Ruslan Urusbievich Bestolov v Siman Viktorovich Povarenkin

Under Article 3(1) of the Rome Convention, a choice of governing law need not be express. It is sufficient if the contract and the circumstances objectively demonstrate a real choice with reasonable certainty. The circumstances may extend beyond those ordinarily relevant to implying a contractual term.

Where contractual provisions equate the parties’ existing relationship with a future company governed by a particular law, and provide for their agreement to be incorporated into that company’s documents, they may demonstrate a choice of that law for the existing contract.

Under Russian law, a clear and unambiguous oral statement that a debt cannot presently be paid may acknowledge the debt and interrupt limitation. A proposal to satisfy the debt by transferring assets does not create settlement privilege where liability is undisputed.

The claimant brought a debt claim for US$7,535,147 under an addendum to a partnership agreement concerning mining investments in Yakutia. The defendant alleged that the claim was time barred and advanced a late defence and counterclaim based on alleged misrepresentations, promises and failures by the claimant.

The principal issues were whether the agreement was governed by English law or Russian law, whether the defendant had acknowledged the debt in September or October 2014, and whether the alleged defence and counterclaim were made out.

1. Choice of law. The court applied the objective test under Article 3(1) of the Rome Convention. The question was whether the terms and circumstances demonstrated a real choice of law with reasonable certainty. The circumstances could extend more widely than those relevant to implying a term, consistently with Aeolian Shipping SA v ISS Machinery Services Ltd [2001] EWCA Civ 1162 and the example in FR Lurssen Weft GmbH & Co KG v Halle [2009] EWHC 2608 (Comm).
2. Clauses 1 and 2 of the agreement did more than provide for an English company. Read together, they equated the parties’ joint venture relationship with that company, required their agreements to be written into its incorporation documents, and provided that it would be governed by English law. They therefore demonstrated with reasonable certainty a choice of English law for the binding relationship created by the agreement.
3. The court adopted the formulation in British Arab Commercial Bank v Bank of Communications [2011] EWHC 281 (Comm): in the absence of an express choice, the fundamental question was whether there was nevertheless a real choice. The later uncompleted draft agreements did not assist because they recorded proposed, not agreed, choices of law.
4. Acknowledgment and limitation. The court accepted that under Article 203 of the Russian Civil Code, any act evidencing recognition of the debt could interrupt limitation. No particular formality was required. The test was objective and assessed from the creditor’s perspective. A clear and unambiguous oral statement could suffice.
5. The defendant’s statement that he could not pay because of cash-flow difficulties, coupled with an offer to explore payment by transferring shares, was a clear and unequivocal recognition of the debt. The meeting was therefore not a settlement discussion about disputed liability, and the subsequent negotiations were not protected by without-prejudice privilege.
6. The debt was governed by English law in any event, so the Russian limitation defence failed. The alleged misrepresentations and promissory obligations were untrue or unproved. Judgment was entered for the claimant for US$7,535,147, and the counterclaim was dismissed.