• Why Litigate in Russia: The Typical Procedure for Dispute Resolution in Russian State Courts
  • February 7, 2011 | Author: Andrey Zelenin
  • Law Firm: Lidings - Moscow Office
  • They are as follows:
    • International commercial arbitration (either ad hoc or with a Russian / foreign arbitration institute, with a place of hearings in Russia or abroad);
    • ADR - as alternative, pre-trial methods of dispute resolution (mediation and etc);
    • National court of a foreign country (not Russia);
    • Russian national court (State arbitration courts).

    See Chart B for a description of various advantages and disadvantages of resolving your dispute in a Russian state court. In the article below we’ll briefly go through the typical procedure of litigation in Russia.

    According with the Constitution (art. 118) justice in the Russian Federation is administered solely by courts. The judicial power is exercised by means of constitutional, civil and criminal proceedings.

    The specificity of civil proceedings in Russia is its division between two systems of courts - the Common courts (headed by the Supreme Court) and the State arbitration courts (“arbitrazh” courts, headed by the Higher Arbitration Court). The latter are not to be mixed with international and internal arbitration institutions (incl. international arbitration courts), which present a non-governmental method of dispute resolution. Common courts try mainly disputes with a participation of individuals - divorces, employment, consumer rights protection etc. While state arbitration courts are vested with power to resolve commercial disputes and to conduct other business related proceedings (bankruptcy, challenging of authorities’ decisions and acts etc.).

    The system of arbitration courts is organizationally divided into four tiers (see Chart A below for details). The first tier is made up of the Federal arbitration courts of the members of the Russian Federation. The second tier is formed by 20 Arbitration Courts of Appeal. The third tier consists of 10 Federal district arbitration courts, each of which functions as a court of cassation (second appellate) with regard to a group of arbitration courts making up one court district. The fourth tier is represented by the Higher Arbitration Court of the Russian Federation. The Higher Arbitration Court of the Russian Federation is the supreme judicial body for settling economic disputes and other cases examined by arbitration courts. It also carries out judicial supervision over their activities according to federal law-envisaged procedural forms and provides explanations on the issues of court proceedings.

    How to Start

    Russian legislation generally doesn’t require for obligatory sending a letter of warning to the debtor (except for some particular cases - for instance, debts under rental contracts), unless the contract provides for a specific pretrial dispute resolution procedure (such wording as: “the parties hereby agree to spend mutually reasonable efforts to resolve the dispute amicably” is not considered to be sufficient to establish a pre-trial procedure). Accordingly, usually the dispute resolution process starts with filing a letter (statement) of claim to a competent court.

    If otherwise not stated in the contract the claim is filed to the first tier court located at the respondent’s place of residence. You can file either personally or by post. The claim is accompanied by number of documents required by law (in addition to the substantial materials for the case), such as registration documents and by-laws of the claimant, proof of state duty payment, power of attorney for the authorized representative etc.

    Besides the principal debt (e.g. the sum of money not paid for the supplied goods) the claim can include a request to calculate statutory interest on this amount. The Central bank interest rate, currently 13%, is used for these purposes. If the contract provides for a penalty or fine for breach of obligation, when filing a claim you should chose whether to ask for statutory interest or contractual penalty.

    It is important to note that a three years limitation period is applicable to most of claims in Russia. It is calculated from the latest of these dates - debt occurrence, debt recognition, filing of a most recent claim. Therefore, when considering whether to initiate court proceedings or not, please keep this period in mind. It is necessary to mention though, that the limitation cannot be applied by the court at its own discretion but must be referred to by the debtor.

    Before filing the claim the state duty is paid. Its size is stipulated in the Tax Code of Russian Federation (article
    333.21) as a percentage to the claim amount (for some types of claims a fixed duty amount is indicated). As a general estimation the state duty will be below 4% of the sum in dispute. For instance1:

     

    • Amount in dispute between 100.000 and 500.000 Roubles (EUR 2700 - 13 500) - state duty in the amount of 3.500 Roubles (EUR 100) plus %2 of the amount of claim exceeding 100.000 Roubles;
    • Amount in dispute between 500.000 Roubles and 1.000.000 Rubles (EUR 13 500 -27 000) - state duty in the amount of 11.500 Roubles (EUR 300) plus %1 of the principal amount exceeding 500.000 Roubles;
    • Amount in dispute exceeding 1.000.000 Roubles (EUR 27 000) - state duty in the amount of 16.500 Roubles (EUR 450) plus %0.5 of the principal amount exceeding 1.000.000 Roubles.

    In any case the state duty cannot be higher than 100,000 Roubles (below EUR 3000). The state duty for the appeal proceedings is fixed as 1,000 Roubles (below EUR 30).

    If the claimant has been awarded with a positive judgment, the state duty, as well as other expenses over the case can be recovered from the loosing party. Of course in reasonable amount.

    While interim measures are available according with the law, Russian courts are really reluctant to impose them unless serious grounds that the debtor wishes to escape from its obligations are presented. The mere fact that it doesn’t pay is not enough according to the current court practice.

    The ongoing timelines for proceedings in the Russian state courts are as follows (articles 134, 152 of Arbitration Code):

    • 1 month for acceptance of a claim and preparation for the court proceeding
    • 2 months for consideration of a case at the first tier court. The case is considered by the judge solely. Due to the possible suspensions or interruptions of the proceedings, as well as risings of court, the trial period can be extended. As a rule, the court of first instance examines the case within 3-4 months. The awarded judgment shall be the result of such examination.

    It is important to note that a three years limitation period is applicable to most of claims in Russia. It is calculated from the latest of these dates - debt occurrence, debt recognition, filing of a most recent claim.

    • 1 month for entry of the decision into force. One can file an appeal to the appellate court within this period of time. The appellate court reconsiders the case and, if any good causes are shown, it can set aside prior judgment and deliver a new one. If the appeal is not filed within the stated period, the plaintiff shall be entitled to receive an enforcement order (which is then filed to the Bailiff Service for enforcement).
    • 1 month for investigation of the case in the court of appeal.
    • Within 2 months from the entry of the decision into legal force, it can be appealed in the court of cassation— Federal District

    Court of the corresponding district.

    The court of cassation examines the compliance of the procedure of case consideration (but does not reconsider the case on its merits) and, in the presence of good causes, can set aside prior decisions and submit it for reconsideration or deliver its own judicial act with regard to the case.

    • 1 month for consideration of a case in the court of cassation.
    • Within 3 months from the date the final act was enforced, the same can be appealed in the exercise of supervisory powers in the Supreme Arbitration Court. The case is examined in the supervisory authority only provided that such case violates the consistency of the legislation execution by the courts, which is supervised by the Supreme Arbitration Court. Due to the rarity of such cases (less than 1 percent of the total number of cases) this complicated procedure is hardly ever used in practice. Moreover it doesn’t prevent the rendered judgment to be enforced.

    After filing of the enforcement order to the Bailiff Service separate enforcement proceedings are initiated. According to the law they should take 2 months. But the actual timelines depend on many factors, including the efficiency of communications with the service itself and the solvency of the debtor. Bailiff Officers have sufficient powers to recover the money pronounced by the court- arrest of the banking accounts, property seize, organizing public tenders etc. Still it is highly recommended to make sure the potential debtor is a validly existing and duly organized company, with sufficient assets and normal business operations.

    It is necessary to keep in mind that at any stage of the proceedings (even during the enforcement of the judgment) an amicable settlement agreement can be signed by the parties, which can significantly shorten the timelines for debt recovery. Please note that if the parties have agreed on a settlement after the court proceedings have been initiated, no matter how far they have gone, the amicable agreement has to be (formally) approved by the court. Otherwise it is considered as invalid.

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    1. Amounts in Euro are calculated approximately using 1:37 exchange rate.