Commentary to Art. 110 Arbitration Procedure Code of the Russian Federation

Reimbursement of legal expenses in arbitration proceedings

If the court completely rejects the claim, the defendant may demand compensation for all expenses incurred in pursuing the case. And even if the claim is partially satisfied, the defendant can also compensate them in proportion to the part of the claims that were denied.

The issue of reimbursement of costs in arbitration, incl. payment of state fees and court costs must be exhausted in the same legal process in which the case itself is considered on the merits. If the problem of expenses remains open, the interested person, within 6 (six) months from the moment the judicial authority makes a decision on the case, has the right to apply to the same court with an application for compensation (clause 2 of Article 112 of the Arbitration Procedure Code of the Russian Federation).

Distribution of legal costs in arbitration proceedings

According to the Arbitration Procedure Code of the Russian Federation, the period for collecting legal costs is 3 (three) months from the date of entry into force of the last judicial act, the adoption of which ended the consideration of the case on the merits (Article 112 of the Arbitration Procedure Code of the Russian Federation). Until 01.10.2019, an application for reimbursement of expenses could be submitted within 6 months.

Reducing legal costs in court

Courts of general jurisdiction almost universally reduce the amount of legal costs without reason. This is especially true for the costs associated with the consideration of the case. In particular, the cost of travel and accommodation for lawyers from other regions. The Supreme Court has repeatedly expressed its condemnation of this approach.

Position of the Supreme Court

The court must assess the validity of claims for reimbursement of legal costs; the reasons why some evidence is accepted and others rejected; the grounds on which some evidence is given preference over others (part 4 of article 67 of the Code of Civil Procedure). A calculation is needed that would allow us to verify the correctness of the calculation of the amount collected by the court.

For reference: Reducing legal costs.

Justification of legal costs

The losing party must bear the costs of the proceedings. But she has the right to object to the requirement to compensate for costs. And also prove the excessive costs of the winner of the dispute. The party in whose favor the court made a decision will have to justify that these costs are included in the legal costs, justify their amount and prove the fact of payments.

Accounting documents will confirm that the company paid the representative, experts, for inspection and data collection, etc. In this case, the amount of expenses must meet the criterion of reasonableness. The burden of proof of compliance with this criterion must be borne by the disputant who seeks reimbursement of costs.

It is necessary to prove:

Proportionality and proportionality of expenses. For example, justify why several lawyers were involved in the case.
Cost savings for the company and compliance of payments with the level of prices for the services of judicial representatives.
The fact that services were provided for which the company paid. It is also better to have evidence that the representative provided services of adequate quality.
No abuse of rights. Legal costs will not be redistributed in favor of the violator.

The winner of an arbitration dispute may submit an application for legal costs at any stage of the process. However, in practice, it makes sense to do this after you have gone through the appeal stage. The application is submitted within 6 months from the moment the court considered the dispute on the merits and issued an act on it.

Arbitrage practice

Is it possible to recover interest on the amount of legal costs?
This was confirmed by the Moscow District Court in case No. A40-21579/2019. In it, the winning party received a court order for the recovery of legal costs, but it was never executed. And she decided to charge interest on this amount. Two authorities refused this.
But the law does not exclude the possibility of charging interest on the amount of legal costs, the cassation indicated. She overturned the decisions of the lower authorities in this part and recovered interest.
Is it possible to confirm payment for services from a legal entity with a receipt?
This was the answer given by the Moscow District Court in case No. A40-226879/2017, where individual entrepreneur Tatyana Chetverkina recovered 73,000 rubles from her losing opponent. expenses for lawyer I. Chistyakov. He confirmed receipt of the money with a receipt. But two authorities considered this to be inadmissible evidence. After all, a receipt is not a payment document for an individual entrepreneur as a legal entity. Here the courts referred to the accounting law and a number of provisions of the Central Bank.
The receipt could support the expenses, the district court objected. Restrictions on cash payments exist for tax and corporate purposes, but not for private law purposes. According to the meaning of Art. 408 of the Civil Code, fulfillment of obligations can be confirmed by a receipt that the creditor issues to the debtor. Even if the primary accounting documents are not drawn up, this in itself does not refute the fact of the transfer of money.
When reconsidering the dispute, the first instance awarded legal costs.
Is it possible to recover legal costs from a participant in a case who has abused his rights?
- Can.
- This position was chosen by the AC of the North-Western District in the insolvency case (No. A21-9601/2014) of JSC Ice Cream. There, individual entrepreneur Yulia Kuzmina demanded that the deposit, which she had transferred to participate in the auction for the sale of property, be returned to her. The case went through two rounds, but in the end the IP lost. And then the external manager of Ice Cream, Nikolai Kustov, decided to collect legal expenses from her. Two authorities granted his application.
- Kuzmina did not agree with this and appealed to the AS SZO. She complained that Kustov behaved in bad faith. He violated a court order and did not timely disclose who was the proper defendant in the case. That's why it dragged on. In addition, it was Kustov who entered into an agreement with the auction organizer, who withheld the plaintiff’s deposit for a long time.
- The district court agreed with these arguments and changed the decisions of the lower authorities: it refused to collect the costs from the manager.
Does the court have the right to reduce legal costs without giving reasons?
- No.
- This was pointed out by the Volga District Court in case No. A06-1004/2014. More specifically, in a separate dispute where the actions of the arbitration manager were appealed. The winning party demanded compensation from the losing party for legal expenses, including 200,000 rubles. for consideration of the appeal and 40,000 rubles.
- Two courts decided that these requirements were clearly disproportionate, because the application was based on another judicial act. Therefore, they considered the amount of 40,000 rubles reasonable and justified. – 20,000 for each stage.
- But this is too laconic an explanation, the cassation disagreed. She recalled that the validity of claims for reimbursement of costs must be verified according to the general rules of the process. That is, the court must set out in a judicial act the results of evaluating the evidence, as well as give the reasons why it accepts some evidence and rejects others, the cassation ruling says.
- In reducing the amount of legal costs, the lower authorities did not give reasons why they considered it excessive, did not indicate what prices are usually charged for similar services, and did not refer to a calculation that would allow checking the amount claimed for compensation, the cassation indicated. She also recalled that the losing party objecting to the collection did not make any argument for excess, nor evidence or counter-calculation.
Is it possible to recover legal costs for drawing up a statement of claim if it completely repeats the text of the claim?
- No.
- This is what the Volga District Court decided in case No. A72-443/2018. There, an individual entrepreneur who prevailed over the administration of the city of Ulyanovsk demanded reimbursement of expenses for drawing up a statement of claim - 7,340 rubles. Two authorities awarded this amount, because the plaintiff presented an agreement for legal services and a receipt. Therefore, “the costs are confirmed and actually incurred,” the decisions say.
- But the one who demands reimbursement of expenses for a representative must prove the reality of the services, the cassation objected. The plaintiff allegedly paid to have a statement of claim written to him. But it exactly repeats the text of the complaint addressed to the administration. And she was sent before the plaintiff entered into an agreement with the lawyer.
- “The formal execution of documents cannot prove the reality of the provision of services,” the district court concluded and refused to recover costs.