Posted on April 11, 2009 - by Venik

Choose Your Justice

The New York Times recently ran a story about Telenor losing a $1.7 billion lawsuit in Russia. To summarize: Telenor – a Norwegian telecom firm – and Alfa Group – one of Russia’s largest private investment banks got into a squabble over VimpelCom (Beeline) – their joint telecom business in Ukraine. Alfa wanted to acquire URS – a Ukrainian cell phone operator – and Telenor did not think it was a particularly profitable idea. Bada bing, bada boom and Alfa sued Telenor in a Russian court, while Telenor sued Alfa in a court in New York. Additional lawsuits were also filed by Alfa in Ukraine and in Geneva by Telenor.

When the Eighth Arbitration Court of Appeals in Omsk, Russia, issued a $1.7 billion ruling against Telenor, the company accused the judges of bias, labeled the ruling a “theft” and said it will not pay. The NYT story claims that the quality of justice one receives in Russia is inversely proportional to the distance between the courtroom and Moscow. Telenor lawyers insisted that the Omsk court had no jurisdiction.

“There’s no question the jurisdiction was created artificially,” Peter O’Driscoll, a partner at the London offices of Orrick, Herrington & Sutcliffe, representing Telenor, said in a telephone interview. “This particular weakness in Russian law exposes any legitimate business, whether Russian or foreign, to being sued in some obscure court far away from Moscow, and having an outcome not dissimilar to ours.”

This argument has a serious flaw: Russian law allowed Alfa to file suit in Omsk – as opposed to in Moscow, where, I presume, it would have been more convenient for Telenor. Perhaps it is a “weakness in Russian law”, as Peter O’Driscoll claims, but it is the law nevertheless and disagreeing with it does you little good, especially if you are an attorney. And, once you commit to doing business in Russia, as Telenor did, you don’t get to pick and choose which laws you will follow and the rulings of which courts you will recognize. Telenor, however, did win its lawsuit against Alfa in New York.

“Separately, Telenor sued an Alfa group subsidiary in the United States District Court for the Southern District of New York in Manhattan, related to the business in Ukraine. Ruling in Telenor’s favor, Judge Gerard E. Lynch, who was recently nominated by President Obama for a federal appeals court position, criticized Alfa for its practice of filing “vexatious” lawsuits in remote areas. “This scorched-earth policy,” Judge Lynch said, “has required Telenor to investigate facts and retain lawyers and experts literally around the world in an effort to enforce its rights.”

I wonder, since when did Omsk – a city of 1.2 million and a major cultural and industrial center of Russia – become a “remote area”? It would seem Judge Lynch (haven’t seen that name in a while) is not a big fan of logic. If one would remember that Telenor is a Norwegian company, Alfa is a Russian bank and VimpelCom – their joint business – is a Ukrainian company, wouldn’t this make New York a “remote area”? Let’s see, the distance between Telenor’s headquarters in Fornebu (a tiny patch of dirt on the western outskirts of Oslo) and Manhattan is roughly 6,000 kilometers, while the distance between Telenor’s headquarters and the Omsk courtroom is about 3,600 kilometers. So, to answer my own question, if anyone should be chastised for filing “vexatious” lawsuits in remote areas, it should be Telenor.

Questions of jurisdiction aside, a more important issue is the lack of respect for the Russian law on the part of Western companies doing business in Russia. As any laws anywhere, Russian laws are far from perfect and the country’s judicial system is still suffering from its Soviet past. In multibillion-dollar cases, Russian judges are paying too little attention to the law and too much attention to the wishes of the government. But the same can be said about US judges. Just look at some high-profile cases, like the 1998 antitrust suit against our beloved Microsoft.

Western companies complain that, when joint business goes sour, Russian partners tend to sue them in Russian courts. Why shouldn’t they? By the same token, Western partners tend to sue Russian companies in Western courts, even though in the vast majority of cases the joint enterprises are operated in Russia or, as is the case with Alfa and Telenor, in the neighboring countries. Western firms accept higher risks of doing business in Russia because of higher profit margins and Telenor’s criticism of the Russian judicial system – while not completely unfounded – is little more than sour grapes.

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