Russia is undergoing a rapidly-developing process of judicial reform aimed at unifying the different procedural rules of the two systems of Russian courts: those with so-called “common” jurisdiction and the “arbitration” courts.
The Russian judicial system consists of three branches: the courts of general jurisdiction (where the Supreme Court is the court of last resort), the “arbitrazhniy” (or commercial) court system (here as well, the Supreme Court is the highest body), and the Constitutional Court.
Economic disputes that involve legal entities, individuals engaged in business activities, and disputes between legal entities and their owners (or shareholders) are handled by the “arbitration” (or commercial arbitration) courts. These courts are commonly referred to, somewhat confusingly (as they do not handle arbitrations as that term is commonly used in the West”), “arbitration courts.”
The Russian Supreme Court is working on the reform of the judicial and procedures, which is aimed at unifying the court proceedings of the courts of common jurisdiction and the arbitration courts. The reform’s other goals include the optimization of the courts’ workload (for instance, a judge in the Moscow Arbitration Court handles over 65 cases per month, on average – an enormous workload that negatively impacts the quality of the decided cases and the rates of their consideration). Acting on the Supreme Court’s suggestions, the Russian Parliament has adopted a bill titled “The Amendments to the Arbitration Procedure Code of the Russian Federation.” The Russian President signed the bill into Federal Law #47-FZ on March 2, 2016.
The key provisions of the new law include the introduction of a mandatory pre-trial settlement procedure for commercial disputes, the introduction of the concept of enforcement order proceedings for considering certain categories of commercial disputes, and the modification of the existing simplified small claims procedure.
The new developments should reduce the costs and the time that aggrieved parties will need to spend to protect their interests in small claims.
Under the new rules, claimants are only entitled to initiate proceedings in a commercial court if they have taken measures to seek a pre-trial settlement of the dispute. From now on, a lawsuit may only be filed after 30 days from the date of sending a demand letter to the respondent, unless a different period or a different dispute settlement procedure is stipulated by law or contract. Moreover, this rule will apply to both contractual and non-contractual disputes.
There are, however, several exceptions to this rule. Specifically, the rule does not apply to, among others, insolvency (bankruptcy) cases, corporate disputes, and challenges of arbitral awards.
In view of the new version of the provisions of the Arbitration Procedure Code, complying with the pre-trial settlement procedure has become particularly important. A breach of the mandatory demand letter procedure is a ground for a court to reject a claim or leave it without consideration.
Unfortunately, the new rules of the Code on pre-trial dispute procedure do not address some procedural issues. In particular, the law does not specify how these rules apply when a counterclaim is made. To resolve the issues that have arisen in practice, a new set of amendments was adopted by the Parliament and signed into law by the President on July 1, 2017, and came into force on July 11, 2017. They have narrowed the categories of disputes where pre-trial settlement procedures are mandatory.
Under the new rules, the mandatory pre-trial procedure remains applicable in civil disputes seeking recovery of money from contractual obligations, other transactions, and in cases of unjustified enrichment. Such disputes may be referred to a commercial court after the expiration of 30 calendar days from the date of submitting the claim, unless another period or procedure is established by law or a contract between the parties.
Other civil disputes (as well as economic disputes from administrative and other public relations) are transferred to a commercial court after such cases have gone through the pre-judicial dispute settlement procedure, only if such procedure is provided for by a federal law or a contract between the parties.
These amendments have clarified many controversial situations that arose often in the past when assessing whether it was necessary to comply with the pre-trial settlement procedure. It will, in particular, no longer be necessary to comply with the mandatory pre-trial procedure in disputes about whether a contract has been concluded or is valid or to reclaim property that is in the possession of another person.
We expect more amendments to be implemented in 2017-18, so those interested should pay close attention to the upcoming changes.
By Sergey Yuryev, Partner, CMS Russia
This Article was originally published in Issue 4.8 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.