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Recovery of Legal Costs in Russian Litigation

Unlike the traditional "American Rule" whereby attorney fees are not awardable to the winning party, Russian statutory and case law adhere to the "loser-pays" principle meaning that a Russian court awards legal costs against the losing party. This is a general rule which was elaborated upon by the Supreme Court of the Russian Federation through its Plenum adopting the Ruling on 21 January 2016 (the "Ruling"). The Ruling lays down leading guidelines as well as specific rules to be followed by courts.

Loser-Pays Rule

The Ruling interpreting a number of procedural rules sets forth the "loser-pays" principle, i.e. the costs of the winning party are payable by the losing party. If there are multiple losing parties, e.g., two or more defendants, who are jointly and severally liable on the merits of the dispute, they would be awarded costs on the joint and several basis as well. Costs may be awarded not only to parties, i.e. a plaintiff or defendant, but also to the so-called third parties. A third party is the one who fails to have a procedural status of the plaintiff or the defendant but whose rights or interests may be affected by a judgment (e.g., an insurance company may intervene as a third party in the case over a claim for damages against the insured tortfeasor). For this purpose, it does not matter whether a third party joined the proceedings at its own initiative or was involved by a litigating party or the court.

The successor, either universal or singular, on the merits of the dispute is to obtain the right for the costs to be awarded. It should be noted that the successor may be an entity or individual who is even not a party or third party in the proceedings.

A contractual assignment of right to get the litigation costs is generally allowed. An agreement on assignment can be entered into after the costs are awarded or even in the course of the proceedings.

In the event of settlement – as a default rule – each litigant must pay his own legal fees and other costs. The reason behind this rule is that a settlement represents a compromise reached by mutual concession, meaning there is no winning or losing party as matter of principle. However, the parties are free to agree on allocation of costs in their settlement agreement which the court is to enforce. It is therefore advisable, just for avoidance of any doubt, to allocate costs in the settlement agreement.

As stated, costs are awarded against the losing party. It is noteworthy that the Ruling gives a wide interpretation when it comes to the final result of the proceedings, covering the definitive judgment on the merits as well as the dismissal of a claim without prejudice (e.g., on a jurisdictional ground) or closing the case without rendering a judgment (e.g., in the event of withdrawal of claim). In all these scenarios, the costs are awardable.

Interestingly enough, the Ruling specifically provides that a consumer organization who may, by law, represent an individual or public at large in court is not entitled to be awarded attorney fees. In setting forth this rule, the Supreme Court reads the applicable legislation into the meaning that a consumer organization itself, and by its own means, has to act on behalf of its client, without hiring additional counsel. Perhaps the rationale underlying this interpretation is, indeed, to limit abuse and frivolous claims. This is naturally relevant for consumer protection litigation as well as product liability proceedings.

Costs, Determined

The litigation costs include attorney fees as well as other expenses. The attorney fees normally constitute the bulk of all litigation costs. Other expenses could also matter however, especially in a cross-border dispute involving parties from different countries.

The Ruling explicitly points out that the list of expenses provided by law is non-exhaustive. This could include costs related to – even before commencing the legal proceedings – the collection of evidence in support of upcoming litigation or the analysis of the defendant's assets for the purposes of preparing a claim etc.

It should be noted however that the costs incurred in connection with attempting to settle a dispute extrajudicially, e.g. in the course of mediation, will not be compensated. On the other hand, if the extrajudicial procedure for settlement of claims before initiating the legal proceedings is mandatory by virtue of contract or law, the related costs would be subject to compensation.

To be awarded the costs, including the attorney fees, ought to be reasonable. As a general rule, a judge may not reduce the amount of costs claimed to be awarded unless so requested by the opposing party. But he or she is entitled to do so if the costs claimed fail to stand the reasonableness test. In evaluating whether or not the costs are reasonable the judge may consider the amount of claim on the merits or the complexity of the case or the time for preparation for the case and its handling or the amount of evidence etc.

In contrast with the previous case law, the Ruling states that for the purposes of reasonableness test the reputation of counsel is irrelevant. This means that a top notch attorney's fees will be awarded only if there are other reasons for this (e.g., complexity of the case, etc.).

Contingency Fee

A contingency fee arrangement has been addressed by Russian case law for more than a decade, including by highest courts such as the Constitutional Court of the Russian Federation, with conflicting results. At present – a contingency fee will not be awarded as costs if it was designed to offer counsel a bonus for the desired result rather than a remuneration for actual work. The logic behind this rule is that the losing litigant is not party to the attorney-client arrangement of the winning party with its counsel, meaning it would be unfair to award the bonus as costs against the losing party. It is, arguably, suggested however that if a fee arrangement is drafted in such a way to carefully avoid the effect of bonus, being a premium or extra to what is strictly due, this might be awarded by court.