Russian Federation: Litigation. Major Russian Legislation Changes For 2014

Last Updated: 11 February 2015
Article by Mikhail Ivanov and Roman Zaitsev

1. Completion of the constitutional reform of the judicial system announced in 2013 with the abolition of the RF SCC and formation of the new RF Supreme Commercial Court

The constitutional reform announced in 2013 was completed on August 6, 2014 with the abolition of the RF Supreme Commercial Court and the opening of the new RF Supreme Court. The Supreme Court becomes the highest instance for consideration of practically all judicial disputes, whether in the courts of general jurisdiction or the commercial courts.

The new Supreme Court will have seven panels, including panels for economic disputes, civil disputes, criminal cases, and administrative cases.

However, as at the end of 2014, the court had only slightly more than half its intended number of judges, and only a small number of judges with experience in the RF SCCSCC had been appointed to the Economic Disputes Panel. Appointments will therefore continue into 2015.

As intended, a number of amendments have also been made to procedural law pursuant to the judicial reforms, in particular in order to standardize the system for appealing judgments. However, far from being over, the process of amending legislation in connection with the abolition of the RF SCCSCC has most likely barely begun. It is highly likely that new amendments will be made to the procedural codes (RF Civil Procedural Code and RF Arbitration Procedural Code (RF APC)) in 2015; at the same time, in 2014 the potential for the appearance of new codes – RF Administrative Code and a single RF Civil Procedural Code gained ground. The adoption of these codes would undoubtedly have a significant impact on the entire judicial system, and in this respect the work of the RF Supreme Court as the highest judicial instance will have especial significance.

We note that the results of merging the two highest courts have met a mixed reaction from the legal community. There is concern that the reforms will result in consideration of legal disputes taking longer, the number of cases transferred for consideration by the Economic Disputes Panel is lower as a percentage of appeals filed than than the number previously transferred for consideration by the RF SCCSCC Presidium, no substantive new approaches or trends in the consideration of certain categories of dispute have yet appeared, and so on. It is also noted that previously adopted RF SCCSCC acts (Plenum Rulings, Presidium Information Letters) are being used ever less frequently in Economic Disputes Panel decisions, which may imply changes in the practice of considering certain categories of economic dispute and the practice of applying both substantive and procedural law.

At the same time, given the short period in which it has been functioning, a detailed assessment of the new RF Supreme Court is still premature. Most lawyers acknowledge that the creation of a single court is indeed capable of eliminating the problem of varying interpretations of the rules by different courts and inconsistent application of the law.

Obviously, the problematic aspects of the new RF Supreme Court noted at the end of 2014 can hardly be treated as the results of the judicial reform or evidence of clear trends in court practice. Essentially, the second half of 2014 was merely a transitional phase; the activities of the Supreme Court have undoubtedly been affected by the limited number of judges. Therefore it would be best to wait until the end of 2015 for more detailed comments on the results of the judicial reforms.

2. Changes in jurisdiction in connection with the abolition of the RF SCC, redistribution of competences between courts of general jurisdiction and commercial courts by amendment of the RF APC

The constitutional reforms relating to the abolition of the RF Supreme Commercial Court and the opening of the RF Supreme Court have also resulted in the adoption of a number of laws redistributing competences between courts of general jurisdiction and the commercial courts.

First, cases concerning challenges to regulatory acts affecting the rights and lawful interests of the claimant in entrepreneurial or other economic activities have been taken out of the jurisdiction of the commercial courts. These cases will now be considered by the courts of general jurisdiction.

The only category of regulatory act that will still be examined by the commercial courts is regulatory acts by federal executive authorities in the area of patent law and rights to selection achievements, rights to integrated circuit topologies, know-how, rights to means of individualization of legal entities, goods, works, services, and enterprises, rights to use intellectual property in integrated solutions. These cases are considered by the Intellectual Property Court.

Consideration of challenges to cadastral valuations have also been removed from the competence of the commercial courts. These disputes have now been given to the courts of general jurisdiction (this matter is covered in more detail in section 4 below).

Finally, the abolition of the RF Supreme Commercial Court means that cases considered by that court at the first instance pass into the competence of the RF Supreme Court. In particular, cases involving challenges against non-regulatory legal acts adopted in the areas of entrepreneurial and other economic activities by the higher state authorities of the Russian Federation, as well as economic disputes between constituent members of the Russian Federation.

As a result, the new RF Supreme Court is now the highest judicial authority in civil cases, economic disputes, administrative and other cases. As a court of the first instance, the RF Supreme Court considers cases involving challenges against the regulatory and non-regulatory legal acts of higher authorities, disputes between federal state authorities and regional state authorities, and between state authorities of constituent members of the Russian Federation.

Notably, while the jurisdiction of the RF Supreme Court was previously determined by the RF Civil Procedure Code, the RF CPC now contains only a blanket rule referencing the Federal Constitutional Law on the Supreme Court of the Russian Federation, which determines the competence of the supreme judicial body.

3. Amendments to the rules for appealing commercial court judgments in cassation and in supervisory review (appeal to the RF Supreme Court)

With respect to the examination of commercial court judgments that have entered into legal force, significant changes have been made to the rules on appeals at the cassation instance (addition of the so-called "second cassation appeal") and the rules on supervisory review of judgments.

The main innovation in the cassation instance is the creation of the so-called "second" cassation instance: rulings by district commercial courts and the Intellectual Property Court adopted on the basis of consideration of a cassation appeal can now be appealed in cassation proceedings to the Judicial Panel of the RF Supreme Court.

Notably, the rules on proceedings at the "first" cassation instance (district commercial courts) and the "second" cassation instance (Judicial Panel of the RF Supreme Court) differ from each other, with proceedings before the Judicial Panel of the RF Supreme Court being governed by rules largely borrowed from the RF Civil Procedure Code.

The procedure for consideration of cassation appeals by the Judicial Panel of the RF Supreme Court remains multilevel:

  • Examination of the cassation appeal for compliance with formal requirements;
  • Examination of the cassation appeal on the merits by judges of the RF Supreme Court to determine whether there are grounds for review of judgment and transfer of the appeal and case file to the Judicial Panel of the RF Supreme Court;
  • Consideration of the cassation appeal in a court hearing by the Judicial Panel of the RF Supreme Court.

The Chairman of the RF Supreme Court and his deputies now play a considerably greater role. This is because interested parties now have the ability to appeal a ruling by an RF Supreme Court judge denying the transfer of a cassation appeal for consideration in a court hearing by the Judicial Panel of the RF Supreme Court to the Chairman of the Supreme Court and Deputy Chairman of the Supreme Court. As clause 8 of art. 291.6 RF APC, which provides for this ability, is extremely laconic, the procedure for its application (with respect to filing deadlines, grounds for appeal, etc.) requires clarification by the RF Supreme Court.

Finally, it is worth noting the grounds for setting aside or amending judgments by the Judicial Panel of the RF Supreme Court. The applicable grounds are now: a material violation of substantive or procedural law that affected the outcome of the case and without the rectification of which it is not possible to restore and defend the violated rights, liberties, lawful interests in the area of entrepreneurial and economic activities, or to defend public interests protected by law.

Supervisory review proceedings by the Presidium of the RF Supreme Court have also been radically reformed: the previous chapter 36 RF APC has been rescinded, and supervisory review of judgments is governed by a new chapter 36.1 RF APC, which largely reiterates the provisions governing supervisory review in the RF CPC.

First, the range of judgments that can be appealed to the Presidium of the RF Supreme Court has changed. It includes:

  • Decisions and rulings of the Judicial Panel of the RF Supreme Court that have entered into force, adopted at the first instance, if such decisions and rulings were the subject of an appeal;
  • Rulings of the Appeal Panel of the Russian Federation Supreme Court issued upon the results of consideration of appeals against decisions or rulings of the Judicial Panel of the Russian Federation Supreme Court adopted at the first instance;
  • Rulings of the Judicial Panel of the Supreme Court of the Russian Federation issued in cassation proceedings.

Therefore, the subject of appeal at this time is limited to judgments of the RF Supreme Court.
As in the case of filing cassation appeals with the Judicial Panel on Economic Disputes of the RF Supreme Court, the Chairman of the RF Supreme Court and his deputy have the right to set aside rulings by the RF Supreme Court judges denying transfer into supervisory proceedings and to issue a ruling transferring the appeal for consideration by the Presidium.

The Chairman of the RF Supreme Court and his deputies also have the right on the basis of an appeal by interested parties to submit a recommendation for the review of judgments (for the purpose of curing fundamental violations of substantive law affecting the lawfulness of such judgments) to the Presidium of the RF Supreme Court).

In this way, the Chairman of the RF Supreme Court and his deputies now play a substantially larger role in cassation and supervisory proceedings, which may effectively be regarded as an additional instance within the supreme judicial authority.

4. Changed jurisdiction in cases involving challenges against cadastral evaluations (Federal Law No. 143-FZ of June 4, 2014)

2014 saw the final implementation of the transition to calculating the tax base using the cadastral value of real estate. In October 2014, Chapter 32 was added to the Tax Code providing for the ability to calculate the tax on real estate owned by individuals based on the cadastral value of the taxable properties. In November, art. 217.1 was added to the Tax Code, providing that the cadastral value of real estate will also be taken into consideration when determining the tax deduction at the sale of the said immovable property. The cadastral value and disputes over valuations have therefore become extremely important to private citizens and legal entities.

Legal entities have already been challenging the cadastral valuations of land plots in the commercial courts to minimize their tax base for a number of years. At the end of 2013, the Tax Code was also amended to provide for the ability to calculate the tax base for certain buildings and premises owned by legal entities depending on the cadastral value of such properties.

However, since August 6, 2011, all disputes involving challenges against cadastral valuations have passed to the courts of general jurisdiction. In accordance with the rulings of art. 26 RF CPC, the courts of first instance for such disputes are republican supreme courts, krai and oblast courts, courts of cities of federal significance, courts of autonomous oblasts, and courts of autonomous districts.

At the same time, amendments to the Federal Law on Appraisal Activities in the Russian Federation introduced in July 2014 establish that legal entities must go through a mandatory pre-court procedure for consideration of such disputes by means of application to a commission for consideration of the results of cadastral evaluations.

Notably, the commercial courts were extremely inconsistent in cases of this kind right up until the category was transferred to the courts of general jurisdiction. Different judges in the same court were capable of handing down diametrically opposing decisions on similar claims. In certain cases this even resulted in some companies seeking the return or leaving without consideration of their statement of claim if it ended up before a judge with an unfavorable record in such matters.

The judges were also often unable to reach consensus on matters arising in the course of considering such matters, including as to whether tenants are able to challenge cadastral value, whether forensic expert examinations are necessary, the parties to the case, and even the correct formulation of the claim.

Court activities in 2015 will demonstrate the courts of general jurisdiction's approach to cases of this kind.

5. RF SCCSCC Plenum Ruling No. 22 on Certain Matters Relating to Awarding Monetary Funds to a Recoveror for Non-compliance with a Judgment of April 4, 2014

RF SCCSCC Plenum Ruling No. 22 of April 4, 2014 provides two important changes in arbitration procedural law.

First, the RF SCC Plenum has finally clarified how court decisions on the recovery of interest under art. 395 RF CC and other interest awarded "until the date the obligation is actually performed" should be performed. If a court bailiff enforces the decision, he/she should calculate the final amount owed on the basis of the judgment. In the event of difficulties making such calculation, the enforcing court bailiff has the right to ask the court to provide the corresponding clarification. The same approach applies when submitting a writ of execution to a bank.

Notably, this system is not only applicable to interest for the use of another's funds, but also to other interest such as penalties and interest under a loan agreement.

The RF SCCSCC Plenum separately noted that the court may award a monetary amount for non-compliance with the judgment on the date the decision is actually performed. The general rule is that the said amount is calculated in accordance with the rules of art. 395 RF CC at the Central Bank of Russia refinancing rate. With respect to the latter situation, if the court decision does not indicate the accrual of interest for non-compliance with the decision, the RF SCCSCC's position is that a party to the dispute may apply for an additional decision on this issue.

Second, the ruling introduces the ability to apply special fines for failure to comply with a court judgment. According to this ruling, in order to promote prompt compliance with court decisions in non-monetary claims and compensate for delay in compliance with such decisions, the court may at the request of the claimant award monetary funds in case of non-compliance.

The court may decide the amount awarded at its discretion, acting on the basis of the principles of fairness, commensurateness and the inadmissibility of deriving benefit from unlawful or bad faith behavior. In any case, compliance with the judgment must be less costly for the respondent than non-compliance.

The RF SCCSCC Plenum indicated that monetary funds in case of non-compliance with a judgment for a non-monetary claim may be awarded in a number of ways. The ruling provides for one-time recovery of a fixed amount, accrual of periodic payments, and even the application of a progressive scale (for example, recovering larger amounts for each consecutive week of delay).

6. RF SCCSCC Plenum Ruling No. 50 on Reconciliation of the Parties to Commercial Proceedings of July 18, 2014

In July 2014, the RF SCC Plenum issued a ruling intended to expand the opportunities for reconciliation of the parties in litigation. A key new provision is the express qualification of the settlement agreement as an institution on the basis of a civil-law tranSCCtion to which the provisions of the RF CC on contracts are applicable, including the rule on freedom of contract (art. 421 RF CC). The RF SCC Plenum indicated that a settlement agreement may include any conditions not contrary to law that do not infringe third party rights.

We believe that this approach may enhance the ability of interested parties to agree the conditions of a settlement agreement, for example, by including means of securing performance of the settlement agreement and provisions relating to demands that are not the subject of the litigation.

The ruling notes separately that the contents of a settlement agreement must be precise and clear to prevent potential disputes as to its contents. Courts do not have the right to deny approval of a settlement agreement solely on the basis that the court finds the concessions made by the parties unequal.

Another important innovation is the introduction of the presumption of complete termination of the dispute, in accordance with which upon conclusion of a settlement agreement and absent indication of other consequences the dispute arising from certain legal relations is deemed completely terminated and new demands arising from the same legal relations cannot be brought in court.

The ruling clarifies that a settlement agreement concluded during a cassation appeal of judgments may be deemed a full or partial withdrawal of the claim. At the same time, withdrawal in this manner is not contrary to clause 2 of art. 49 RF APC because it is not a form of unilateral will of the claimant, but rather an agreement of the parties.

The RF SCC Plenum also clarified that the consequences of a party that moved to defer proceedings in connection with a reconciliation refusing or failing to take part in reconciliation procedures without good reason will be the awarding of court costs in the case against the said party.

7. RF SCC Plenum Ruling No. 23 on Certain Practical Matters Concerning the Application by Commercial Courts of Legislation on Expert Examinations of April 4, 2014

The RF Supreme Commercial Court has updated its guidance on matters relating to the appointment of forensic expert examinations by commercial courts, previously given in RF SCC Plenum Ruling No. 66 of December 20, 2006 with the same title.

The new approach provides greater consideration for the discretionary principle. While the general rule was previously that absent a corresponding motion the consent of all parties to the case was necessary for an expert examination, an examination may now be appointed provided at least one party agrees and the necessary funds are deposited in a court account. Failure of the parties to follow the instructions of the court to deposit funds for payment for the expert examination with the court strictly entails denial of the corresponding motion (previously denial was at the discretion of the court).

A number of clarifications are also intended to prevent use of expert examinations to delay proceedings. In particular, the expert must be provided with detailed information on the scope of the expert examination in order to obtain clear information on the timing and cost of the expert examination. A number of issues relating to expert examination may be resolved by the court without restarting stayed proceedings, and a broader interpretation has been given the powers of the appellate court and cassation instance when verifying the justification for granting a stay of proceedings in connection with the appointment of an expert examination.

Clarifications are also given with respect to the parties exercising their right to attend the expert examination, ensuring the appearance and questioning of the expert, and payment of experts' fees. The updated guidance is intended to resolve the most pressing issues relating to the appointment and performance of forensic expert examinations arising in enforcement practice.

8. RF Constitutional Court Ruling No. 30-R of November 18, 2014 corrects court practice on enforcement of arbitral decisions

The question of whether it is permissible for commercial courts established by organizations of which one party in the dispute is a founder to consider disputes has repeatedly arisen during the resolution of disputes concerning the cancellation of arbitral decisions or the issuance of writs of execution for enforcement of arbitral decisions.

Until recently, the commercial courts often acted on the assumption that in the situation described one of the fundamental principles of Russian law was by default not observed – the principle of the impartiality of commercial courts (arts. 42.2 and 26.2.2 APC RF).

In mid-2013, the Presidium of the RF Supreme Commercial Court issued Ruling No. 1567/2013 of July 16, 2013 holding that the consideration of a dispute by a commercial court established by an organization of which one party to the dispute is a founder is evidence of a violation of the guarantee of objective impartiality.

However, at the end of 2014, Russian Federation Constitutional Court Ruling 30-R of November 18, 2014 modified the RF SCC position by stating that the mere fact that a party is a founder of the organization at which the commercial court is established is not sufficient for cancellation of the commercial court decision or refusal to issue a writ of execution.

The Russian Federation Constitutional Court has clarified that judges must assess the impartiality of commercial courts on the basis of objective criteria (a connection between an arbitrator and one of the parties) and subjective criteria (the personal position of the judge in a specific case).

In this respect, the RF Constitutional Court Ruling notes that courts must establish a violation of the impartiality principle by the members of the commercial court in the specific case under consideration, which does not preclude consideration of the organizational and legal ties between members of the commercial court and the parties.

This ruling displays the RF Constitutional Court's traditional approach of ensuring more a more favorable attitude to voluntary jurisdiction acts, which among other things promotes a lower workload for the state judicial system.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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