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Rosneft vs. RBC: 3.179 Billion Rubles in Reputational Damages?

The Legal Highlights section does not involve the reporting or editorial staff of The Moscow Times


Evgeny Oreshin
Dispute Resolution / IP Goltsblat BLP*

Recent high profile cases include the Rosneft vs RBC libel case triggered by the article “Sechin Asked Government to Protect Rosneft from BP.” The case was brought by Rosneft, claiming 3.179 billion rubles in compensation for reputational (intangible) harm, which Russian case law saw as unprecedented compensation. 

In December, the claim was partially awarded by the Moscow Commercial Court, which held that the damages claimed constituted compensation for “intangible losses,” to which the term “loss of profit” could not be applied. The court reduced the damages to a symbolic 390,000 rubles “given the nature of the offence, the level of the offender’s guilt, the lack of proof of potential losses and proceeding from the principles of reasonableness, fairness and proportionality of compensation to the consequences of the offence.” 

In March 2017, a court of appeal rejected recovery of compensation in full, holding that the claimant had neither proved that its reputation had been well established nor that it had been adversely affected by dissemination of defamatory information. The publication at issue was itself recognised as illegal. 

In the press, the case was predominantly discussed from the angle of freedom of the media but, from the legal perspective, it provides yet another reason to consider whether or not the Russian legal system needs such a remedy as recovery for reputational harm, given that damages may be sought. Would it not be too dangerous as a weapon that could be used in bad faith?

Even though this remedy is not expressly specified by legislation, courts have always tried to apply it. In 2003, the Constitutional Court confirmed that it may be used as a kind of equivalent to moral damages to individuals. The remedy has subsequently been widely applied by commercial courts. For instance, in one landmark case, Alfa Bank sought to recover 300 million rubles from Kommersant in compensation for reputational harm following a press publication alleging it was short of cash. The publication caused panic among the bank’s depositors and a run on deposits of more than 6 billion rubles. Eventually, the bank was awarded 30 million rubles in compensation for reputational harm. 

Even so, since 2013, when the Russian Civil Code was supplemented to the effect that the moral damages clauses may not be applied to protect a company’s business reputation, judicial practice has started to change, with courts in most cases dismissing reputational harm claims. In late 2016, the judicial pendulum swung back again. In its ruling of November 18, 2016, the Russian Supreme Court held that, under the new version of the Civil Code, the remedy may still be used. 

Despite what the legislation says, for more than ten years now, this constant judicial support in awarding reputational injury claims has been an important indicator that the business community does, indeed, need this remedy. This becomes especially obvious if we recall the joint position of the doctrine and the courts that no remedies are permitted unless expressly provided for by law. Case law introduces new remedies only once in a blue moon by linking them to those already available.

Compensation for reputational harm is a powerful pill that can help in many cases, yet this means that it should be made available only “on prescription” (courts should consider all the facts of a case when quantifying compensation), to avoid any “side effects” in civil transactions.

So what makes such a remedy, unspecified by law, so resilient? 

On the one hand, in both the current legislation and judicial practice, the standards of proof for damages, including loss of profit, have been eased significantly. The guidelines provided by the Civil Code and the Supreme Court of the Russian Federation indicate that damages should not necessarily be proved with mathematical precision. For instance, they may be calculated as the difference between earnings before and after the offence; in other words, they may be proven by a “rule of thumb.” So perhaps a damages claim for disseminating false information would be an obvious solution in this case? 

Yet even this lower standard of proof does not always work in protecting business reputation. How can damages be measured when a company has posted several articles to discredit competing products but there is no sign yet of customers moving over? How can damages be assessed for potential loss of contracts due to impaired confidence in a company’s reputation in the wake of adverse publications? 

In contrast to damages, the purpose of compensation for reputational harm is to have intangible losses recovered rather than indemnity paid, which illustrates its ambiguous legal nature from the theory-of-law perspective. How can money compensate for non-pecuniary losses? In practical terms, compensation for reputational harm constitutes reimbursement for pecuniary arising from non-pecuniary damage. The problem is that, in most such disputes, it is difficult to quantify pecuniary damage with any reasonable degree of confidence.

To some extent, reimbursement for reputational injury is similar to the compensation specified by the Russian Civil Code for breach of IP rights (such as copyrights, trade marks, etc.) totalling 10,000 — 5 million rubles (or double the value of counterfeit goods or the relevant rights). Alongside such compensation, reimbursement for reputational injury has been introduced because it is so difficult to prove damages. That reimbursement is consequently determined by the court with reference to the nature of the offence. Even so, in contrast to the above compensation, reputational damages may be recovered in addition to compensation for losses. Moreover, the law specifies no recovery cap. 

It was the problem of reputational damages being uncapped, given that specific damages do not need to be proven, that arose in the Rosneft vs. RBC case, in which the sum claimed in reputational damages totalled 3.179 billion rubles. On the one hand, it might be argued that a court may reduce this sum after considering all the circumstances of the case. Yet there are no clear criteria for forecasting damages before disputes are considered. Given that redress for reputational harm is not only compensatory but also punitive in nature and that, among other things, it is designed to prevent offences, this situation might adversely affect the normal course of business.

We do not believe that the above considerations should be seen as a reason for banning this remedy but consider that a way out might be found if the following approach is adopted: given that there is no need to prove exact losses, a higher standard of proof for all other elements should be applied to reputational damages claims (such as the existence of an established business reputation, specific adverse consequences for the injured company, potential losses, etc.). 

Compensation for reputational harm is a powerful pill that can help in many cases, yet this means that it should be made available only “on prescription” (courts should consider all the facts of a case when quantifying compensation), to avoid any “side effects” in civil transactions.

* Goltsblat BLP is the Russian practice of Berwin Leighton Paisner (BLP), an award-winning international law firm headquartered in London and with offices operating in major commercial and financial centres throughout the world — Moscow, Abu Dhabi, Beijing, Berlin, Brussels, Dubai, Frankfurt, Hong Kong, Paris and Singapore, Tel Aviv and Yangon. The firm has a team of 100 Russian, English and US law qualified lawyers based in Moscow and over 800 lawyers in the other international offices. Goltsblat BLP currently has over 1700 clients among the major international investors operating in Russia, including 37 Fortune 500 companies.

www.gblplaw.com    

Tel:+7 (495) 287 44 44

e-mail: info@gblplaw.com

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