasons set out in paragraphs 50 to 54 of Asoskov 2.

Labin 1 at paragraph 35(c) asserted that Ms Baturina’s misrepresentation claim may be time barred as a matter of Russian law. In that regard he noted:

i.

the basic provision of the Russian choice-of-law rules is that only substantive rules of foreign law might be applied by Russian courts. As English law limitation rules would not be considered by the Russian courts to be substantive rules of law, the Russian courts will apply Russian limitation laws to the Misrepresentation Claim.

ii.

Article 181 of the RF CC provides different limitation periods for void and voidable transactions. In the case of void transactions the limitation period is 3 (three) years from the date of the performance of the transaction. In the case of voidable transactions, the limitation period is 1 (one) year from either termination of violence or threat, or from the day the claimant learned or should have learned of the circumstances that might give rise to his or her cause of action.

iii.

Any claim that might be made under Article 179 (1) of the RF CC is a claim for declaring a voidable transaction null and void. Therefore the 1 (one) year limitation period would apply to the Misrepresentation Claim (or a claim under Article 179 (1) of the RF CC). Based on the facts as set out in the Particulars of Claim, it would appear that the Misrepresentation Claim may be time barred in Russia, although I should make it clear I have no specific information about what the Claimant knew at any given point in time, and this is a key consideration for the computation of the relevant Russian limitation periods.

In support of the assertion at (iii) of the passage cited above to the effect that the one year limitation period would apply to the misrepresentation claim or a claim under Article 179(1), Dr Labin included a footnote (footnote 7) stating:

As an example, see Decision of the Commercial Court of the Moscow Region as of 11/09/2011, Case No. A41-17347/12.

Paragraph 9 of Asoskov 2 stated that Dr Asoskov strongly rejected Dr Labin’s assertion that the Russian courts would apply Russian provisions on limitation of actions regardless of any applicable foreign law. In addition, Dr Labin had failed to mention Russian law rules that could lead to suspension of the limitation period. In support of the first point made in paragraph 9, Asoskov 2 at paragraphs 37 to 40 stated:

37.

In accordance with Art.1208 of RCC (“The Law Applicable to Limitation of Actions”) “(l)imitation of actions shall be determined according to the law of the country which is applicable to the respective relation”. It is undisputable in the Russian court practice and academic writings that foreign rules on limitation of actions would be applied by the Russian Courts regardless of the fact that such rules are classified abroad as procedural (and not substantive) provisions.

38.

As a typical example of such approach I can refer to the Ruling of the Presidium of the Russian Supreme Commercial Court No.2088/09 dated 16 June 2009. In this case the highest Court decided that the inferior courts had wrongly determined the law applicable to a contract concluded between English and Russian companies (inferior courts applied Russian law and Russian rules on limitation of actions). The Presidium of the Russian Supreme Commercial Court took the view that English law is the governing law. On this basis it stressed that longer English rules on limitation of actions must be applied – hence, the conclusions of the inferior courts that the claims were time-barred were found to be incorrect.

39.

The same approach is reflected in the Russian academic writings. In particular, one of the most authoritative commentaries to RCC states: “A settled approach has been developed in practice and doctrine according to which the choice of foreign governing law by the parties entails application of the rules on limitation of actions of that law regardless of whether such rules are considered as substantive or procedural in that country”.

40.

Thus, if the Russian courts come to the conclusion that English law governs the Misrepresentation Claim, then they will apply English rules on limitation of actions.

Dr Asoskov supplied the original Russian text and English translation of the case referred to in paragraph 38. He added in a footnote that the passage cited in paragraph 39 was from a commentary by Professor MG Rosenberg in a commentary to Article 1208, forming part of the commentary to part three of the Civil Code edited by Professors AL Makovsky and EA Suhanov.

Paragraph 41 of Asoskov 2 confirmed that under Russian substantive law concerning a claim under Article 179, there would be a one year limitation period which started at the moment when Ms Baturina knew or should have known about the alleged fraud.

The provision for suspension mentioned in paragraph 9 of Asoskov 2 was discussed at paragraphs 42 to 44 of Asoskov 2 as follows:

42.

But Dr. Labin fails to mention the rule of Art.204 of RCC (“Running of the Time Period of Limitation of Actions in the Case of Leaving a Claim without Consideration”) that could have an important role under the circumstances of this case: “If a claim is left by a court without consideration, then the running of a time period of limitation of actions that began before the filing of the action shall continue in the regular manner”.

43.

This legislative provision received controversial interpretations in the Russian court practice and academic writings. According to one interpretation this provision means that the limitation period shall be considered suspended starting from the date of filing the claim and up to the date when a court leaves a claim without consideration – and only after that latter date the limitation period continues. In particular, this interpretation was used in the Ruling of the Federal Commercial Court of the Central District No.F10-2142/09 dated 23 June 2009, where the cassation court came to the conclusion that “limitation period shall not include the time-period when the case was considered by the court and shall include the time-period that passed before the initial bringing of a claim”. The same approach was used by another cassation court – Federal Commercial Court of the Far-East District – in its Ruling dated 16 May 2003 under the case No.F03-A51/03-1/1014.

44.

Notwithstanding the above, I do note that other cassation courts sometimes apply the opposite interpretation coming to the conclusion that a court’s refusal to examine the case on the merits does not influence the duration of the limitation period and does not suspend it. I am not aware of any Russian cases where the court had an opportunity to provide interpretation of Art.204 of RCC in a situation where a foreign court refused jurisdiction over a claim in favour of Russia. But in Russian academic writings there is a strong view supporting the interpretation according to which the limitation period is suspended in such types of cases. In particular, Prof. Rosenberg in his monograph devoted to the issues of limitation of actions in respect of international transactions comes to the following conclusion: “I think, in such cases the rule similar to the provisions of Art.204 of RCC regarding the consequences of leaving the claim without consideration shall be applied. The limitation period shall be suspended for the period starting from the moment when the court has accepted the initial action for its consideration till the moment when it refuses to consider it on the merits. This rule shall not be applied in cases when the ruling refusing the consideration of the claim on the merits was rendered by the same court of first instance”.

Dr Asoskov supplied the original Russian text as well as English translations of the decisions mentioned in paragraph 43. He explained in footnote 13 that the text cited in paragraph 44 was “Rosenberg M.G. Limitation of Actions in International Commercial Turnover: Practice of Application. Moscow, 1999. P.49.” Footnote 13 added:

Suspension of the limitation period in such situations is also supported in the following books: Commentary to the Civil Code of the Russian Federation, Part One (Article-by-Article). Ed. Prof. Sadikov. 3rd ed. Moscow, 2005. Author of the commentary to Art.204 – prof. M.G. Rosenberg; Academic and Practical Commentary to the Civil Code of the Russian Federation, Part One (Article-by-Article). Eds. V.P. Mozolin, M.N. Maleina. Moscow, 2004. Author of the Commentary to Art.204 – prof. V.V. Bezbach.

Dr Labin accepted at paragraph 16 of Labin 2 that if a contract were recognised by the Russian court as valid and enforceable and governed by English law then the Russian court would also apply English law to the question of limitation. He added that he did not consider that on the facts of the present case the Russian court would get to that stage, as it would not recognise the principal agreement as a valid or enforceable contract. These observations by Dr Labin were concerned with the example cited by Dr Asoskov, a case where Russian conflicts principles had the effect that the law applicable to a contract was English law. This example is thus specifically relevant to points dealt with in section 4.9 below, the Russian approach to time bar for contractual claims. The example was cited by Dr Asoskov, however, in support of a more general proposition that where foreign substantive law applies the Russian courts will treat that as including foreign law as to limitation even if under the foreign law limitation would be regarded as procedural and not substantive. Labin 2 did not deal with this general proposition. Nor did it contradict Dr Asoskov’s assertion, at paragraph 40 of Asoskov 2, that if the Russian courts came to the conclusion that English law governed the misrepresentation claim then they would apply English rules on limitation of actions.

Dr Labin commented on Article 204 at paragraphs 17 of Labin 2:

17.

In relation to the question of limitation periods under Russian substantive law, Dr Asoskov refers to Article 204 RF CC, however he does not explain how the article would apply to the circumstances of this case. I do not believe that this article could apply to the circumstances of the present dispute. Dr Asoskov admits in paragraph 44 of Asoskov 2 that he is not aware of any judicial decision of the Russian courts in which Article 204 RF CC has been applied by a Russian Court in respect of a claim where a foreign court has already refused jurisdiction in favour of Russia. I am also not aware of such decisions and in my opinion Article 204 is irrelevant to the present dispute.

In Asoskov 3 at paragraph 16 a further point was made by Dr Asoskov:

… in accordance with Art.199(2) of RCC (“Application of Limitation of Actions”) “the limitation of actions shall be applied by a court only on request of a party to the dispute, made before the rendering of a decision by the court”. I am advised that the position under English law is similar and that parties can and do agree between themselves not to take limitation points in proceedings notwithstanding that the claims in question would otherwise be time barred. In such circumstances, where a limitation point is not raised by any party to a dispute, the Russian Courts will proceed in the same manner as the English Courts and will not raise any limitation issues in accordance with Art.199(2) of RCC.

General questions concerning a Russian court’s approach to time bar have been dealt with in section C4.8 above. In the present section I do not repeat what has already been said in that regard, and I set out here only such evidence as was specifically concerned with time bar in relation to contractual claims.

Labin 1 at paragraph 46 asserted that, “based on the facts set out in the particulars of claim, it would appear that the Breach of Contract claim may be time barred in Russia…”. Dr Labinnoted that under Article 200(1) the limitation period for Ms Baturina’s contractual claim starts to run on the day that she learned, or should have learned, about the violation of her rights. Pursuant to Article 196 the limitation period for that claim is three years.

Asoskov 2 at paragraph 56 agreed with what Dr Labin said about the length of the limitation period and when time would start to run. He commented that on reading the particulars of claim it did not appear that the time bar of three years would affect Ms Baturina’s ability to bring her contractual claim in the Russian courts. He added that his general observations about suspension of the limitation period under Article 204 were equally applicable to the contractual claim.

Turning to Labin 2, as noted in section C4.8, Dr Labin acknowledged that if a contract were recognised by Russian courts as valid and enforceable and governed by English law then those courts would also apply English law to the question of limitation. This was in the part of Labin 2 dealing with the misrepresentation claim. In the part of Labin 2 dealing with the contract claim, Dr Labin at paragraph 29 maintained what he had said at paragraph 46. Labin 2 made no reference to Dr Asoskov’s observation that it did not appear from the particulars of claim that the Russian time bar of three years would affect Ms Baturina’s ability to bring proceedings in Russia. Nor did it offer any explanation for the failure in Labin 1 to identify the relevant Russian conflicts principle as explained at Asoskov 2 at paragraphs 37 to 39.

Asoskov 3 made no further comment on the Russian court’s approach to time bars for contractual claims.

Asoskov 1 at paragraph 3.9 noted that in practice Russian courts “quite frequently apply English law as the governing law”. In support of this observation Dr Asoskov stated in footnote 3:

See, as an example, the Ruling of the Russian Supreme Court dated 19 July 2011 No.41-В11-4 or the Ruling of the Presidium of the Russian Supreme Commercial Court dated 16 June 2009 No.2088/09.

Labin 1 at paragraph 13 said this:

13.

While in theory I agree that the Russian Courts may apply English law to claims that are brought before them, in practice this is very rare. I therefore disagree with the assertion in the Asoskov Report (paragraph 3.9) that the Russian courts in practice quite frequently apply English law as the governing law. In my experience, it is highly unusual for the Russian courts to apply any law other than Russian law as the governing law of any dispute that is brought before them. A search of “Consultant Plus”, the largest database for Russian commercial cases, by reference to the term “English law”, has revealed only 50 cases, including all appeal courts, (out of the more than 10 million reported in “Consultant Plus”) in which English law has been mentioned in courts in the Russian Federation over the past 10 years. Further, during my 16 years experience in the Russian courts, I have never been involved in a case, either in the Commercial Court or in the Court of General Jurisdiction, in which English law or any other foreign law was mentioned and/or applied and nor have I heard of any cases in which English law was mentioned and/or applied.

Paragraph 13, as with Dr Asoskov’s paragraph 3.9, was in a section of the report dealing with the misrepresentation claim. In relation to the contractual claim, Labin 1 at paragraph 36 stated:

36.

As I have said in paragraph 13 above, in answer to Question No. 1(a), while in theory the Russian Courts may apply English law to claims that are brought before them, in practice this is very rare. In my opinion, it is not realistically possible for Ms Baturina to bring an English law contract claim in the Russian courts.

Labin 1 made no reference to either of the two cases that had been cited by Dr Asoskov in footnote 3 to paragraph 3.9 of Asoskov 1.

Dr Asoskov took issue with the assertions at paragraph 13 of Labin 1. Paragraph 11 of Asoskov 2 said that the statistical figures used by Dr Labin were incorrect and misleading. In that regard Asoskov 2, paragraphs 12 to 15, stated:

12.

Most of cases that are heard by Russian Courts of General Jurisdiction and Russian Commercial Courts (hereinafter referred collectively as “Russian Courts”) concern purely internal disputes where no issues of governing law arise at all. That is why any conclusions regarding the readiness of the Russian Courts to apply foreign substantive law as the law governing the contract can be made only on the basis of a comparison of disputes relating to international contracts that are heard by the Russian Courts and the number of instances when foreign law was considered applicable.

13.

According to the information from the official web-site of the Russian Supreme Commercial Court during the period from the year 2008 up to the year 2011 all Russian Commercial Courts have settled the following number of disputes relating to international contracts:

- year 2008 – 81 disputes;

- year 2009 – 105 disputes;

- year 2010 – 107 disputes;

- year 2011 – 198 disputes.

14.

Assessing these figures one should also bear in mind that most of the disputes listed above relating to international contracts concern contracts between companies and individuals from the countries of the Commonwealth of Independent States (former Soviet Republics - Belorussia, Ukraine, Kazakhstan, etc.). It is quite uncommon for such international contracts to be governed by English law because of the similarities between the Russian legal system and the legal systems of other countries of the Commonwealth of Independent States who have the same historical roots in the Soviet law.

15.

Moreover, it is not clear what methodology Dr. Labin used when he came to the conclusion that there were only 50 cases in which English law has been mentioned by the Russian courts over the past 10 years. A search of the full version of the Russian database “Consultant Plus” (version of 26 May 2013) by reference to the term “English law” gives 179 (and not 50) matches. However, I believe that even 50 instances of application of English law (the figure that is asserted by Dr. Labin) out of hundreds rather than millions of disputes relating to international contracts show that Dr. Labin’s conclusion that Russian Courts will apply English law only on very rare occasions is unfounded.

Labin 2, at paragraph 4, reiterated Dr Labin’s view that in practice it was very unlikely that Ms Baturina would be able to bring an English law misrepresentation claim in Russian proceedings. In relation to what had been said in Asoskov 2, Dr Labin made observations in Labin 2, paragraphs 5 and 6:

5.

… whatever the view on the statistics (upon which we clearly do not agree), from my experience I believe that as a matter of the practice of the Russian courts it should be entirely uncontroversial to state how rarely foreign governing law is applied.

6.

Without knowing the exact version of "Consultant Plus" used by Dr Asoskov and the exact search term I am not able to identify with certainty the disparity between our searches. I have re-checked my search and it still produces 50 instances of application of English law as set out in paragraph 13 of my First Report. It may be that Dr Asoskov has searched more broadly, for example to include international arbitration cases in the Russian Federation in addition to civil litigation before the Russian state courts. It remains my view that in practice the application of English law to claims before the Russian Courts is rare.

As noted in sections 4.8 and 4.9 above, Asoskov 2 at paragraph 38 discussed, in the context of limitation of actions, the ruling of the Presidium of the Russian Supreme Commercial Court number 2088/09 dated 16 June 2009. This case, although referred to on this occasion in the context of the law governing any applicable time bar, was the second of the two cases cited at footnote 3 to paragraph 3.9 of Asoskov 1 as examples of the Russian courts in practice applying English law as the governing law. Paragraph 38 of Asoskov 2 set out more information about this case: the Russian Supreme Commercial Court overturned a finding by the court below and took the view that English law was the governing law of a contract concluded between English and Russian companies. A copy of the original Russian text as well as its English translation was attached to Asoskov 2. Even so, Labin 2, like Labin 1, made no reference to this case.

Further, as noted in section 4.11 below, Asoskov 2 at paragraph 18 referred to the ruling of the Federal Commercial Court of the Moscow District dated 19 February 2004 in case number KG-A41/11371-03. Dr Asoskov attached a copy of that decision, and explained that the Federal Commercial Court, like the two lower courts, applied the law of the State of New York as the law chosen by the parties to a contract of pledge. In Labin 2 at paragraph 7(b) Dr Labin discussed whether this case demonstrated that his assertions in Labin 1 about inability to appeal foreign law were incorrect. Although the case was plainly an example of Russian courts applying non-Russian law, there was no attempt in Labin 2 to explain how this case could be consistent with Dr Labin’s assertions that it was “very rare” in practice for a Russian court to apply non-Russian law.

Dr Asoskov confirmed, in paragraphs 6 and 17 of Asoskov 3, that his view on this question remained as set out in Asoskov 1 and Asoskov 2.

In addition to asserting that the application of foreign law was very rare, Dr Labin asserted at paragraph 14 of Labin 1 that:

14.

In the unlikely event that the Russian courts did apply English law to Ms Baturina’s claim, the English law findings of the Russian courts at first instance would be binding and non-appealable in Russia.

In support of this assertion Labin 1 said at paragraphs 15 to 17:

15.

I refer to article 1191 (2) of the RF CC, pursuant to which the parties to a case are granted the right to submit documents that confirm the contents of the norms of foreign law that they cite as substantiation of their claims or objections, and otherwise assist the court with the establishment of the content of these norms. The practice of the commercial courts in Russia shows that this right is frequently transformed into the obligation of the parties to prove the existence of foreign law. In other words, the establishment of applicable law becomes a question of fact.

16.

Pursuant to the RC PC and RA PC, parties to a case may only submit evidence and other documents in support of their case to the court of first instance and all factual decisions of the court of first instance are binding and unable to be appealed. Accordingly, it is not possible to appeal a Russian court decision upon issues of English law. Instead, all issues of English law would be decided as matters of fact by the court of first instance and would not be subject to appeal.

17.

Consequently, Russian procedural law restricts the ability of a party to a dispute to receive full protection of any rights which are or should be governed by foreign law.

Asoskov 2 at paragraph 10 noted Dr Labin’s statement that “the English law findings of the Russian courts at first instance would be binding and non-appealable in Russia”, and said that Dr Labin was incorrect as a matter of Russian law. Dr Asoskov said at paragraph 17 of Asoskov 2:

Actually, the opposite is the case – rules of foreign law are treated in Russia as a question of law (and not as a question of fact) and wrong findings of the Russian Courts of first instance (that relate either to the wrong application of the Russian conflict-of-law rules, or to the incorrect ascertainment of foreign law) can constitute a ground of appeal to be satisfied by the Russian Appeals Courts, Cassation Courts and Russian Supreme (Commercial) Court.

In support of this contention Dr Asoskov cited the case concerning New York law mentioned in section C4.10 above, along with Russian academic writing:

18.

In order to prove my contention in this regard, I refer to the Ruling of the Federal Commercial Court of the Moscow District dated 19 February 2004 under case No.KG-A41/11371-03. In this case, Commercial court of the first instance (Commercial Court of the Moscow Region) as well as Appeals Court (Tenth Commercial Appellate Court) applied the law of the State of New York (USA) as the law chosen by the parties to the contract of pledge. The Courts of inferior instance came to the conclusion that the contract of pledge was valid and enforceable under the law of the State of New York. However, the cassation court (Federal Commercial Court of the Moscow District) came to the conclusion that the inferior courts had wrongly ascertained the content of the foreign governing law and quashed the decision of the inferior courts on that basis.

19.

The incorrect nature of Dr. Labin’s statements can also be demonstrated by reference to Russian academic writings. One can take as an example the textbook on International Private Law written by the scholars from the MGIMO University of the Russian Ministry of Foreign Affairs – the University where Dr. Labin holds the position of a professor: “In accordance with the currently in force procedural legislation incorrect application of the substantive law rules and their substantial violation, as well as breach of the unity of the case-law (uniformity in interpretation and application of the rules of law) constitute a ground for revocation of the inferior court decisions by a superior court (Art.362 and 387 of RCPC, Art.270 and 288 of RAPC). Hence, as a general rule, incorrect application of a foreign governing law shall be also considered an unconditional ground for revocation of the appealed court decision … In Russia foreign law is a legal category and not a factual circumstance. That is why if all factual circumstances are fully and comprehensively determined by an inferior court, then the superior court can itself ascertain the content of foreign law and resolve the dispute on the merits making a new decision”.

20.

Dr. D. Khotsanov, who has recently published a monograph on this subject with a vast analysis of the Russian case-law, in relation to the Russian courts states that “specialists unanimously recognize the powers of the superior courts to control the correctness of application of foreign law rules by the inferior courts. Incorrect application of a foreign law can serve as a ground for the revocation of the court decision in the same manner as such revocation could follow as a result of an error in application of the domestic law”.

21.

Thus, I believe that Dr. Labin’s conclusion that “Russian procedural law restricts the ability of a party to a dispute to receive full protection of any rights which are or should be governed by foreign law” (para 17 of the Labin Report) is incorrect. Russian Courts apply foreign substantive law (including English law) habitually. Foreign law is treated in Russia as a legal category and not as an issue of fact. Incorrect application of the foreign law rules constitutes a ground for revocation of an inferior court decision by any court of the superior level.

Footnote 3 to paragraph 19 of Asoskov 2 identified the textbook in question as:

International Private Law: Textbook. In 2 Vol. Vol.1: General Part. Eds. S.N. Lebedev, E.V. Kabatova. Moscow, 2011. P.309-310. Author of Section 4.6. (“Ascertainment of the Content of Foreign Law”) – Dr. Yu. Timohov.

Footnote 4 to paragraph 20 of Asoskov 2 identified the text cited in that paragraph as Khotsanov D, Ascertainment of the Content of Foreign Legal Rules in International Private Law, Moscow, 2012, p.254. The footnote added, “See also references to other academic writings supporting this view in the footnote 536 of Dr. Khotsanov’s book.”

The response of Dr Labin was to draw a distinction which he had not drawn in Labin 1. At paragraph 7 of Labin 2, Dr Labin said this:

7.

Second, I disagree with Dr Asoskov that there is a realistic prospect of appealing against a first instance court's application of substantive foreign law.

(a)

I do not disagree that it may be arguable that an issue of foreign law should be treated as a question of law and not of fact. However there is no legal rule which compels such a classification and I maintain that it would be considered as, or akin to, a question of fact by reference to the process of establishing foreign law, similarly to matters of contested fact, at first instance.

(b)

With regard to paragraphs 17 - 18 of Asoskov 2 it is important to distinguish the terms "ascertainment" and "application" of foreign law. At paragraph 18 Dr Asoskov cites a ruling of the Federal Commercial Court of Moscow District dated 19 February 2004 in case number KG-A41/11371-03, which is concerned with the question of whether Russian procedural law rules on the ascertainment of foreign law were complied with, pursuant to Article 1191 of the Russian Civil Code … . The case was not an appeal against the application of the substantive foreign law at first instance. Similarly, the passage from the legal textbook which Dr Asoskov cites at paragraph 19 is taken from a chapter titled "Ascertainment of foreign law". The book which Dr Asoskov cites in paragraph 20 is titled "Ascertainment of the Content of Foreign Legal Rules in International Private Law". Dr Asoskov has not identified any case in which an appeal was entertained against a first instance court's application of foreign substantive law.

(c)

I note that at paragraph 17, Dr Asoskov describes the "wrong findings" which could be appealed in Russia as those "that relate either to the wrong application of the Russian conflict-of-law rules, or to the incorrect ascertainment of foreign law". Later, in paragraph 21, he states the scope of a potential appeal more broadly so as to include application not only in Russian conflict-of-law rules but also substantive foreign law, saying, “Incorrect application of the foreign also substantive foreign law, saying, "Incorrect application of the foreign law rules constitutes a ground for revocation of an inferior court decision by any court of the superior level." For the reasons set out in this paragraph, I do not consider that conclusion to be supported by the sources to which Dr Asoskov refers and in my opinion there is little prospect of an appellant being able successfully to appeal a first instance court's application of substantive foreign law in Russia.

(d)

Additionally, pursuant to Article 268(7) of the Arbitrazh (Commercial) Procedure Code of the Russian Federation and Article 327.1(4) of the Civil Procedure Code of the Russian Federation, the new arguments which are not raised at first instance cannot be raised on appeal. There is scope for this provision to be construed very broadly by the courts, such that an appellant would be deprived of the ability to seek to rely on rules of law which were not directly part of the decision of the first instance court. I believe that the chance of challenging a first instance decision on the basis of principles of foreign law that have not been previously ascertained at first instance would be very limited.

Asoskov 3 responded at paragraphs 7 and 8:

7.

… it is unclear to me what distinction Dr. Labin seeks to make regarding the “ascertainment” and “application” of foreign law in the context of any appeal against a Russian court of first instance decision (para 7 of the Second Labin Report). In my view, there is no distinction which can be made in reality. If Dr. Labin is seeking to argue that wrong non-application of foreign law by the court of first instance (e.g. application of Russian substantive law instead of application of English substantive law) can not be appealed, this is incorrect as a matter of Russian law. In this scenario, the court of first instance incorrectly applies a Russian conflict-of-law rule (which in the above-mentioned example refers to English and not Russian substantive law) and any incorrect application of Russian legal rules constitute a valid ground of appeal under Russian procedural law. As an example of such successful appeal I can refer to the Ruling of the Presidium of the Supreme Commercial Court No. 2088/09 dated 16 June 2009 the text of which can be found in Exhibit AVA-2 to My Second Report. In this case the court of the superior instance quashed the decisions of the lower courts because of wrong application of the Russian conflict-of-law rules related to the law applicable to contractual obligations and limitation periods (according to the Russian conflict-of-law rules, English and not Russian substantive law was the correct governing law).

8.

Additionally, I note Dr. Labin refers to Article 268(7) of the Arbitrazh (Commercial) Procedure Code of the Russian Federation and Article 327.1(4) of the Civil Procedure Code of the Russian Federation (para 7.d). These articles have no relevance to the ability to appeal an inferior court decision in Russia in circumstances where there has been an improper ascertainment of foreign substantive law rules or incorrect application of the Russian conflict-of-law provisions. In fact, these articles prohibit the parties from introducing in the courts of the superior instance new claims which were not properly brought in the court of first instance and were not examined by the court of first instance.

At paragraphs 47 to 50 of Labin 1, Dr Labin dealt with a new topic, the enforceability of an English judgment in Russia. He did not explain that this was a new topic, nor did he explain why this new topic was raised.

Paragraphs 47 to 50 of Labin 1 stated:

47.

Russian procedural legislation (RC PC and RA PC) proceeds on the basis that there are two types of jurisdiction in the event of a dispute with a foreign person: a) exclusive jurisdiction (article 403 of the RC PC, article 248 of the RA PC); and b) non-exclusive jurisdiction (article 404 of the RC PC, article 247 of the RA PC).

48.

The difference between the two is that in the event that Russia has exclusive jurisdiction, any foreign court judgment on issues allocated by law to the exclusive jurisdiction of the Russian courts is not recognised and is therefore unenforceable in the Russian Federation.

49.

An analysis of the issues allocated by Russian law to the exclusive and non-exclusive jurisdiction of the Russian courts indicates that the dispute between the parties arising from the Principal Agreement is not, in my opinion, allocated directly to the exclusive jurisdiction of Russian courts. In such circumstances, it would be inconsistent for exclusive jurisdiction to be indirectly allocated to the exclusive jurisdiction of the Russian Courts and I do not believe that Russian law would allocate the dispute in this way.

50.

Accordingly, under Russian law there is no direct need, or obligation, to consider this dispute in Russian courts and a decision issued in an English court may be fully enforced in Russia.

Dr Asoskov said at paragraph 59 of Asoskov 2 that he could agree with Dr Labin’s conclusion on enforceability only with substantial reservations. Those reservations were explained in paragraphs 60 to 63:

60.

Firstly, in accordance with the unequivocal provisions of Art.6(3) of the Russian Federal Constitutional Law No.1-FKZ dated 31 December 1996 “On the Court System of the Russian Federation”, Art.241(1) of RAPC and Art.409(1) of RCPC foreign judgments should be recognized and enforced on the territory of Russia on the basis of the respective international treaties only. It is true that recently in several cases the Russian Commercial Courts have granted recognition and enforcement of foreign court judgments from the counties with which Russia has no international treaties on reciprocal enforcement of judgments (including, England). However, there are other examples when the Russian courts refused to grant recognition and enforcement of foreign judgments referring to the absence of the respective international treaty.

61.

Secondly, in the recent case (Ruling No.7805/12 dated 23 October 2012) the Presidium of the Russian Supreme Commercial Court refused to grant recognition and enforcement to the decision of the Cypriot court notwithstanding the fact that there is an international treaty on reciprocal enforcement of foreign court judgments between Russian and Cyprus. As one of the grounds for refusal, the highest Russian Court stressed that one of the defendants (a Russian company) was not incorporated in Cyprus, had not pursued any commercial activities on the territory of Cyprus and had not agreed to the jurisdiction of the Cypriot court either in the contract, or after the commencement of the court proceedings. The Presidium of the Russian Supreme Commercial Court took the view that in such situation the decision of the Cypriot court to exercise jurisdiction against the Russian company violated the defendant’s right to fair court proceedings. Thus, if the English court bases its jurisdiction on grounds that are not accepted under Russian procedural law, then there is a substantial risk that an English court judgment rendered in such circumstances would not be recognized and enforced on the territory of Russia.

62.

I have been informed that the Defendant in these proceedings is a Russian resident having no domicile in England or any business interests there other than board membership of a UK listed company and who was served with the Claim Form and Particulars of Claim while on a fleeting visit to London for the purpose of a board meeting. I can confirm that the Russian courts would not accept jurisdiction in such circumstances (i.e. where a foreign defendant, not ordinarily resident in Russia, was served with proceedings on a fleeting visit to Moscow for the purpose of a meeting but had no residence, significant business interests or other major connections with Russia).

63.

Taking into account the above, in my view there is a substantial risk that any English Court judgment that might be made in the present case would not be recognized and enforced on the territory of Russia.

At the end of the second to last sentence of paragraph 60 Dr Asoskov noted in footnote 16:

It should be mentioned that some Russian courts qualified the Agreement between the Government of Russia and the Government of the UK on Economic Cooperation (London, 9 November 1992) as such international treaty notwithstanding the fact that this Agreement does not regulate the issue of recognition and enforcement of foreign judgments.

At the end of paragraph 60 Dr Asoskov gave citations supporting what he had said in the last sentence of that paragraph:

See, in particular, the Ruling of the Russian Supreme Commercial Court No.VAS-5105/08 dated 19 May 2008 (Russian Commercial Courts of all instances refused to recognize and enforce the decision of the court of Israel); the Ruling of the Federal Commercial Court of the Moscow District dated 17 February 2009 under the case No.KG-A40/12786-08-P (Russian Commercial Courts of all instances refused to recognize and enforce the decision of the US court); the Ruling of the Federal Commercial Court of the Moscow District dated 24 May 2012 under the case No.A40-127685/11-52-1092 (Russian Commercial Courts of all instances refused to recognize and enforce the decision of the court of New Zealand).

In Labin 2 at paragraphs 30 to 35 Dr Labin responded:

30.

In paragraphs 49-50 of my First Report I gave my opinion that a decision of the English courts in relation to the dispute between the parties arising from the Principal Agreement would not be considered by the Russian courts to fall within their exclusive jurisdiction and could thus be fully enforced in Russia. Dr Asoskov has set out what he describes as "substantial reservations" (paragraph 59, Asoskov 2) with regard to my conclusion. As I will explain I do not agree with any of those reservations.

31.

First, I do not agree with Dr Asoskov's statement that no international treaty on reciprocal enforcement of judgments applies between Russia and the United Kingdom of Great Britain and Northern Ireland (Dr Asoskov says "England"). I draw the Court's attention to case number A40-53839/05-8-38 which concerned the recognition and enforcement of a decision of the High Court of Justice of England and Wales, at the suit of BNP Paribas SA, Citibank NA, Commerzbank AG, Calyon SA, Deutsche Bank AG, ING Bank NV, Societe Generale SA, KBC Bank NV, UFJ Bank Nederland NV, Hillside Apex Fund Limited, Traditional Funds PLC (High Income Fund), VR Global Partners LP, Shepherd Investments International Limited, Stark Trading Limited, against OJSC "Yukos Oil Company". In that case, on 2 March 2006 the Federal Commercial Court of the Moscow District upheld the recognition and enforcement decided by a lower Court of the decision of the English High Court. The Federal Commercial Court's ruling was based on the following sources of international law:

(a)

Agreement on partnership and cooperation establishing a partnership between the European Communities and their Member States, of one part, and the Russian Federation, of the other part dated 24 June 1994;

(b)

Article 6(1) of the Convention for the Protection of Human Rights and Fundamental Freedoms of 1950 as it is construed by the European Court of Human Rights in its Decision of 19 March 1997 in the case Hornsby v Greece;

(c)

Article 14 of the International Covenant on Civil and Political Rights of 1966;

(d)

Indirect sources: Agreement between the Government of the Russian Federation and the Government of the United Kingdom of Great Britain and Northern Ireland on economic cooperation of 1992.

32.

Further, the Federal Commercial Court made reference to the letter of the English High Court of 9 August 2005, in which the English High Court noted that decisions of Russian courts are recognized and enforced in England and Wales. It is also important to note the conclusion of the Federal Commercial Court that:

"Given the circumstances, the applicant's argument that there is no reason for the recognition and enforcement of the decisions of the High Court of Justice of England and Wales is rightly dismissed as groundless".

33.

Second, the mere absence of an international agreement between states does not preclude the recognition and enforcement of a foreign judgment. In such a situation, the Russian courts can refer to the principle of reciprocity, noting the recognition and enforcement of Russian judgments abroad.

34.

Third, the reservation of Dr Asoskov based on the Decree of the Presidium of the Supreme Commercial Court of the Russian Federation Number 7805/12 of 23 October 2012 in no way affects the enforceability of decisions of the English courts in Russia. The circumstances of the present dispute (the subject of the claim and the persons involved) are so different from the circumstances in that decision, that the legal approach of the Supreme Commercial Court outlined in paragraph 61 of Asoskov 2 is taken entirely out of its context and is not applicable in the present case. That was an attempt to enforce a Cypriot judgment against a Russian corporate defendant which was "not incorporated in Cyprus, had not pursued any commercial activities on the territory of Cyprus and had not agreed to the jurisdiction of the Cypriot court either in the contract, or after the commencement of the court proceedings."

35.

For all these reasons I do not believe that there are reasons why any English Court decision in this case would not be enforced in the Russian Federation.

Dr Asoskov commented at paragraphs 23 to 25 of Asoskov 3:

23.

In paras 58 to 63 of My Second Report, I explained why I have substantial reservations regarding Dr. Labin’s views as to the enforceability of English judgments in Russia. I explained that there is no specific treaty on the recognition and enforcement of judgments in civil/commercial matters between the Russian Federation and England.

24.

In response to my evidence, Dr. Labin refers to a number of international agreements/conventions (para 31 of the Second Labin Report). Whilst I agree that the Russian Courts have interpreted these treaties to apply to matters relating to the enforcement of foreign judgment in some cases, these agreements/conventions are not in my view accepted either in Russian academic writings or internationally as constituting treaties on the recognition and enforcement of judgments. That is why there is a substantial risk that in other cases the Russian courts would refuse to grant recognition and enforcement of a foreign court decision with reference to such agreements/conventions.

25.

I do not disagree with Dr. Labin that, without an applicable treaty or convention, a judgment of a foreign state court may in principle be recognised and enforced in Russia on the grounds of reciprocity and that there are cases in which parties have successfully claimed recognition and enforcement of foreign (e.g. English) court judgments, citing reciprocity as a principal argument. However, due to minimal case law on the matter and taking into account the Russian legislative provisions which I refer to in para 60 of My Second Report, it is difficult to establish whether a particular foreign judgment would be enforced in Russia in the future on the grounds of reciprocity. For these reasons, I repeat my substantial reservations set out in My Second Report.

The third category identified in section C1 above concerns issues which may have a bearing on the grant of a stay, but are not issues which would need to be decided at a trial, and do not concern questions as to the approach which would be taken by the court of the forum. Only one such potential issue calls for mention. When reading the evidence I was concerned that I might need to make findings as to the extent to which Ms Baturina’s reluctance to return to Russia was justified. The extent to which this is the case, and my conclusions in that regard, are dealt with in section F below in the context of Ms Baturina’s contention that a stay should be refused because it would cause injustice.

General provisions as to the grant of a stay are discussed in the fifteenth edition (2012) of Dicey, Morris and Collins on the Conflict of Laws at paragraph 12-006. I set out an extract which omits footnotes:

English courts have an inherent jurisdiction, reinforced by statute, to stay or strike out proceedings, whenever it is necessary to prevent injustice. The court also has an inherent power to order a stay to await the outcome of proceedings in a foreign court or arbitration in the exercise of case management. The jurisdiction may be exercised in cases which have nothing to do with the conflict of laws, or with the fact that a cause of action or ground of defence arises in a foreign country. But the cases in which a party to proceedings applies to have them stayed under this jurisdiction are very often, in some way or another, connected with transactions taking place in a foreign country or with litigation being conducted abroad. In such cases, according to English notions of the conflict of laws, an English court and a court in some foreign country may both be recognised as having jurisdiction to entertain proceedings, and the English court has a discretion to determine in which forum the dispute will be resolved, by using its power to grant or refuse a stay of the proceedings by the claimant in the English court, …

The leading case on the grant of a stay in the present context is Spiliada Maritime Corporation v Cansulex Limted [1987] AC 460. The basic principle identified by Lord Goff of Chieveley in that case at page 476 is:

The basic principle is that a stay will only be granted… where the court is satisfied that there is some other available forum, having competent jurisdiction, which is the appropriate forum for the trial of the action, i.e. in which the case may be tried more suitably for the interests of all the parties and the ends of justice.

As explained at paragraph 12-030 of Dicey, Morris and Collins, the speech of Lord Goff, with which other members of the House of Lords agreed, identifies a high hurdle for the defendant. It is necessary to show not merely that England is not the natural or appropriate forum, but to establish that there is another forum which is clearly or distinctly more appropriate than the English forum. If that hurdle is satisfied, the court should grant a stay unless the claimant shows that there are special circumstances by reason of which justice requires that the trial should nevertheless take place in England.

Dicey, Morris and Collins note at paragraph 12-032 that the first limb of the test requires it to be shown that the foreign forum is “available” as well as being more appropriate for the trial of the action. In that regard the authors observe that a claimant may seek to contend that the foreign court is not available on the ground that the claim or remedy sought would be unavailable in the foreign court, or that the foreign courts’ choice of law rules would doom the claim to failure. The authors submit that these matters are irrelevant to the issue of whether the foreign court is available, but that they may be taken into account under the second limb of the test in determining whether the claimant can show that justice requires the trial should nevertheless take place in England. The authors add, however, that there is no clear line between the two limbs. Certain factors might arguably be located under either limb. The overall test is one which asks what the interests of justice require, and it will rarely be a matter of legitimate complaint that a particular factor has been classified under one limb rather than the other.

One of the features relied upon in the present case is, as noted earlier, the parties’ express choice that English law should govern the principal agreement, and the shareholding agreement which it envisaged. In Sawyer v Atari Interactive Inc [2005] EWHC 2351 (Ch); [2006] I.L.Pr. 8 Collins J said at paragraphs 61 and 62

61.

There is a basic distinction between choice of law and choice of jurisdiction. It is contrary to principle to suggest that by agreeing to English law the parties must be regarded as contracting in the light of CPR, r.6.20(5)(c) to have chosen English jurisdiction. In Macsteel Commercial Holdings (Pty) Ltd v Thermasteel V (Canada) Inc [1996] C.L.C. 1403, Sir Thomas Bingham M.R. said that the distinction between the choice of English law and a contractual choice of an English forum was a distinction of very major importance, and Millett L.J. said that the judge had made a fundamental error in equating choice of law with choice of forum.

62.

In my judgment the express choice of English law may, or may not be, a significant factor in the determination of the appropriate forum, depending on the likely issues and other questions normally put in the balance. The factors which are relevant include these: whether there is any substantial difference between English law and the law which would be applied by the foreign court; if there is a difference, whether under its rules of the conflict of laws, the foreign court would apply English law; and the extent to which the dispute turns on questions of law.

Observations were also made in VTB Capital Plc v Nutritek International Corp [2013] UKSC 5; [2013] 2 W.L.R. 398 as to the weight which may attach to an express choice of English governing law. Lord Mance said at paragraph 46:

46 The governing law, which is here English, is in general terms a positive factor in favour of trial in England, because it is generally preferable, other things being equal, that a case should be tried in the country whose law applies. However, that factor is of particular force if issues of law are likely to be important and if there is evidence of relevant differences in the legal principles or rules applicable to such issues in the two countries in contention as the appropriate forum. Neither of these considerations here applies.

On behalf of Mr Chistyakov, Mr Moverley Smith noted the numerous links with Russia which appear from the evidence. I can conveniently summarise by setting out here a list which appeared at paragraph 2 of the outline submissions in reply:

(1)

the location of the vast majority of the principal witnesses who will be called at any trial is Russia;

(2)

the language of the parties and of the witnesses so far identified is Russian;

(3)

most of the documentation is in Russian;

(4)

the negotiations at which the alleged representations the subject of the proceedings are alleged to have been made took place (on any view) principally in Russia;

(5)

the principal and supplemental agreements were made in Russia;

(6)

the parties are Russian nationals;

(7)

Mr Chistyakov resides and carries on business in Russia;

(8)

Until the autumn of 2011 Ms Baturina resided and carried on business in Russia;

(9)

Russian law governs any tort claim;

(10)

Any damage was suffered in Russia.

By contrast, the only factors connecting the proceedings to England are (a) the provision in the principal agreement as to governing law of that agreement and the shareholders agreement, (b) Ms Baturina now resides in England, (c) Ms Baturina holds relevant documentation here, and (d) Mr Chistyakov has business interests here.

Ms Dohmann suggested in argument that what was being done on behalf of Mr Chistyakov was to apply the word “Russian” as an adjective whenever it was possible to do so. To my mind, however, what is apparent from the list of factual issues identified in section C2 above is that there are numerous aspects of the facts of the case where the use of the adjective “Russian” is both accurate and relevant. Ms Dohmann in oral submissions added that there was an important Moroccan witness, a local director working on the projects in Morocco. For reasons given when discussing the shape of the case below, neither this, nor the limited links with England identified above, can in my view, seriously detract from the compelling Russian links of nearly every other person and transaction, and of most of the documentary records involved.

A further point made by Ms Dohmann was an assertion that Mr Chistyakov had not advanced a positive case. It is right that Ms Baturina in her evidence noted that Mr Chistyakov was under no obligation to advance a positive case. She did not, however, say that Mr Chistyakov was refusing to give a detailed answer to the case made against him. Indeed, it is apparent, and Ms Dohmann recognised in her oral submissions, that Mr Chistyakov’s letter of 10 November 2012 gives a great deal of detail. Ms Dohmann relied on observations by Lord Mance at paragraph 39 of his judgment in VTB. Lord Mance there observed:

39.

A suggestion that the respondents should have advanced a positive case to support their denial of any involvement in the alleged deceit appears to me to go too far. Even where jurisdiction is established, a defendant is entitled to deny involvement in or liability for an alleged deceit, without advancing a positive explanation as to why he was not party to an alleged lie or conspiracy or as to how assets acquired proved, without any prior knowledge on his part, to be worth so much less than independent accountants had valued them as being. Further, no suggestion or objection appears to have been made below to the case being argued, as it was, on the basis that all the issues were properly raised by the respondents' general denials. On the other hand, there may be particular points, in relation to which, in the absence of any positive case from a defendant's side, it is not possible to conclude that any evidence will be called by the defence. That may in turn preclude bringing into account the convenience or otherwise of adducing in England or Russia any such evidence from the defence side as might be supposed to exist on such points, had any positive case been raised on them.

Similarly at paragraph 91 Lord Neuberger said this:

91.

However, if the defendant chooses to say nothing, then it would be quite appropriate for the court to proceed on the basis that there is no more (and no less) to the proceedings than will be involved in the claimant making, or trying to make, out its case. Of course, in many instances, the defendant will be able to say that, although he has not submitted a draft statement of case, or produced a witness statement, setting out the details of his case, its nature is clear from correspondence, common sense, or even submissions. Consistent with my observations on the first point, I would not want to encourage a defendant to go into great detail as to his case in a long document with many exhibits, but if he is wholly reticent about his case, he can have no complaint if the court does not take into account what points he may make, or evidence he may call, at any trial. I agree with Lord Clarke JSC that a defendant could exhibit draft points of defence, but in many cases, it may be disproportionate to expect him to incur the costs of doing so before it has been decided whether the claim is to proceed at all.

Relying upon these observations, Ms Dohmann suggested that the evidence on behalf of Mr Chistyakov involved such reticence on his part that it amounted to no more than a “press release type” denial. I am not persuaded, however, that in the present context Mr Chistyakov’s approach should lead me to conclude that no evidence would be called by the defence at trial. Nor would it be right, in my view, to proceed on the basis that there is no more to the proceedings than will be involved in Ms Baturina making, or trying to make, out her case. First, it seems to me that reticence in relation to the alleged representations is not to be criticised in the present case, for the alleged representations have been pleaded in a manner which fails to give any of the particulars that would normally be expected. There is no precision as to when, where, in whose presence, and the gist of the words used as regards any one of the representations alleged to have been made expressly. Secondly, and to my mind more importantly, the evidence has enabled me to form a view of the likely “shape” of the case. In order to demonstrate knowledge that the representations were untrue, and in order to demonstrate reliance for the purposes of the misrepresentation claim, as well as in order to demonstrate breach for the purposes of the contractual claim, it will be necessary to examine a great deal of material relating to the projects and to the payments that were made, and what Ms Baturina’s representatives knew about them. In relation to the projects, a question of considerable importance will be the extent to which Ms Baturina, by her representatives, was aware of particular matters prior to signing the principal agreement. If she or her representatives became aware of matters after the principal agreement had been made, her reaction, and her representatives’ reactions, to those matters will be relevant. All of this is likely to turn on evidence in Russian by Russian nationals working for Russian companies. There is a wealth of detail in that regard in Mr Chistyakov’s letter.

Ms Dohmann stressed that questions governed by English law would arise concerning what the parties were, or were not, entitled or bound to do under the principal agreement or the further agreement alleged by Mr Chistyakov to have been signed by both parties. There is no reason, however, in my view to doubt that a Russian court would be able to ascertain the relevant English law on these questions. As noted earlier, it was not suggested that there was any issue between the parties as to relevant principles of English law. Moreover, as explained by Dr Asoskov, and eventually accepted by Dr Labin, an error in ascertaining English law can be corrected by the appropriate Russian appeal court: see section C4.11 above. I add that this was an area where Dr Labin’s initial evidence was misleading, and there has been a failure on his part to acknowledge that he put the matter much too broadly. I do not need to form a view on the remaining dispute as to whether an appeal court can correct an error of application of non-Russian law.

I turn to the reasons why Ms Baturina says that Russia is not an available forum. It is convenient to examine them using the order adopted in the outline submissions in reply. In that regard I assume, for the purposes of this case only, that the points raised by Ms Baturina under this head are properly regarded as relevant when considering “availability” of a forum. Where appropriate, I resolve conflicts of evidence between the expert witnesses in accordance with the principles identified in section C4.1 above.

First, Ms Baturina says that her claims would be time barred in Russia. As regards her tort claim, for the reasons given in section C3 I conclude that even if tried in England, her tort claim would be held to be governed by Russian law, and there is thus no advantage to Ms Baturina for the tort claim to be litigated here. As to the contract claim, if Ms Baturina’s account is correct then it was only relatively recently that she either was, or should have been, aware that she had such a claim. I agree with Dr Asoskov that on her account as set out in the particulars of claim the three year period would thus not have expired. I note that Dr Labin gave no detail whatever for his conclusion that the limitation period may have expired. Moreover, it is relevant here that the principal agreement made no provision as to jurisdiction. If it had expressly provided for the English courts to have jurisdiction, then I would have had more sympathy with the assertion that justice required that Ms Baturina have the full six years from the date of breach which is permitted by English law. But without such a provision it seems to me that neither party could complain if the courts of a particular forum applied the law of that forum to the question of time bar. In these circumstances it is not necessary for me to deal with the suggestion that an undertaking by Mr Chistyakov might remedy any injustice.

The second concerned Dr Labin’s evidence that Ms Baturina’s tort claim would fail in Russia in the absence of a criminal conviction. Here I take the view, for the purposes of this application, that the evidence of Dr Labin does not make good this assertion. He appears to have made the assertion at paragraphs 30 to 34 of Labin 1 without having identified the two cases referred to in paragraph 30 of Asoskov 2. In Labin 2 he seeks to say that the legal and factual context of each of the two cases is far removed from the present case. However both of them involved the precise point which Dr Labin had focussed upon, namely, whether a successful claim could be brought under Article 179(1) without there first having been a successful criminal prosecution. I am driven to the conclusion that, taking a view of the matter upon the papers, a competent expert conscious of the duties arising under CPR 35 would not have made the assertion in the relevant paragraphs of Labin 1 without first undertaking checks which would have drawn attention to these two decisions. If checks were made and the two decisions were identified, no competent expert conscious of the obligations arising under CPR 35 would have failed to draw the attention of the court to those two decisions. Taking a view for the purposes of the application upon this suggested “injustice” or “lack of availability”, Dr Asoskov persuades me that there is no substance to this point.

The third point concerned what had been said in Ms Baturina’s skeleton argument in advance of the hearing. This concerned paragraph 20 of Labin 2. Paragraph 21 of Labin 2 makes it clear that the point in question is his view that “there is almost no chance that a Russian court would allow a claim to be brought by an individual for the recovery of damages for breach/non performance of a contract by reference to the actions of a controlled company.” The evidence on this aspect is discussed in section C4.3 above. I agree with Dr Asoskov that Dr Labin’s evidence is focussed on Russian law restrictions on shareholders recovering damages in respect of the company’s loss. As explained in section C3 above, this flowed from what was said in Ms Duncan’s evidence. However, as also explained there, no submissions were advanced to me so as to satisfy me that such a claim could be made as a matter of English law. Accordingly I do not consider that there is any “injustice” or “lack of availability” if Ms Baturina is unable to litigate in England.

The fourth and final point on availability was that Russian imperative norms would require a Russian court to hold the principal agreement invalid and unenforceable because it did not fall into a specific category of contract. I set out the evidence on this point in sections 4.6 (English law claim) and 4.7 (Russian law claim) above. I agree with Dr Asoskov’s observation at Asoskov 2, paragraph 49, that Dr Labin had incorrectly cited his conclusions on this question. Dr Labin is right to say that in Asoskov 1, paragraph 4.10, Dr Asoskov referred to a “probability”, but even so that did not justify the assertion at Labin 1, paragraph 39. Moreover, what had been said at paragraph 4.10 of Asoskov 1 was not concerned with the point about a need to fall within a specific type of contract. As to that alleged need, Labin 1 made no mention whatever of the provision in the Civil Code for unnamed contracts and for mixed contracts. There has been an unexplained failure to comply with the duty of experts under CPR 35 in this regard. Further, Labin 2 does not in my view adequately answer the points made by Dr Asoskov. On analysis, Dr Labin simply asserts that there must be compliance with Russian law requirements for specific types of contracts to contain the provisions that they are required to contain. What those provisions are, why they are required to be present in the principal agreement, and the respects in which they are lacking, is not explained by Dr Labin. Accordingly, I do not consider that there is any “injustice” or “lack of availability” in this regard.

For all these reasons I conclude the links with Russia are overwhelming and that Mr Chistyakov has demonstrated that Russia is an available forum which is clearly and distinctly more appropriate than England.

I turn to the question whether there is any special circumstance such that the interests of justice require that the claim be litigated here. Insofar as matters concerning the practice of the Russian courts were relied upon in that regard, for the reasons given earlier I have concluded that they do not demonstrate any injustice. I add that the oral submissions have not required me to form a view about the claims by Dr Labin that a Russian court would not apply foreign law, and that an English judgment would be enforceable in Russia. The evidence on those matters is discussed at sections C4.10 and C4.12 respectively. I note, however, that on both these topics there was a failure by Dr Labin in Labin 1 to refer to matters which are identified in Asoskov 2 and appear, on the face of it, to be matters that a competent expert ought to have referred to in compliance with obligations under CPR 35.

The only remaining point on alleged injustice concerns Ms Baturina’s unwillingness to return to Russia. Evidence on this point is summarised in section B above. For the purposes of the present application I accept that Ms Baturina has a real anxiety about returning there. However, the evidence discloses no objective basis for that anxiety. It is not expressly suggested that she risks criminal prosecution, nor that she risks physical maltreatment. I accept that if she returns there is an increased risk of media interest which she would find unwelcome. That, however, is something which must be borne with a degree of stoicism by those who, like Ms Baturina, have a high public profile. In these circumstances there is no such injustice as would require that the trial be held in England rather than in Russia.

For the reasons given above I conclude that this application for a stay succeeds.

When seeking permission to appeal, Ms Dohmann submitted that I had omitted to deal with a submission that featured in Ms Batyurina’s skeleton argument. The submission was that, when discussing Cadre SA v Asdigurari SA [2005] EWHC 2504 (QB), at least one textbook suggests that if the parties have expressly chosen a law to govern their contract a defendant should not be permitted to have the case heard in a court which will not give effect to that express choice of law. As to this: