Preparing for international arbitration – focusing on Russian clients
January 2019 | EXPERT BRIEFING | LITIGATION & DISPUTE RESOLUTION
In any arbitration, the role of preliminary evidence gathering and the importance of understanding the facts of the case cannot be overestimated. Although this might seem self-explanatory, one should bear in mind that the level of detail necessary for an effective claim in the context of international arbitration may be very different from the level of detail usually expected in local court proceedings.
It is important to understand that Russian court proceedings are substantially different from proceedings which would normally take place under the rules of major arbitral institutions or under the UNCITRAL Rules. In general, the Russian courts adopt a very formal approach. The witnesses and their statements (except for expert witnesses, which is a separate matter) have no major impact on the outcome of the trial. The same can be said about any informal or incomplete documents or records. For this reason, it is important to specifically explain to parties whose experience is limited to Russian courts that they should provide not only the official documentation, such as any signed agreements, letters, corporate resolutions and so on, for the initial analysis, but also any emails and notes, including handwritten ones or any messages sent by social media. It is also advisable to include audio recordings, including recordings of any telephone calls, Skype calls, WhatsApp conversations and any other recorded conversations. Audio records are often used in the course of business negotiations in Russia.
It is not uncommon for Russian companies to retain some formal documentation which may not be an accurate description of what has actually happened. For example, it is quite possible that a loan agreement is not actually a real loan, but it is really a way to pay money, for example to a shareholder. However, there will be no documents to actually confirm this. In a Russian business structure a lot may depend on the personal relationship between the partners and on unrecorded verbal arrangements. In these circumstances, any indirect evidence of what was actually agreed between the parties becomes key. This obviously depends on the applicable substantive law, which, for the purposes of this article, we presume to be English law or another common law system. Under Russian law, and given the approach of Russian judges, any informal arrangements will most likely be irrelevant.
If a potential dispute involves contractual breaches, a pre-contractual period, including negotiations, leading to the conclusion of a contract may be crucial, depending on the issue in question. Parties should specifically request the documents for that period. The details of the negotiations are hardly ever relevant in the Russian courts. Section 434.1 of part 1 of the Russian Civil Code, which became enforceable on 1 June 2015, does say that the parties should lead the negotiations in good faith and have a real intention to reach an agreement. However, to date, there have been no reported cases on the actual use of this article.
Interviewing the client and other potential witnesses
Once the client provides the initial documentation, it is advisable to take a preliminary witness statement from him or from her as soon as possible. Again, because Russian parities are often unfamiliar with the concept of a witness statement, as it is understood in the context of international arbitration, it is important to warn parties in advance that although you are not yet at the stage when the actual witness statements are due, taking even a preliminary witness statement could take some time and may not be limited to one all-day meeting. Once a preliminary interview has taken place, it will often transpire that the party did not provide all of the documents which may have been in its possession, but which the company did not consider important, despite a request to provide all the documents. As a result, the real document review will only start after the initial witness statement is taken.
When taking even a preliminary statement, it is important that you do not cross the line between merely a fact-finding exercise and actually coaching your client as a future witness. The question about the extent to which a witness should be prepared is still an unanswered one in international arbitration. In some jurisdictions, such as the UK for example, it is acceptable to explain to a witness, in advance, what a dispute resolution procedure is going to involve and a likely order of events. It is even acceptable to conduct a mock cross-examination. However, it is not acceptable to actually train a witness to provide the right answers to the anticipated questions. By contrast, in the US, coaching a witness is perfectly permissible. The rules of many of the major arbitral institutions are all silent on the question of whether coaching witnesses is permissible. Article 20.5 of the London Court of International Arbitration (LCIA) rules only provides that the interviewing of witnesses is subject to the mandatory provisions of any applicable law. Some guidance on this matter can be found in the International Bar Association (IBA) rules on the taking of evidence, which is often adopted in international arbitration proceedings. In particular, article 3 (3) of the IBA rules allows some discussions with the witnesses or potential witnesses in connection with the ‘potential testimony’. However article 3 (3) does not go into detail as to what is regarded as coaching and whether it is permitted. Sometimes the parties to a dispute will specifically seek directions from a tribunal regarding a permissible degree of preparing witnesses. However, we are now talking about preliminary interviews, when no notice of arbitration has been filed and no tribunal is appointed. In this situation, a law of the chosen place of arbitration will provide good guidance. In other words, if the seat of arbitration is London, then English law will be relevant when determining whether coaching is permissible.
It is also worth noting that Russian parties are often unfamiliar with the concept of third-party funding. In some cases, it might be crucial to tell the client about this opportunity – in particular, when the client’s assets have already been seized or the client is bankrupt, which might be the result of ‘guerilla’ tactics of the other side. In such instances, third-party funding might be the only way forward.
We have only briefly touched upon some specific issues concerning the initial stages of preparation for disputes concerning Russian parties. Needless to say, each case is different. However, some features do repeat themselves and the ‘nationality’ of a case does play a certain role in both the preparation for, and the conduct of, the case.
Marianna Rybynok is counsel at Khrenov and Partners. She can be contacted on +7 (495) 927 0707 or by email: email@example.com.
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