EXPERT REPORTS: “CONTENTIONS THAT SHOULD NEVER HAVE BEEN PURSUED AT ALL”
In Maximov v Open Joint Stock Company “Novolipetsky Metallurgichesky Kombinat”  EWHC 1911 (Comm) Sir Michael Burton (sitting as a High Court Judge) commented on the expert evidence in relation to Russian law. The fact that an expert made concessions that he was wrong did not assist his cause.
” I do not… compliment him on being prepared to accept those occasions on which he was wrong, but rather conclude there were contentions which he should never have pursued at all”
The claimant was seeking to enforce an arbitration award made in Russia. That award was subsequently set aside by the Russian courts. Issues of Russian law were important parts of the case and each party called an expert on this issue. The claimant’s case was that the Russian courts were biased.
CONSIDERATION OF THE EXPERT EVIDENCE
(1) The Claimant’s expert, Professor Boris Karabelnikov, gave a persuasive account of what he calls ‘political cases’, in which favouritism on the part of the Russian courts is at the least a real risk. He refers to the long-running Rosneft dispute in Russia, which led to decisions in Holland and indeed the UK (summarised in Yukos Sarl v OJSC Rosneft Oil Co  EWCA Civ 855), in the course of which Judges Shumilina. Neshateva and Sarbash, all judges in this case, were also involved. Mr Brindle and his expert, Dr Ilia Rachkov, do not accept that political cases extend beyond cases in which the Russian government has a direct or indirect interest, which is not the case here. The Claimant refers to (i) the very influential position in the Russian establishment held by Mr Lisin, who is the majority owner, and controller, of the Defendant (ii) the fact that in somewhat unexplained circumstances a letter which the Defendant had received direct from the offices of those known to be very close to both Mr Putin, then Prime Minister, and Mr Medvedev, then President, giving support to the Defendant’s case that the decision of the CCI that they were functus in respect of the recusal application was wrong, was placed in front of Judge Shumilina during the hearing and thus may have influenced her, by showing that important personages were on the Defendant’s side and (iii) the eventual outcome, bitterly resented by the Claimant, that as a result of the various Russian court cases he has now lost his interest in the company which he founded (no shares having been returned to him by the setting aside of the SPA) without any recovery of money. Mr Brindle, however, points out that at least some of the decisions in Russia, particularly the early ones, went in favour of the Claimant, and in any event I am completely unable to assess the competing positions put forward in the witness statements for the Claimant and Defendant, to which I will make some further reference below.
(2) The Claimant points with some force to the criticism of the Russian system of courts and justice made in published articles by practising and recently retired judges of the Russian courts, by the UN special rapporteur dated 30 April 2014, with whose conclusions Professor Bevzenko, the Defendant’s own expert as to Russian court procedure, expressed agreement in evidence, and indeed to the published public statements by Professor Bevzenko himself as to the Russian judiciary’s lack of independence.
(3) It is clear, and almost common ground, that there has been exemplified in the Russian courts, at least until amendments taking effect last year, a bias against international arbitration and against cases being decided by arbitrators rather than in the Russian courts. As long ago as 2006, Professor Karabelnikov wrote an article in Arbitration entitled ‘The Supreme Arbitrazh Court of the Russian Federation does not trust international arbitration’, and he and Dominic Pellew, a partner in the Russian branch of Lovells, wrote a similar article in the ICC International Court of Arbitration bulletin in 2008.
(4) There was to my mind a disturbing passage in the evidence of the Defendant’s expert Dr Rachkov, this against the background of unchallenged evidence from Professor Karabelnikov that this was probably the largest case in terms of amounts at stake then to have come before the Arbitrazh Court. Dr Rachkov said as follows, in answer to a question in cross examination and then continuing in an exchange with me:-
“A. I can imagine that the courts were very cautious, especially in this particular case, because the amount at stake was very substantial, and I think the state is also interested that the value which one party pays to the other party is in line with the market value at least, because the state wants to collect its taxes from the profit generated by Mr Maximov as the seller, and would like to make sure that NLMK does not decrease….
JUDGE: Is this a motivation for the Court of Appeal to uphold the judgment of Judge Shumilina?
A. My Lord, that’s only my guess. I don’t know what the judges of the final appeal court had in mind.
JUDGE: But it wouldn’t be an acceptable reason, would it, for upholding the judgment that they were worried about the public effect of the judgment?
A. But I think the public effect of the judgment for, I would say, Russia as a whole is considerable, because if the parties substantially overstate the price of the shares, then the payer of the money can deduct these expenses from the profit tax base, and pay less taxes to the state, and this is what the state leaks from. This is not said in the judgment. Perhaps if I would be such a pro-state judge sitting in that panel, I would say that plainly there is an issue with the tax nature of these payments as well, and this is why there is some state interest in not keeping this award alive, but to decide this question from the very beginning before state courts, which happened, as far as I understand, afterwards.
Q. So you’re saying that the court could be motivated to conclude that the dispute was not arbitrable, so that it could look into that issue?
A. I wouldn’t use the word “motivated” because it has various connotations.I would say the court, or the members of the court being Russian citizens, and getting salaries currently, may have thought this way.”
THE JUDGE’S ASSESSMENT OF THE EXPERT EVIDENCE
There were witness statements served by both parties, but they went largely to the issues referred to in paragraph 12(1) above. In the event none of the factual witnesses were called, and their statements were taken as read, and, as I have said above, it was impossible in particular for me to resolve the vexed dispute as to whether it was through the influence of Mr Lisin that the Claimant ended up heavily vanquished in the courts. In addition, there were expert witnesses. I shall refer later to the Dutch experts (French experts were instructed but their reports were taken as read) and because of the scaling down of the issues made by the Claimant in relation to Russian court procedure, save for the matters referred to in paragraph 17 above, Professor Bevzenko gave no evidence that was in the end material to my decision. The contest was between Professor Karabelnikov and Dr Rachkov and related to the three Grounds set out in paragraph 14 above.
I am in no doubt that I very much prefer the evidence of Professor Karabelnikov. He was on occasion, as Mr Brindle put it, ‘over the top’, he was trenchant in his views, and it is dear that he had read much about, and become critical of, Judge Shumilina’s decision and the appeals therefrom as an independent commentator in academic works before he was selected, no doubt for that reason, as the expert for the Claimant. I was not persuaded by his analogy of the ‘political cases’. Those of which he gave examples all related to matters in which (as referred to in paragraph 12(1) above) the Russian Government had a direct or indirect interest, and he indeed found it difficult to explain why the Russian court had gone so wrong in the decisions which I am considering, but which led him in measured tones to conclude that they must have been affected by bias. He had been far more outspoken in his reports in the Dutch proceedings, in which he was also instructed, his task there being to address the two experts’ reports commissioned by the Dutch court, and it is clear that he found it difficult to understand why those experts had also gone so wrong. Certainly it seems clear, after the investigation which this Court has carried out, with the benefit of cross-examination of the experts, which is not available in the Dutch courts, that those lawyers did fall into substantial error, and indeed because of the limited nature of his brief in the Dutch courts he has been able to explain his case much more fully before me.
I was, however, not so impressed by Dr Rachkov. As I shall briefly summarise, he was in the event compelled to abandon as insupportable a number of the propositions upon which he had given detailed exposition in his reports, and I do not, as Mr Brindle sought to suggest, compliment him on being prepared to accept those occasions on which he was wrong, but rather conclude there were contentions which he should never have pursued at all:-
(1) He was driven to abandon as insupportable two of the propositions, highly developed in his reports, in relation to the Non-Disclosure Ground, namely that at Russian law non-disclosure was not waivable (notwithstanding the terms of the Rules), and that the time for challenge did not expire 15 days after awareness of the relevant matters which had allegedly not been disclosed, but 15 days after a disclosure, so that if there was no disclosure then time never ran, meaning that the party could sit on a known defect and only raise it after the arbitration had been completed.
(2) He also abandoned two of his prime propositions in relation to Ground 2, Public Policy. He withdrew his case that the Arbitrators should have determined the purchase price in accordance with the PricewaterhouseCoopers report which they (rightly) found to be totally flawed by virtue of its lack of independence, and he also abandoned his case that the Arbitrators changed or created their own formula for calculation of the price; and he came up with a criticism, not suggested by anyone previously, that the Arbitrators ought to have, on their own account, instructed their own experts. He should have, in my judgment, abandoned, but did not abandon, the rest of his support of Ground 2, given that he was unable satisfactorily to explain what universal principle of public policy the Arbitrators had breached.
He was I felt selective as to the exhibits and as to the parts he translated. In particular he knew of two cases which in my judgment put beyond doubt that an infringement of Article 424 (referred to in paragraph 14(2) above) did not amount to a breach of public policy, and did not put either of them forward even though they were plainly relevant to, and indeed damaging to, his case.
As to the Non-Arbitrability Ground, which was, as he described, a topic which ‘Judge Shumilina invented… without any hint from either party’much to the surprise, he imagined, of both of them, he strangely described the judge as reprimanding the Arbitral tribunal for having reached its conclusions as to arbitrability, which, it must be recalled, they had not in fact made, and neither party had asked them to make. In general, I was much more assisted by the arguments of Mr Brindle and his team in their closing submissions than by anything that Dr Rachkov said on this (or any) topic.”
The case shows that you are not guaranteed success even if the judge prefers your expert. The claimant’s application to enforce the award was dismissed.