FEDERAL COURT OF AUSTRALIA

Spirits International B.V. v Federal Treasury Enterprise (FKP) Sojuzplodoimport [2013] FCAFC 106

THE COURT ORDERS THAT:

1.    The cross-respondent have leave to appeal from the judgment of the Court given on 15 February 2013.

2.    The appeal of the cross-respondent pursuant to the said leave be heard and determined instanter on the parties’ submissions made on 12 and 13 August 2013.

3.    To the extent set out in the orders which follow, the said appeal be allowed.

4.    The orders made by the primary Judge on 15 February 2013 be set aside.

5.    Subject to the two next succeeding orders, the cross-respondent have leave to file a Rejoinder to the Reply of the cross-claimants in the form of the draft set out in Ex MCG-3 to the affidavit of Maurice Charles Gonsalves affirmed on 1 March 2013.

6.    In the Rejoinder as filed pursuant to the said leave –

(a)    paragraph 4 be confined to an allegation of apprehended bias, and not include any allegation of actual bias; and

(b)    in place of the particulars to paragraph 4 of the said draft, the particulars upon which the cross-respondent relied in the Full Court on 13 August 2013 be used, save that paragraphs 29, 30 and 31 not be included in those particulars.

7.    The said Rejoinder be filed and served within seven days.

8.    The parties file and serve written submissions on the question of costs (both before the primary Judge and before the Full Court) according to the following timetable:

(a)    the cross-respondent, within 14 days;

(b)    the cross-claimants, within a further 14 days; and

(c)    the cross-respondent in reply, if necessary, within a further 7 days.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

JACOBSON AND JESSUP JJ

1    This is an application for leave to appeal from a judgment of a single Judge of the Court given on 15 February 2013, in which his Honour refused leave for the cross-respondent, Spirits International B.V., to file a rejoinder to the reply of the cross-claimants, Federal Treasury Enterprise (FKP) Sojuzplodoimport and Federal Public Unitary Enterprise External Economic Union Sojuzplodoimport (FGUP VO), to the cross-respondent’s defence.

2    A convenient, and uncontroversial, summary of the circumstances which led to the application before the primary Judge may be taken from the opening three paragraphs of the cross-respondent’s outline of submissions on the application for leave:

1.    These proceedings comprise a major piece of commercial litigation relating to the ownership of the famous STOLICHNAYA trade marks in relation to vodka. Spirits International BV (“Spirits”) is the registered owner of those trade marks. FKP and FGUP (collectively, “FKP”), which are each emanations of the Russian Government, seek to cancel Spirits’ registration of those trade marks and obtain registration of them in the name of FKP.

2.    The primary allegation made by FKP in the proceedings is that Spirits is not the true owner of the trade marks because one of Spirit’s [sic] predecessors in title, OAO Plodovaya Kompaniya (“OAO”, formerly known as VAO-SPI), is not the true corporate successor of the Russian company VVO Sojuzplodoimport (“Sojuzplodoimport”) which previously held the STOLICHNAYA trade marks. The allegation is related to events which occurred upon the dissolution of the USSR in the early 1990s and the consequent privatisation of State assets.

3.    Spirits has denied that allegation. In reply to that denial, FKP has pleaded that there is an issue estoppel arising from a decision of the Presidium of the Supreme Arbitrazh Court of the Russian Federation given on 16 October 2001 (“Presidium Judgment”) which precludes Spirits from making that denial. By way of rejoinder to that reply, Spirits wishes to contend that the Presidium Judgment should not be recognized in Australia. The basis for Spirits’ contention is that the Russian Judgment [sic] was given in proceedings which involved a breach of the rules of natural justice namely that, at the time the Russian Judgment [sic] was issued, the Presidium was biased and was not impartial, and further and in the alternative, that there was a reasonable cause for a fair minded observer to apprehend that the Presidium may not bring an impartial mind to the resolution of the questions. Bias may be particular or institutional, as is recognised in a number of recent English decisions in the context of the Russian judicial system (see further below) (Footnote omitted).

3    At least relevantly to the present application for leave, paras 3, 4 and 5 lay at the core of the proposed rejoinder which the cross-claimants sought to file. The primary Judge set out those paragraphs in his reasons, and we do so below:

5    …

3    In further rejoinder to paragraphs 7A(a) to 7A(c) of the Reply, the Cross-respondent says that for the reasons pleaded in paragraph 4 below, the Presidium Decision does not have any force in, and ought not be recognised in, Australia because the Presidium Decision was given in proceedings which involved a violation of the rules of natural justice under the common law of Australia.

4    At the time at which the Presidium Decision was issued, and during the hearing of those proceedings before the Presidium, the Presidium was biased and not impartial, and further and in the alternative, there was reasonable cause for a fair minded lay observer to apprehend that the Presidium might not bring an impartial mind to the resolution of the questions arising in those proceedings.

Particulars

(i)    The Cross-respondent relies upon the matters set out in, and the documents referred to in, the expert report of Professor William Bowring, Exhibit WB-3 to the affidavit of Professor Bowring sworn on 2 April 2012 and filed in this proceeding.

(ii)    The Cross-respondent relies upon the matters set out in, and the documents referred to in, paragraphs 150 to 164 of the report of the expert opinion of Professor Michael Newcity filed in Case Number 214864, Civil Court of the Hague, which matters and documents will be the subject of further expert evidence in these proceedings.

(iii)    The Cross-respondent relies upon the matters set out in, and the documents referred to in, paragraphs 458 to 513 of the expert report of Professor Richard Sakwa, dated 19 October 2009 and filed in Government of the Russian Federation v Yuri V Shefler, City of Westminster Magistrates’ Court, which matters and documents will be the subject of further expert evidence in these proceedings.

5    In further rejoinder to paragraphs 7A(a) to 7A(c) of the Reply, the Cross-respondent says that the Presidium Decision does not have any force in, and ought not to be recognised in, Australia because recognition of the Presidium Decision in Australia would be contrary to public policy in Australia.

Particulars

(i)    The Presidium Decision was issued as the result of the procedure of procuratorial protest and supervision initiated by the Deputy Prosecutor General (also known as the Deputy Procurator General, but hereafter referred to as the Deputy Prosecutor General).

(ii)    The procedure of procuratorial protest and supervision is a proceeding available to the Deputy Prosecutor General, a party to the decision being protested against, but was unavailable to any private litigant such as [OAO Plodovaya Kompaniya].

(iii)    The procedure of procuratorial protest is an unfair procedure which enshrines an institutional inequality between the Deputy Prosecutor General (being a government official) as litigant and a private citizen as litigant.

(iv)    Australian public policy requires equality of procedural rights, including appellate rights, between a government official and a private citizen as litigants.

(v)    The procedure of procuratorial protest and supervision is a procedure which has been held by the European Court of Human Rights to violate the right to “a fair hearing by an independent and impartial tribunal established by law” in Article 6 of the European Convention on Human Rights in cases involving a civil right.

(vi)    The fundamental unfairness of the procedure of procuratorial protest and supervision as recognised in (v) above ought to inform the public policy of Australia in refusing to recognise the decision, whether or not the decision involves a civil right within the meaning of Article 6 of the European Convention on Human Rights.

4    Having set out the positions advanced by the parties, the primary Judge dealt with the above paragraphs of the proposed rejoinder in the following terms:

Paragraphs 3 and 4 of the Draft Rejoinder

62    As noted in [9] above, para 3 of the draft rejoinder does not stand on its own; it is “hinged” to the pleading in para 4. Apart from the bare pleading of bias on the part of the Presidium or, in the alternative, apprehension of bias on the part of the Presidium by a fair minded lay observer, no fact or circumstance going to the conduct of the Presidium, either during the hearing or in the process of reasoning it embraced in the course of reaching its decision, is relied on in support of the bare pleading. The bare pleading relies solely on evidentiary material of doubtful relevance and admissibility, namely, the three expert reports, none of which have anything to say about the instant case. The fact that the order made by the Presidium in the litigation involving OAO Plodovaya Kompaniya was signed by Mr Yakovlev, being the judge who also signed the judgment in Films by Jove (see [17] above), does nothing to support or advance Spirits’ case.

63    In consequence, the pleadings in paras 3 and 4 have to be evaluated and assessed as bare pleadings without any relevant particularisation; as such they would be liable to be struck out on one, or both, of two bases: they have no reasonable prospects of success; additionally, they do not convey to FKP the case it has to meet at trial.

64    The need for the Court to efficiently and vigilantly case manage the proceeding going forward, particularly in consequence of the orders made on 26 November 2010 in Federal Treasury Enterprise (FKP [sic] Sojuzplodoimport v Spirits International BV [2010] FCA 1293, upheld on appeal [2011] FCAFC 69, and having regard to the number of years the cross-claim has already been on foot, impels the conclusion that leave for Spirits to rely on paras 3 and 4 of the draft rejoinder should be refused.

Paragraph 5 of the Draft Rejoinder

65    Leave to rely on this pleading was effectively refused in [Federal Treasury Enterprise (FKP) Sojuzplodoimport v Spirits International B.V. (No 2) [2012] FCA 23], albeit on different grounds. It should again be refused. It not only has no reasonable prospect of success; in my view, it has no prospect of success. The fact that the Presidium Decision emanated from an appeal brought by or on behalf of the State in circumstances where the other party in similar circumstances, would have had no right of appeal, while it may be viewed as unfair, has nothing to do with inconsistency with public policy in Australia.

5    By reference to the draft notice of appeal upon which the cross-respondent presently relies, it may be seen that challenges are proposed to be made in relation to paras 62-64 of the primary Judge’s reasons, as set out above. Neither in those draft grounds nor in the cross-respondent’s submissions made on the application for leave is any attempt made to place in dispute the correctness of what his Honour said in para 65. With respect to paras 3 and 4 of the proposed rejoinder as such, para 4 is essential and, as noted by his Honour, provides a point of reference for the allegations in para 3. It is, therefore, substantially with the correctness of his Honour’s rejection of para 4 that our consideration of the present application for leave should, at least in the first instance, be concerned.

6    When we sat to hear the application for leave to appeal, we made it clear to counsel for the cross-respondent that we had significant concerns with the form of the particulars to para 4 of the proposed rejoinder. A pleading should set out the material facts upon which the relevant party intends to rely. Paragraph 4 as such is no more than a high-level invocation, in relation to the Presidium, of the relevant jurisprudential principle as recognised under Australian law. Standing alone, such an allegation would never be sufficient, and would have to be particularised. It would, therefore, always be in the particulars that a reader of the rejoinder would expect to find the facts relied on, relevantly to the point, by the cross-respondent. Notwithstanding their importance in the circumstances, the particulars, in the form placed before the primary Judge, were wholly inadequate to perform the function to which we have referred. They did not identify the facts upon which the cross-respondent would rely. It is not, in our view, good enough for a pleader to send the reader off to expert reports, or even to sections of expert reports, and to leave it to him or her to join the dots. While some leeway may be allowed, in the discretion of the judge before whom the question comes, as to the way in which facts are particularised, in the present case the pleading itself (ie para 4 of the proposed rejoinder) contained a very serious allegation, and constituted, in effect, the cross-respondent’s defence to the cross-claimants’ plea of estoppel. In our view, what were presented as particulars to para 4 were not particulars at all, and the primary Judge was entirely within his rights to have rejected them.

7    After we had indicated to counsel for the cross-respondent that we had the concerns referred to above about the particulars to para 4, counsel took the opportunity of an overnight adjournment to withdraw those particulars, and to replace them with more conventionally expressed particulars, in the terms set out in the schedule to these reasons. From that point, the question upon which we heard argument was whether leave should be granted to file the proposed rejoinder as so amended. If that question is to be answered in the affirmative, we do not understand it to be suggested on behalf of the cross-claimants that the application for leave should not be granted or that the appeal should not be allowed. We should take the present opportunity, however, to make it clear that the cross-respondent has not succeeded in its project of demonstrating that the primary Judge was in error to have refused leave to file the rejoinder in the form in which it was placed before him.

8    On one view, it would not be appropriate for a Full Court, having found no error in the decision of the primary Judge, to consider for itself the question whether an alternative form of the pleading concerned should have the benefit of the leave sought. However, the cross-claimants do not resist the suggestion that we should proceed in this way, and there are obvious advantages in our doing so.

9    Paragraph 4 of the proposed rejoinder would make two quite distinct allegations, namely, an allegation of actual bias and an allegation of apprehended bias. Those allegations would be related by the conjunctive phrase “further and in the alternative”. That would not, in our view, be a satisfactory way of making these distinct allegations. In Michael Wilson & Partners Ltd v Nicholls (2011) 244 CLR 427, 437-438 [33], Gummow ACJ and Hayne, Crennan and Bell JJ said:

Because the test is objective it is important to keep an inquiry about apprehension of bias distinct from any inquiry about actual bias. An inquiry about actual bias in the form of prejudgment would require assessment of the state of mind of the judge in question. No doubt that would have to be done, at least for the most part, on the basis of what the judge had said and done. But to allow an inquiry about whether the judge had in fact prejudged some issue to enter into a debate about what a fair-minded lay observer might apprehend is to introduce considerations that are irrelevant to the issue that is to be decided when a party submits that there is or was a reasonable apprehension of bias. …

A pleading which relied upon a collection of undifferentiated facts as the basis for an allegation that there had been actual bias or, in the alternative, apprehended bias would be likely to cause prejudice and embarrassment within the meaning of r 16.21(1)(d) of the Federal Court Rules 2011 and should not be permitted.

10    In the present case, as noted above, para 4 of the proposed rejoinder proceeds at a very high level, and could not be defended in the absence of particulars. No complaint was made about that circumstance as such, since particulars have been provided. To a large extent, the debate was concerned with the adequacy of those particulars. That raises an issue in itself, of course, but for the moment we are concerned with the sufficiency of the particulars in a more limited sense, namely, whether they conform with the requirement to maintain a separation as between allegations of actual and apprehended bias.

11    The maintenance of such a separation is not, of course, necessarily inconsistent with the pleader having recourse to a single particular to support allegations both of actual and of apprehended bias. In a case in which both kinds of allegations are made, there may be an area of overlap. To support an allegation of apprehended bias, the facts relied on must be such as would, objectively, justify a conclusion as to what the fair-minded lay observer might reasonably apprehend (Michael Wilson, 244 CLR at 437 [31]). To succeed on a case of actual bias, the plaintiff must show that the decision-maker was actually – ie subjectively – biased in favour of a particular outcome. Almost inevitably, that will involve a conclusion based on inference. The drawing of inferences is itself an objective exercise, notwithstanding that the matter being inferred might be the actual thoughts, motives or predeterminations of a particular mind. Thus there might well be a number of objective facts, in the case in question, which would have the potential both to justify a conclusion as to what the fair minded lay observer might reasonably apprehend and to support an inference as to actual bias in the mind of the decision-maker.

12    The present is such a case. As is apparent from the break-up given in paras 31 and 32 of the particulars to para 4 of the proposed rejoinder (as amended), of the 30 remaining paragraphs, 27 (ie 1 – 28 except 5) are employed in both arms of the cross-respondent’s case. Paragraph 5 is employed only in the apprehended bias case, while paras 29 and 30 are employed only in the actual bias case. As we have indicated, conceptually, there is no objection to such an approach, it being clear to which arm or arms of the case each paragraph of the particulars relates. However, the question remains whether leave to file the rejoinder should be given with respect to either, or both, of those arms.

13    We commence with the proposed case on actual bias. An allegation of the kind proposed is a very serious one. It is, surely, about as serious an allegation as any that could be made against a judicial officer. We would associate ourselves with what was said on this subject by Cole JA in the unreported judgment of the New South Wales Court of Appeal, given on 7 April 1995, in Ramadan v New South Wales Insurance Ministerial Corporation, namely, that a finding of actual bias “involves a finding of judicial impropriety, and probably of judicial misconduct. It involves a finding of breach of the judicial oath.” Making a distinction between apprehended bias and actual bias, his Honour also said:

Actual bias, in those circumstances, would involve a finding that the judicial officer did not attend properly to the evidence, but rather reached a decision determined by reference to previously expressed views. It involves a finding that the judicial officer was in fact unable to, and did not, comply with his judicial obligations.

Although ultimately a conclusion by way of inference may be involved, the facts upon which the Court will be invited to draw such an inference must, we would hold, be set out with particulars no less fulsome than would be required to support an allegation of fraud. Do the particulars contained in para 4 of the proposed rejoinder satisfy this requirement?

14    The opening paragraphs of the particulars are concerned with institutional circumstances and what is said to have been a tendency for the Russian executive to exert influence over the functioning of the judiciary, including in relation to individual cases, where the “economic, commercial or strategic interests” of the state were “in play”; and with the institutional dependence of the judiciary upon the executive. The particulars then move to the trade marks which were of importance in the proceedings in Russia upon which the cross-claimants rely: they were a matter of great commercial importance to the government, which thereby had a real interest in those proceedings. In argument before the Full Court in the present case, counsel for the cross-respondent placed special emphasis upon para 13(d) of the particulars, which concerned an order, or command, by the Russian President that steps be taken for the restoration and protection of the State’s intellectual property rights in relation to vodka. Paragraphs 19 and 20 were connected to this, as it is said that the President’s order was referred to in the document which initiated the appellate proceedings in the Arbitrazh Court about which the cross-respondent complains.

15    The particulars then deal with the circumstances of a different, but (it was said) related, case: that involving a copyright dispute between an American company and a Russian government agency (paras 23-25). At a consultation meeting of those representing Russian interests in that dispute, one of those present was a representative (not a judge, we would stress) of the Arbitrazh Court. He made the communication set out in para 23(c)(iv) of the proposed particulars to a judge of that court, and did so under a heading which referenced the case number of an appeal, then standing in the list of the Court, which related to the copyright dispute. The communication was placed on the court file. The appeal was, on 18 December 2001, decided favourably to the Russian agency. The presiding member of the Presidium in that appeal was Mr Yakovlev, who was also the presiding member on the appeal which led to the decision, published on 16 October 2001, upon which the cross-claimants rely in the present case.

16    Finally, the particulars refer (in paras 28-29) to a communication, made ten days after the publication of that decision, from a Minister of the State to the effect that the work of the General Director of Rospatent “had already achieved positive results”. If the particulars stand, the cross-respondent will invite the Court to infer that this was a reference to the result of the case in the Presidium which involved the vodka trade marks.

17    Broadly, then, the particulars set up the following case of actual bias: the institutional setting was one in which executive interference in the work of the judiciary was commonplace in cases of, for example, commercial interest to the State; the judiciary was, in relation to such things as remuneration, promotion and provision of material benefits, dependent upon the executive; the subject-matter of the case was of considerable commercial value to the State; the President of Russia had issued an order for the protection of intellectual property rights; that order was referred to in what we would call a notice of appeal; the Arbitrazh Court had been represented at what was otherwise a meeting of executive agencies to discuss the copyright dispute and had a memorandum on file in that regard; that occurred in about the same time frame as the making of the decision in the case presently of interest; the same Judge presided in the two cases; and, after the decision in the case presently of interest, the relevant Minister of the State expressed his satisfaction with the outcome.

18    Of the facts referred to, only one relates directly to the proceeding in which the decision on which the cross-claimants rely was made: the inclusion in the notice of appeal of a reference to the President’s order, or command, of 13 March 2000. Since the appeal was brought in the interests of, and with the authority of, the State, that circumstance is both unsurprising and quite benign. Nothing as to the state of mind of the members of the Presidium could possibly be inferred from it, either as such or as a contributory to a more general inferential case. And neither, in our view, is any such more general case open on the other facts and matters sought to be relied on in the proposed particulars. They say nothing about the members of the Presidium who decided the case in question (save, perhaps, for the circumstance that the same judge presided on that case and on the copyright case referred to, reliance on which would, in our view, involve the drawing of a very long bow) and nothing about the immediate circumstances surrounding the hearing of the case or the decision in it.

19    We accept that, in civil litigation, a pleader who sets up a factual case by inference is normally required to go no further than to allege sufficient facts to transfer to the other party the obligation to go into evidence. This working principle is of particular utility in a situation in which it would be the latter who had direct and immediate knowledge of the critical facts (such as, perhaps, where the allegation is one of conspiracy). But two things must be said on this aspect. First, the members of the Presidium are not parties to the present proceeding: the situation will never be reached in which their refusal to go into evidence might strengthen the cross-respondent’s inferential case. And secondly, especially given the seriousness of the allegations made by the cross-respondent, the pleaded facts must be such that, if those facts were proved, the inference which it seeks would be open to be made.

20    It is at this point that, in our view, the facts set out in the particulars to para 4 of the proposed rejoinder fall well short of what is required. Even if all of the facts there set out were proved as part of the cross-respondent’s case in-chief, an inference of actual bias in the proceeding which led to the Presidium’s decision of 16 October 2001 would not be open. We so conclude against the reality, of course, that the court before which such serious allegations would come would find in favour of the cross-respondent only if it felt “an actual persuasion” as to the existence of bias, having regard to “[t]he seriousness of [the] allegation made”: Briginshaw v Briginshaw (1938) 60 CLR 336, 361-362.

21    For the above reasons, we would not grant leave to the cross-respondent to file a rejoinder which makes the proposed allegations of actual bias against members of the Presidium.

22    Turning to the cross-respondent’s proposed case on apprehended bias, ultimately, the cross-claimants made only a single submission as to why leave should not be granted for the filing of the proposed rejoinder. It was submitted that the reasonable bystander would take account (amongst other things) of the circumstance that the decision given by the Presidium on 16 October 2001 was the correct one. Before reaching the stage of apprehension referred to in the authorities, he or she would reach the obvious conclusion that the explanation for the case having been decided the way it was was, in all probability, that that was the appropriate and correct outcome. The Full Court was, in effect, being invited to find that the decision of the Presidium was correct as a matter of Russian law: indeed, to take the view that this was so self-evidently the case as to justify shutting out the cross-respondent from filing a pleading which made, or implied, allegations to the contrary.

23    In our view, the position adopted by the cross-claimants in this respect is misconceived. In their reply, they contend that an issue estoppel arises from the decision of the Presidium. The correctness or otherwise of that decision under Russian law is, it seems to us, irrelevant to the viability of that challenge. That is the whole point of an estoppel plea of the kind made by the cross-claimants: the matter in question having been determined in the earlier proceeding, the matter cannot be re-litigated in the later proceeding. This was, presumably, the principle which the cross-claimants sought to invoke in their reply.

24    The cross-respondent’s proposed apprehended bias case is its answer to the cross-claimants’ estoppel case. If that answer is good, the estoppel will not run, and, presumably, the questions which were decided adversely to the interests of the cross-respondent by the Presidium will be open to be, and will need to be, re-litigated. However, in circumstances where the cross-claimants themselves rely upon an issue estoppel, the correctness – even the self-evident correctness, if that be the situation – of the original decision cannot stand in the way of an otherwise legitimate collateral attack upon the legality of that decision, such as is now proposed by the cross-respondent. This line of reasoning cannot, in our view, be avoided by the somewhat unconventional course of imputing for the reasonable bystander a sufficient understanding of Russian law to be driven to the conclusion that the decision of the Presidium was most probably correct, with such a conviction as to exclude from his or her apprehensions any thought that the decision might have been attended by bias.

25    We do not understand the cross-claimants to have advanced any other serious basis upon which to resist the filing of a rejoinder which makes allegations of apprehended bias in the terms proposed by the cross-respondent. In the circumstances, and to the extent indicated above, we would grant the application for leave to appeal, allow the appeal and grant leave for the filing of a rejoinder which is limited to those allegations.

Associate:

Dated:    18 September 2013

SCHEDULE

PARTICULARS OF PARAGRAPH 4 OF THE REJOINDER

Unless otherwise specified, these particulars relate to the situation as at the date of Presidium decision.

1    The Russian political elite and executive government could and did interfere with the decisions of Russian courts where their economic, commercial or strategic interests were in play.

2    Prior to the 2001 decision, attempts to reform the Russian judicial system to free it of influence of the Russian executive in cases involving economic, commercial or strategic interests of the State had not succeeded.

3    Where the outcome of a case could affect the economic, commercial or strategic interests of the Russian State, there was a real prospect that the Arbitrazh Courts would not decide the case impartially but would favour the interests of the State.

4    If a lower Court gave a decision antithetical to the interests of the Russian State in a matter involving the State’s economic, commercial or strategic interests, the Russian State could and did interfere with such a result by exerting influence on a Arbitrazh appellate court by communicating that the matter was one of importance to the State and the State’s desired outcome.

5    The views in paragraph 1 to 4 were widely held by Russian businesses, academic observers, and government and non-government bodies which had considered the question of the independence of the Russian courts from the influence of the executive in matters involving State interests: see Appendix.

6    The Chairman or President of the Presidium decides on the distribution of cases to particular judges, awards bonuses, resolves the judge’s housing problems, determines a judge’s promotion, and may take disciplinary proceedings against a judge, including proceedings for the judge’s dismissal.

7    A rank and file judge of the Presidium has an interest in reaching a result consonant with the the Court Chairman’s wishes.

8    The Chairman of any Court in Russia is appointed and re-appointed by the President of the Russian Federation and is dependent for his emoluments, and the Court’s funding, on the ongoing support of the Russian executive.

9    In matters involving the State’s economic, commercial or strategic interest, the Chairman of the Presidium had an interest in reaching a decision consonant with the wishes of the President of the Russian Federation.

10    The ownership of the STOLICHNAYA trademarks was of great importance to the Russian State.

11    From no later than beginning of 1999, the Russian Government had a significant interest in obtaining ownership of the STOLICHNAYA trade marks.

12    The interest of the Russian Government in obtaining ownership of the STOLICHNAYA trade marks between 1999 and 3 February 2000 is demonstrated by the following matters:

(a)    on 11 January 1999, an official of the Ministry of Interior (police) wrote to the Chairman of the Board of ZAO Sojuzplodimport, pursuant to Article 109 of the Criminal Procedural Code and Artilce 11 of the Law “On Militia” (police) asking for copies of all documents necessary for confirming the legal activity of ZAO;

(b)    on 25 February 1999 a letter from a Head of Department for Control of Economic Crimes of the Ministry of the Interior to the General Director of Rospatent, asking for the provision of all the files relating to ZAO Sojuzplodimport and VVO Sojuzplodimport and all its legal successors, and also to communication in written form the complete list of registered trademarks in Russia of which these firms had been owners and to specify from and to which periods these relate;

(c)    on 29 May 1999, a criminal case under Article 171(2)(b) of the Criminal Code was instituted against Mr. A. Y. Oleynik, the General Director of ZAO Sojuzplodoimport;

(d)    on 31 May 1999 and other dates the premises of ZAO were searched, and quantities of material and records seized in connection with the criminal proceedings;

(e)    by letter dated 28 June 1999, the First Deputy Minister of Internal Affairs, Mr Kolevnikov, asked the Ministry of Agriculture and Supplies to “consider the question of viability and possibility of restoring of the state to ownership of the traditional names of Russian vodkas…at present the situation has arisen in which the state has lost of rights to the traditional names of Russian vodkas and all profits from their use by producers of alcohol products to the earnings of a private society, one of the co-owners of which is an American firm…In this connection it appears to be viable to prepare and present to the Government of the Russian Federation a well-grounded proposal for the restoration of the right of the state to the ownership of traditional names of Russian vodka, which in the final analysis serves as one of the sources for replenishing the income side of the budget”

(f)    on 18 August 1999, the Office of the Prosecutor General wrote to Rospatent asking it to check the legality of the issue of documents witnessing the right to exclusive use of trade marks of liquor and vodka products by VZAO Sojuzplodimport and ZAO Sojuzplodimport;

(g)    on 10 September 1999, Rospatent wrote to the Office of the Prosecutor General responding for the request concerning trademarks registered in the name of VZAO Sojuzplodimport and ZAO Sojuzplodimport – the list provided included STOLICHNAYA.

(h)    a letter of 30 November 1999, written by the Ministry of the Interior to Mr A. A. Nikiforov, Acting General Director of ZAO Sojuzplodimport, indicates that the criminal case was terminated on 26 November 1999 because of the absence of a crime.

13    The interest of the Russian Government in obtaining ownership of the STOLICHANAYA trade marks from 4 February 2000 was such of importance that it became the subject of the direct involvement of the President of the Russian Federation:

(a)    letter dated 4 February 2000 from the acting Prosecutor-General of the Russian Federation V. V. Ustinov to the acting President of the Russian Federation, Vladmir Putin, in which Mr Ustinov, bearing in mind “the special state significance” of the problem, asked Mr Putin to take the necessary steps to bring the STOLICHNAYA trade marks back to the Russian Federation, and to instruct the Ministry of State Enterprise to create a State Unitary Enterprise, which would take on the right to ownership of such trade marks;

(b)    letter dated 19 February 2000, in which the Minster of the Interior, Mr V. Rushailo, wrote to Acting President Putin to report his Ministry’s findings that management of ZAO Sojuzplodimport had acted in their own interests, and that a result, one of the most significant income flows into the consolidated budget of Russia worth billions of rubles had been lost, and that action must be taken;

(c)    letter dated 6 March 2000, in which Mr E Lisov, Deputy Head of the Administration of the President, wrote to the Acting President with a Draft Order stating that “the relevant federal executive bodies need to confiscate from the unlawful possession of the close joint stock company “Sojuzplodimport” the state property of all-union foreign trade enterprise Sojuzplodimport including management rights of the state for these trade marks”;

(d)    order dated 13 March 2000 (“the Order”) issued by President Putin, which was a command in the strongest terms (using the Russian word purucheniye, a very explicit order to do something immediately) requiring the Prime Minister, the Prosecutor General, Minister of the Interior and other relevant ministers, to immediately take measures directed to the restoration and protection of the rights of the state in relation to intellectual property in the sphere or the production and sale of vodka products, and to the identification and prosecution of the persons involved in the violation of those rights;

(e)    letter dated 17 March 2000, in which the Deputy Head of the President’s Administration, the then most powerful person in Russia after President Putin, sent to the Prime Minister and the Prosecutor General the analysis of 6 March 2000 sent by Mr Lisov to Mr Putin;

14    The Order required monthly reports to be provided to the President.

15    Anyone receiving notice of Presidential Order, would be cognisant of the terms of that Order and the President’s requirement for monthly reports in relation to the Order.

16    Matters of corporate succession relevant to the ownership of the STOLICHNAYA trade marks were the subject of Court proceedings in the Moscow Arbitrazh Courts in 2000-2001.

17    On 21 December 2000, the Arbitrazh Court of the City of Moscow ruled to invalidate clause 2 of the Articles of Association of OAO Plodovaya Kompaniya declaring the company a successor of VVO Sojuzoplodimport.

18    On 18 January 2001, OAO “Plodovaya Kompaniya” lodged an appeal complaint to the Appellate Instance of the Arbitrazh Court of the City of Moscow. On 19 February 2001 the Appellate Instance composed of Judges Konovalova E.V., Demianova O.I.., and Dobrovolsky V.I. found fault with the Judgment of the Arbitrazh Court of the city of Moscow of 21 December 2000 in the case No A40-3957/00-17.

19    On 13 June 2001, Mr Yu S Biryukov, First Deputy General Prosecutor of the Russian Federation, sent a “Protest under the procedure of supervisory review” to the Presidium of the Supreme Arbitrazh Court of the Russian Federation “in the interests of the State and society”, seeking the reversal of the judgment of the Appellate Instance.

20    The Protest referred expressly to the fact that the Prosecutor’s petition took into account the Order.

21    The Russian Government, through the Prosecutor-General, was a party to the Presidium proceedings.

22    By reason of the reference in the Protest to the Order, the Presidium was aware of the importance to the Russian state at Presidential level of obtaining ownership of the STOLICHNAYA trade marks.

23    The Russian Government directly interfered in another case before the Presidium in 2001, where the economic interest of the State was involved: the decision of 18 December 2001 in which the Presidium, chaired by Mr Yakolev, overturned a 3 April 2001 decision of the Moscow Region Arbitrazh Appeals Court in relation to the legal succession to the Soyuzmultfilm Studio and the entitlement of a US Film Company to a license of copyright of certain Soviet era animated films (the Soyuzmultfilm Case):

(a)    a consultation meeting held on or about 30 March 2001 on the subject of the litigation was attended by the Deputy Chairman of the Russian Federation together with representatives of: 1) the Ministry of Culture; 2) the Ministry of Property; 3) the Prosecutor General's office; 4) the Russian agency for Patents and Trademarks; 5) the Department of the State Regulation and Development of Cinematography; 6) the Staff of the Russian Federation Government; and 7) the Administration of the President of the Russian Federation and 8) a representative of the High Arbitrazh Court, E.A. Lyubichev, Senior Consultant of the Administration of Generalization of Judicial Practice of the High Artbitrazh Court of the Russian Federation;

(b)    the conclusion of the meeting that “as a result of the uncoordinated actions of the interested state organizations the measures necessary for the preservation of the state interests in the process of the settlement of the situation surrounding [Soyuzmultfilm Studio] have not been undertaken”;

(c)    at the meeting:

(i)    the Ministry of Property was instructed to secure the participation of its representative in the legal proceedings “on a permanent basis.”

(ii)    the Prosecutor General was asked “to take necessary measures to supervise over court acts which have become legally effective, which were made under the appeals by [FSUESMS] and the Moscow Region Prosecutor's Office, for the purpose of verifying their lawfulness and groundedness”;

(ii)    the High Arbitrazh Court of the Russian Federation (V.A. Yakovlev) was asked to carry out, in procedural forms established by federal law, the court supervision over the cases re: the appeals of [FSUESMS], the Moscow Region Prosecutor's Office, and [SMS], which are being considered in the Arbitrazh courts of Moscow and the Moscow Region;

(iv)    Following the meeting, Mr Lyubichev communicated with a judge of the High Arbitrazh Court (AA Arifullin) under a heading referencing the case number of the appeal that resulted in the 18 December 2001 decision the following statement:

“At the aforesaid consultation meeting at the Deputy Chairman of the Russian Federation Government a wish was expressed about the necessity by all state organs to provide the protection of interests of the Russian Federation (the Federal State Unitarian Enterprise [Soyuzmultfilm Studio]) and in particular the reinforcement of control on behalf of the General Prosecutor's Office and the High Arbitrazh Court of the Russian Federation over the decisions of the said courts”

(d)    Both the agenda of the meeting of 30 March 2001 and the communication referred to in (c)(iv) above were placed on the Court file;

(e)    The decision of the Presidium overturned earlier decisions that were adverse to the State’s economic interest.

24    It is to be inferred that in Soyuzmultfilm Case, the Presidium acted in accordance with the “wish” “expressed about the necessity by all state organs to provide the protection of interests of the Russian Federation (the Federal State Unitarian Enterprise [Soyuzmultfilm Studio]) and in particular the reinforcement of control on behalf of the General Prosecutor's Office and the High Arbitrazh Court of the Russian Federation over the decisions of the said courts” and did not decide the Soyuzmultfilm Case impartially.

25    The inference is to be drawn by reason of:

(a)    the interference referred to in paragraph 23 above; and

(b)    the facts referred to in paragraphs 1 to 4, and 6 to 9, above.

26    On 16 October 2001, the Presidium overturned the decision of Appellate Instance.

27    The 16 October 2001 decision was signed by Mr Yakolev as Court Chairman.

28    On 26 October 2001, Mr V G Loginov, Deputy Minister of Agriculture and Head of Indepartmental Working Team seeing to execution of President Putin’s Order of 14 March 2000, wrote to Mr A D Korchagin, the General Director of Rospatent, that his work had already achieved positive results.

29    It may be inferred that the reference to achieving positive results was a reference to the fact that the Presidium had been influenced by the communication of the terms of the Order to the Presidium in the Protest and/or that the wishes of the President had, in other some way unknown to the Cross-Respondent, been communicated to, and acted upon by, the Presidium.

30    It is to be inferred that in the case before the Presidium decided on 16 October 2001, the Presidium did not act impartially but rather acted in accordance with the wish of the President of the Russian Federation as communicated by the terms of the Order or some other means presently unknown to the Cross-Respondent:

(a)    the fact that the Presidium was influenced by the Executive in the Soyuzmultfilm Case to reverse the decision of the lower court and to find in favour of the interests of the Russian State (see paragraphs 24 and 25 above);

(b)    the fact that the economic interest of the Russian State in the Soyuzmultfilm Case was commercially less significant than the Russian State’s interest in the STOLICHNAYA vodka trademark;

(c)    the Presidium’s awareness of the terms of the Order;

(d)    the fact that a finding against the interests of the State would be contrary to the Order; and

(e)    the matters in paragraphs 1 to 4, and 6 to 9, above;

(f)    the fact that a finding against the State would jeopardize the position of the Chairman and members of the Presidium.

31    By reason of the matters particularised in paragraphs 1 to 4, and paragraphs 6 to 30 above, the decision of the Presidium given on 16 October 2001 was not impartial.

32    Alternatively, by reasons of the matters particularised in paragraphs 1 to 28 above, or alternatively paragraphs 1 to 23 and 26 to 28 above, there is reasonable cause for a fair minded lay observer to apprehend that the Presidium might not bring an impartial mind to the resolution of the questions arising in those proceedings.

APPENDIX

(a)    Report, “Honouring of obligations and commitments by the Russian Federation” dated 26 March 2002, Committee on the Honouring of Obligations and Commitments by Member States of the Council of Europe of the Parliamentary Assembly of the Counsel of Europe at para 35:

35. Mr Lebedev, Chairman of the Russian Supreme Court, reported on substantial progress made towards a stable, independent judiciary, especially as regards the full and effective independence of judges…. Salaries of the judges have been recently increased in order to strengthen their independence. However, NGOs as well as international observers expressed serious doubts on the independence of the judges (despite the increase of their wages and other material gains).

(b)    United States State Department Country Report on Human Rights for Russia in 2000, published 23 February 2001, at p11

Low salaries and lack of prestige make it difficult to attract talented new judges and contribute to the vulnerability of existing judges to bribery and corruption…Judges are subject to intimidation and bribery from officials and others:

(c)    United States State Department Country Report on Human Rights for Russia in 2001, published 4 March 2002, at p8

The Constitution provides for an independent judiciary, and there were signs of limited judicial independence; however, the judiciary does not act as an effective counterweight to other branches of the Government. Efforts to develop an independent judiciary continued. Judges remained subject to some influence from the executive, military, and security forces, especially in high profile or politically sensitive cases. The judiciary continued to lack sufficient resources and was subject to corruption…Low salaries and a lack of prestige made it difficult to attract talented new judges and contributed to the vulnerability of existing judges to bribery and corruption. Working conditions for judges remained poor, and support personnel continued to be underpaid. Judges remained subject to intimidation and bribery from officials and others.

(d)    United States State Department Country Report on Human Rights for Russia in 2002.

The judiciary remained subject to influence from other branches of government.

(e)    Report, “The Judicial System of Russia. The Fundamentals of the Program”, Centre of Political Technology:

The position of the judges was based on the belief that police and procuracy officials still needed cooperative judges and were ready to exact revenge on those they disliked and that local politicians were still inclined to help law enforcement officials…. in the absence of the reform of criminal investigation and prosecution, law enforcement personnel will still expect cooperation from judges and use every means to achieve it, including the persecution of nonconformist judges. For decades, investigators and procurators in Russia have been evaluated according to their rates of acquittals (expected to be minimal) and solutions to crimes (expected to be very high); without changes in the incentives facing investigators and procurators, they will retain an unhealthy interest in the conduct of judges.

(f)    Discussion Paper, Capture of Bankruptcy: Theory and Evidence from Russia, Centre for Economic Policy Research, June 2000:

[A] distinguishing feature of Russian bankruptcy institutions is the capture of Arbitrage [arbitrazh] courts by the political power in the regions. Arbitrage court judges, who are vested with significant discretion over bankruptcy procedures, are not independent. On the basis of large amounts of available anecdotal evidence, we make an observation that regional governors have the ability to strongly influence the decisions of Arbitrage court judges.

(g)    Report, Russia: Building Rules for the Market, OECD Reviews of Regulatory Reform, June 2005, pp51-52

Judicial reform is far from complete and much remains to be done to establish the rule of law…The major remaining challenge in the field of judicial reform is to rid the courts of corruption and political influence- to eliminate the so-called “shadow justice” that President Putin decried in his 2001 message to the Federal Assembly. The involvement of state prosecutors and of the security services in commercial and political disputes remains a problem. The courts are still widely regarded as susceptible to outside pressure and inducements, and a considerable body of circumstantial evidence suggests that this perception is accurate….the Yukos case is unique in its scale and visibility. The security services, the prosecutors and the police remain highly politicised and have frequently been deployed against businessmen who were in conflict with federal or regional authorities.

(h)    Report, Striving for Judicial Independence: A Report into Proposed Changes to the Judiciary in Russia, An International Bar Association Human Rights Institute Report, June 2005

Sources interviewed and material examined by the delegation provide support for the widespread perception of abuse of power by Court Chairpersons in such matters as dismissals, terminations of probationary judges, assistance in obtaining apartments and other non-monetary privileges, and allocation of cases…there appears to be widespread perception of judicial corruption and political interference in the judicial process, based partly on a view of the judiciary during Soviet times, but also on several well—publicised recent cases.

(i)    Timothy Frye “The Two Faces of Russian Courts: Evidence from a Survey of Company Managers” 11 East European Constitutional Review pp.125-129;

(j)    Kathryn Hendley, “Assessing the Rule of Law in Russia”, (2006) Cardozo Journal of International and Comparative Law, vol. 14 , pp.347-391;

(k)    Kathryn Hendley Putin and the law’, in Putin’s Russia: Past Imperfect, Future Uncertain, ed. Dale Herspring (Lanham, Maryland: Rowman & Littlefield, 3rd ed., 2006), p.99

Under Putin, law is best conceptualized as a dual system in which mundane cases are handled in accordance with the prevailing law, but under which the outcomes of cases which attract the attention of those in power can be manipulated to serve their interests.=

(l)    Courts and Transition in Russia: The Challenge of Judicial Reform, Peter H. Solomon and Todd S. Foglesong (2000) Westview Press, in relation judicial independence in the late USSR (that is, before 1991):

… direct intervention in the resolution of cases was neither common nor officially condoned, but even this extreme violation of judicial independence was tolerated by the regime most of the time, as long as the interventions served the regime’s purposes and were conducted discreetly.

The willingness of many judges to take occasional direction from politicians was based upon their dependence upon political bosses in their localities, dependence upon whom was both personal and institutional in character. Judges themselves relied upon the goodwill of political bosses in their localities for tenure in office (both to gain renomination every five years and to avoid recall during the term) and for the provision of such important perks as apartments and vacations. To operate courts effectively the chief judges needed cooperation and supplementary funding from local leaders to get courthouses repaired and cars provided.=

(m)    Gordon B Smith, Reforming the Russian Legal System (1996). Cambridge University Press:

Russian legal culture, typical of many traditional societies, does not accord law and legal institutions high status and prestige. Authority, including legal authority, is viewed as often arbitrary and something to be “gotten around” rather than complied with. Bribery flourishes in this culture, as it has for centuries, where local official expect remuneration for favours, authorizations, or special dispensations.

(n)    Stephen White, Russia’s New Politics: The Management of a Postcommunist Society, 2000) Cambridge University Press at p. 287

(o)    Global Competiveness Report, 2005-2006, September 2005, World Economic Forum – ranking of Russian Courts;

(p)    The UN Special Rapporteur on the Independence of Judges and Lawyers, conducted a fact finding trip to Russia in May 2008, and concluded that "political and other intereference has damaged the image of the justice system in the eyes of the population";

(q)    Ethan S. Burger, Corruption in the Russian Arbitrazh Courts, will there be significant progress in the near term: 38 International Law Journal 15 (2004);

(r)    Scott P Boylan, The Status of Judicial Reform in Russia, 13 American University International Law Review, 1327, 1327-8;

(s)    Louise I. Shelley, Why a Corrupt State Can’t be a Strong State: Corruption in the Post-Yeltsin Era, 9 E. Eur Const. Rev. 70;

(t)    Arian Lambert-Mogiliansky, Constantin Solin, and Ekaterina Zhuravskaya, Capture of Bankruptcy: Theory and Evidence From Russia: Centre For Economic Policy Research Discussion Paper No 2488, June 2000.

REASONS FOR JUDGMENT

JAGOT J

26    I have read the draft reasons for judgment of Jacobson and Jessup JJ. I agree with those reasons other than in one respect. I have reached a different conclusion about the issue of actual bias. My reasons are as follows.

27    Paragraph 4 of the proposed rejoinder alleges actual and apprehended bias. Insofar as actual bias is concerned there was no dispute that the issue depends upon the “the state of mind of the judge in question” (Michael Wilson & Partners Ltd v Nicholls (2011) 244 CLR 427; [2011] HCA 48 at [33]). Nor did Spirits Intentional B.V. (Spirits) shy away from the fact that its particulars, as amended during the hearing of the appeal, involved the institutional circumstances of the Russian judiciary, the importance of the trade marks in dispute to Russia, the order by the Russian President that steps be taken for the restoration and protection of the state’s intellectual property rights in relation to vodka, the reference to this order in the document which initiated the appellate proceedings in the Arbitrazh Court which Spirits contends cannot found an estoppel against it, and an unrelated copyright dispute decided by the same member of the Arbitrazh Court as presided in the impugned decision in the present case, which a United States court said was a decision “strongly influenced, if not coerced, by the efforts of various Russian government officials seeking to promote “State interests””, with the consequence that “the High Arbitrazh Court’s decision is entitled to no deference” (Films by Jove Inc v Berov 250 F. Supp.2d 156). Accordingly, I agree with the outline of the case of actual bias provided by Jacobson and Jessup JJ at [17] of their reasons for judgment.

28    Where I depart company from my colleagues is their conclusions at [18] to [20] that nothing in the particulars could possibly found any inference about the state of mind of the members of the Presidium who decided the case in question so that the pleaded facts, even if proved, would not make it open to draw the inferences necessary to support a conclusion of actual bias.

29    First, and as Spirits submitted, the:

fact that Spirits does not have in its possession at this point in time and prior to discovery the extraordinary documents which were unearthed in the Films by Jove case does not mean that the inference is not open, or that such evidence may not become available by the time of trial following discovery.

30    Second, institutional or systemic corruption and lack of independence of a foreign judicial system is a justiciable issue (AK Investment CJSC v Kyrgyz Mobil Tel Limited [2011] UKPC 7 at [101]).

31    Third, at this stage in the proceeding, I consider it very difficult, if not impossible, to predict what inferences might be reasonably open on the whole of the evidence. As Spirits pointed out, in Cherney v Deripaska (No 2) [2009] EWCA Civ 849 at [66] the UK Court of Appeal found no error in the trial judge’s process of reasoning that past interferences by the Russian government in the judicial process enabled inferences to be drawn about likely interference in the case in question. Without the benefit of the whole of the evidence I, for one, am not sufficiently confident to say an inference of actual bias could never be drawn by reference to the facts as particularised.

32    Fourth, and to expand on my lack of sufficient confidence at this stage of the proceeding, it must be remembered that refusal to permit Spirits to rely on that part of its proposed rejoinder alleging actual bias is the effective equivalent of striking out that part of its case on the basis that it is doomed to fail or has no reasonable prospect of success. Certain principles are thus in play. The power to refuse leave to rely on the allegation “must…be attended with caution” and be exercised only where “it is clear that there is no real question to be tried”, there must be “a high degree of certainty about the ultimate outcome”, the fact that “the court has formed the view that the applicant is unlikely to succeed on the factual issue” is insufficient, and as the law may change so “[s]ummary processes must not be used to stultify the development of the law”. Moreover, the need for caution is all the greater where, as here, “consideration of apparently complex questions of fact” will be required (Spencer v Commonwealth of Australia (2010) 241 CLR 118; [2010] HCA 28 at [24], [25] and [26]). In Spencer itself (at [31]) the fact that the “pleading left open the possibility, requiring factual exploration and possible amendment, of” a justiciable issue precluded summary dismissal.

33    For these reasons I agree with the orders proposed by Jacobson and Jessup JJ other than that I would grant leave to Spirits to file its proposed rejoinder and particulars including the allegations of actual bias.

Associate:

Dated:    18 September 2013