Dispute Resolution in Russia: New Trends

Russia is a state where going to a state court is the most popular method of resolving a dispute. Thus during the financial crisis and esp. in 2009 we have experienced a sharp increase of the workload on the national judicial system.  According to the recent statics shown by the Higher Arbitrazh Court – the top tier court in Russia for resolving commercial disputes – year 2010 has shown a certain decrease in the amount of new statement of claims being received by the courts. However still the workload remains quite high – over 1 million cases are heard in Russian commercial courts (about 50 cases per judge per month).

This brings us to the main challenge that we are facing when dealing with dispute resolution in Russia.  One would mention corruption; however we would argue that though this is a well-recognized challenge to almost any public institute in the country, the greater threat for the system of commercial disputes resolution is its inefficiency.  Indeed, while it is possible to withstand bribery and influence on the court by means of developing a strong legal position, using appeal and public control mechanisms, it is quite unsafe to rely that a judge having no time read your case (no to say think it over) would pass a fair decision.  Inefficiency is also there on the phase of enforcement of courts’ decision.  Though respective state agencies are undertaking significant efforts to fight “bad-faith” debtors and “one-day” companies, the number of court rulings that do not lead to successful recovery is still very significant.

We believe that to overcome this inefficiency significant efforts should be spent on promoting alternative dispute resolution methods, on increasing of transparency of Russian business structures and on implementing fair and adversary trial mechanisms.

The Arbitrazh Procedure Court provides for various mediation and reconciliation procedures, and there is even a special law dedicated to ADR, however even with an instruction from the judge the parties would rarely consider such an option.  As an example, only about 3% of all cases tried in Russian commercial courts have ended up with signing of an amicable agreement between the parties.  Main objection against a more active approach towards ADR is that it would certainly increase the timing and the costs of the process, while as of today the litigation in Russia (in terms of direct costs) is rather cheap (maximum size of the state fee is approx. EUR 5000) and fast (normally it takes less than a year for a case to pass through all court tiers).  On the other hand indirect costs, as well as reputation, impact on business are not given sufficient consideration.  We always bring this to our client’s attention and help to search an alternative solution.

In the meantime the legal profession, both in-house and outside counsel are joining efforts in developing progressive court practice that would increase the efficiency of court procedures within the frame of existing legislation.  Though court precedents per se are not recognized as sources of law in Russian legal system, the decisions of higher tribunals significantly impact on the rulings of the lower courts and thus create new or enhance existing judicial practice.  In particular our firm has participated in a number of precedential cases recently, esp. in the area of IP law and enforcement of foreign arbitral awards.

The standard schedule for litigating a case in Russia is as follows.  The claim filed to the competent court of first the first tier (Federal arbitrazh court of the region where the opponent has its residence, if not otherwise prescribed by law or contract) is accepted and prepared for the first preliminary hearings within one month from the filing date.  Consideration of a case solely by the judge, court proceeding and rendering a decision in the court of the first instance will take from three to four months.  As a matter of fact, almost every decision rendered by the court of the first instance is appealed in the court of appeal (one of the twenty Federal arbitrazh courts of appeal).   A party has one month to file an appeal to the appellate court after the decision of the first instance court was rendered.  In case an appeal was not filed within a month, an interested party is entitled to receive an order of enforcement of the judgment.

The court of appeal revises the case and if it finds any reasonable causes sets aside prior judgment and delivers a new decision.   Subsequent examination of the case in the court of appeal can take not more than two months.

After a decision of the appellate court was rendered and entered into legal force, a party during two months can file a second appeal on the decision that was rendered by the lower court to the cassation court (one of the ten Federal arbitrazh district courts).  Examination of the case in the cassation court cannot take more than two months as well.  The cassation court examines the compliance of the procedure (however, does not reconsider the case on its merits) and if it finds reasonable grounds sets aside the prior decision and submits it for reconsideration or delivers its own judgment.

Within three months from the date when the final act was rendered, the judgment can be appealed in the Higher Arbitazh Court.  The Higher Court examines whether the rendered judgment violates consistency of the legislation and court practice.  Less than one percent of the total amount of claims are examined in the Higher court every year and it’s considered to be a great success if a case was taken for consideration by the Higher Arbitrazh Court.

Therefore, an initial judgment can be rendered in three months from the moment of initial filing to the court; however challenging the judgment in the higher appellate courts can exceed examination of the case up to one year.

Russian court system is currently undergoing a major reform, both in terms of structure and legal regulation.  As of November 1 2010, amendments to the Arbitrazh procedure have entered into force which has significantly changed the rules applicable to parties’ notification in a court case and to the burden of proof.

In particular, from now on the parties of the case will be considered duly notified about proceedings upon receipt of the first court’s notification.  The court will still be serving notices on appointment of further hearings, however the parties will be obliged to track that information on their own (by Internet or other means of communication), and will bear the risk of adverse consequences of not being able to receive it in a timely manner.  This change has been welcomed by the professional and business community as is aimed at more active involvement of the parties in the proceedings and minimizing the risk of litigation delays because of inability to serve the notification in time.

Another major change is connected with the process of furnishing evidence by the parties.  Before November 2010 in order for certain circumstances which are relied upon by one party to be considered as recognized and accepted by the other party a special formal procedure of acknowledgment had to be observed.  Now if the party doesn’t directly object against certain facts raised by the opposing party or if it doesn’t timely furnish evidence of different facts, these circumstances will be considered as recognized by that party without any additional formalities.  The possible impact of these amendments is being actively discussed among professionals.  Being an effective stimulus for creating a better adversarial approach to litigation, this rule might negatively affect the overall administration of justice, when a party having no adequate legal representation might lose the case despite having all merits to win.

New regulations also establish a restriction on the ability to file for a review in cassation (third tier) court for those cases, which were not reviewed in the appeal (second tier) court.  Accordingly, it is presumed that a case should be subsequently tried in all three levels of courts, without the possibility for the parties to skip the appeal procedure.

We expect further changes aimed to enhance the efficiency of the court system, including an increase of the official fees for filing to the court, greater emphasis on ADR and anincrease of the role of the parties in the process.

Since 2006, Lidings Law Firm has been the leading legal advisor in the Russian market providing unparalleled legal advice to over 350 international companies operating in Russia and the CIS on a wide range of business and legal matters.
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Andrey Zelenin is a partner at the firm and he can be contacted on +7 495 989 4410 or by email at azelenin@lidings.com.