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13 August 2012

MZS successfully represented a Swiss company Boegli-Gravurs S.A. (Boegli) in proceedings on recognition and enforcement in Russia of a number of court orders for recovery of legal costs borne in course of litigation in English courts. In this important precedent, Russian arbitrazh courts enforced English costs orders which are not foreign judgments on the merits, but rather are the final decisions on an ancillary question of allocation of litigation costs. Being the first choice forum abroad for many Russia-related disputes, England is likely to produce a substantial number of decisions to be ultimately enforced in Russia. Russian arbitrazh courts agreed with the applicant that the English state courts’ decisions are capable of being enforced in Russia on the basis of principles of international comity and reciprocity.

Among other interesting features of this case, Russian defendants argued that they had been effectively deprived of the access to court when Court of Appeal of England and Wales had struck out their application due to their failure to provide security for costs of the appeal. Russian courts agreed with the position of MZS that that did not amount to violation of Russian public policy. The panel of the Supreme Arbitrazh Court agreed with our argument that the parties carrying on business abroad and submitting to jurisdiction of foreign courts subject themselves to the procedural rules in respective jurisdictions and therefore have to accept the risks of application of such rules. The panel of the Supreme Arbitrazh Court also cited the European Court of Human Rights decision in Tolstoy-Miloslavsky v the UK, where it was held that neither ordering to provide security for costs of the appeal, nor striking out the appeal in case of failure to comply with such order violates the right of access to court (Art 6, the European Human Rights Convention).

Also, the amount of costs Russian defendants were ordered to pay (around US$ 700,000) is indeed huge by Russian standards. The defendants argued that enforcing a decision ordering them to pay such a substantial amount in legal costs would cause violation of Russian public policy. The courts agreed with the applicant’s position that the courts are not in a position to review the amount of costs the foreign court ordered the defendants to pay. In particular, the panel of the Supreme Arbitarzh Court stated that reviewing the amount of costs and deciding whether the costs were reasonable would mean reviewing the case on the merits, which is expressly prohibited by Russian procedural rules.