LONDON INTERNATIONAL ARBITRATION (LCIA)

Problem statement

Over the past 15-20 years, many of the most significant transactions involving Russian businesses were concluded under English law, and they included an arbitration clause ordering that all disputes related to the conclusion and execution of these transactions are to be referred to the London Court of International Arbitration (LCIA).

If a dispute arises between the parties involved in such a transaction, the party whose rights have allegedly been violated can resolve the dispute only by referring to the London Court of International Arbitration, as indicated in the contract. The resolution of a case referred to the LCIA might be very demanding, both timewise and in terms of resources, which is often underestimated by the parties involved.

Decision

MGAP offers their clients access to an algorithm, i.e. a sequence of actions that should be taken, in case their contract includes an arbitration clause transferring the disputes to the London Court of International Arbitration (LCIA).

The algorithm, once assessed the prospects and the willingness of our client to face the costs associated with the process, offers the opportunity to exit at specific, indicated stages (see below), paying only the cost of the current stage of work, which is quite an important item to consider, since the other party can negotiate or express their intention to settle at any of the designated stages as well, hence assessing the real possibility of losing.

Stage #1: Legal opinion – Judicial position

MGAP’s Law Office, together with their English partners specialized in representing clients at the London Court of International Arbitration, prepare a brief, written legal opinion on the documents submitted by the client.

The opinion includes:

  • Assessment of the judicial prospects of the dispute (by stating whether the opponent violated the terms of the transaction, and if so, what legal consequences this violation entails, the monetary estimation of the opponent’s liability, and the probability of obtaining a positive decision in court).
  • Assessment of the arbitrability of the dispute (the very possibility for the case to be referred to the LCIA by virtue of the validation and applicability of the arbitration clause).
  • Preliminary assessment of the costs of the LCIA proceedings (based on several parameters, including, but not limiting to, the complexity of the case, the volume of the documentation, and the presence of witnesses).

 Term: the opinion is presented to our client within ten working days from the date of submission of the following documents:

  • Documents on the company that concluded the transaction on the client’s part, including the KYC (Know Your Client – a process, mandatory for European contractors, where the identity, the suitability, and the risks involved with maintaining a business relationship with the contractor are assessed, to determine the absence of any conflict of interest, indications of money laundering, etc.);
  • A brief statement prepared by the client, which describes the situation from our client’s point of view, detailing what the violation of the obligation was, what the circumstances under which the violation occurred, what the entity of our client’s claim is and what the reasons for the claim are;
  • A complete documentation on the merits of the dispute (contracts, correspondence and every other document that might be related to the dispute).

The cost of this stage of work is evaluated after the client provides the MGAP Law Office with the entire package of requested documents.

Stage #2: Judicial funds

On the basis of the documentation and certificates provided by our client, similarly at what happened during Stage #1, an application to judicial funds (specifically, to litigation funds) can be filed, to assess whether the funds can cover the costs of the LCIA proceedings, and the amount of the fund remuneration. The remuneration may vary between 10% and 50% of the amount won, and depends on the fund’s assessment of the prospects of the trial.

It is also possible to file the judicial funds application after receiving an opinion on the results of Stage #1.

Stage #3: Sending documents to LCIA

If the dispute is transferred to the LCIA, the proper documentation for judicial proceedings (i.e. the request for arbitration) is prepared and submitted, and the payment of the registration fee for filing documents (whose amount will be specified at the time of the application to the LCIA) is required.

The costs of the LCIA proceeding cover both proper arbitration costs (i.e. funds to be paid to the court) and the costs of judicial representatives. A preliminary estimation of the costs of the trial will be presented in the conclusions of the first stage of work (Stage #1).

It’s been observed that the amount of expenses directly depends on the complexity of the case. At the same time, the funds paid to the court are calculated on the basis of hourly wages, at a rate approved by the LCIA, for the following personalities:

  • the registrar of the court;
  • the adviser;
  • the administrators of the cases;
  • the accounting functions for the conduct of the cases;
  • the judge

All direct costs of the court (photocopying, sending correspondence on the case, etc.) are also subject to compensation, with an additional fee, equal to 5% of the judge’s remuneration, also collected to cover LCIA general expenses (this rate will also be specified at the time of the request).

The LCIA requires the parties to pay in advance in favor of LCIA to cover the costs associated with the proceedings, in proportions and within a time frame deemed appropriate by the court. As a general rule, the court does not begin any proceeding until the required amounts have been paid. If one of the parties refuses to make any payment to cover, in accordance with the court order, the court costs, the court may oblige the other party to make the corresponding payment. At the same time, both the plaintiff and the defendant are jointly and severally liable to the court in connection with the arbitration costs.

The term of consideration of a case presented at the LCIA is about one year.

Stage #4: Searching for the debtor’s assets and preventing their withdrawal

At the same time Stage #3 is resolved, it’s recommended taking specific actions to find and seize assets belonging to the other party. The jurisdiction and the body authorized to take such measures depend directly on the type, ownership and location of the assets, and they can be either the state court of the relevant foreign jurisdiction, or the LCIA, or a Russian court for interim measures.

The duration and cost of this stage depends on the jurisdiction of the dispute.

Stage # 5: Recognition and enforcement of the LCIA decision

If a positive LCIA decision is received, measures to recognize and enforce the decision are to be taken in the state where the losing party is registered or where their assets are located.

The cost of this stage depends on the jurisdiction of the dispute.

The duration of this stage can vary between 4 and 6 months.

Required conditions

  • The court/arbitration procedures outside of Russia were completed in favor of our client, and our client received the final award of the arbitrator.
  • The award of the arbitrator was made within 3 years from the date in which our client sent an application to the Russian court with the request to recognize that award. The Russian court may restore an elapsed term if evidence of a legitimate reason is presented.
  • Our client possesses documented proof that their opponent had been notified in a timely and proper manner of the court proceedings outside of Russia, where our client won the case against their opponent.
  • The rules of exclusive jurisdiction are met during the litigation.
  • No cause exists to refuse recognition and enforcement of the foreign award in Russia.

Step-by-step procedure

Step 1: The client presents to MGAP the final foreign award that they want to be recognized and enforced in Russia.

Step 2: MGAP presents the client a report containing the results of their evaluation of the judicial possibilities to have the award recognized and enforced.

Step 3: If no causes exist to refuse recognition and enforcement of said award, and the client wishes to initiate the procedure of recognition and enforcement in Russia, MGAP provides full legal support in the preparation of the required documents, including:

  • Drafting the legal opinion needed to obtain the recognition, containing examples of recognition and enforcement of Russian court awards in the state of origin of the foreign court/arbitration, and an analysis of the procedural legislation of the respective state regarding the recognition and enforcement of Russian court awards on their territory;
  • Legal support to our client in the collection and legalization of any other documents proving the absence of causes to refuse recognition and enforcement of the award.

Step 4: The claim of recognition of the foreign court/arbitration award is filed by MGAP with the corresponding Russian court.

Step 5: If necessary, MGAP provides legal support in obtaining and executing the enforcement order.

Awards recognition without required enforcement

In some cases, a foreign court/arbitration award may be prejudicial to a separate dispute between the same parties, taking place in a Russian court (e.g. a foreign court/arbitration award regarding the recognition of a transaction as void). This means that this award does not require any specific action of enforcement; nonetheless, it is still recommended to file a recognition claim of the foreign award with a Russian court.

However, starting from September 1st, 2016, a new assessment came into force, according to which foreign court/arbitration awards which do not require coercive enforcement must be acknowledged by Russian arbitration courts without any further procedures, if the opposite party provides no objections.