Since 1984, Cyprus was one of the few EU countries to have concluded a mutual legal assistance agreement with Russia in civil and criminal matters, under which the two countries undertook to recognise the decisions of each other’s courts (Art. 23).
However, current practice is such that this provision is no longer applied. Decisions by Russian state courts, insofar as they are based on Articles 248.1 and 248.2 of the Arbitrazh Procedural Code of the Russian Federation, cannot be recognised in Cyprus due to existing European sanctions.
In Russia, a practice is currently emerging whereby decisions of Cypriot courts are also not recognised. In a case to be discussed here, a Panamanian offshore company with a Russian beneficiary brought a claim before the District Court of Nicosia against a Russian citizen who was himself a shareholder of a Cypriot company. The debtor allegedly misled him into believing that his Cypriot company owned several assets in Russia, in particular several trademarks. After he acquired 45% of the shares in the Cypriot company, ownership of these assets was transferred to another company controlled by the debtor following a lawsuit. This removed the economic basis and rendered the acquired shares worthless.
Due to these fraudulent actions, the Panamanian company contested the share purchase agreements and demanded repayment of €22 million from the debtor. The Cypriot court in Nicosia upheld the claim, and the creditor then attempted to have this judgment recognised and enforced in Russia.
The Russian court refused to recognise the Cypriot decision. However, the reasons for this were surprising (You will find the judgement in Russian here).
On the one hand, the Russian court assumed that the judgment was an arbitral award and incorrectly applied the New York Convention of 1958.
Secondly, the court considered that recognition of the judgment would violate public policy. Recognition and subsequent enforcement would lead to the enrichment of the beneficiary owner of the plaintiff, even though he was the subject of a preliminary investigation in Russia on suspicion of bribery and was wanted internationally.
Since his statements in the Cypriot proceedings had been the decisive arguments and he was the person who had been defrauded by the debtor, his failure to appear at the hearing in Russia indirectly confirmed that his statements in the Cypriot proceedings could not be trusted.
The court then referred to the usual arguments regarding states that have imposed sanctions against the Russian Federation and are therefore not worthy of protection.
This decision shows once again that there is no legal certainty in Russian courts. Whether or not a decison is recognised and enforced may depend on many factors which cannot be predicted.