Oda Russian Commercial Law 2007-1
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Under the previous Code, it was the court of rst instance which considered the appeal. This did not mean that the commercial court of the rst level has a special division on hearing appeals. Appeals were heard by three judges of therst instance court who are members of the relevant court division. As a result of the latest reform, appellate commercial courts are being set up.21 Appeals can be lodged within a month of the judgment of the rst instance court (Art.259, para.1).
There are no limits as to the grounds for appeal. The appellant merely has to specify the reason why he thinks the judgment was wrong and to cite laws, facts and evidence in support of the case. The right to appeal is not limited to the parties – third parties who took part in the procedure are also granted the right to appeal.
The appeal is heard by a panel of judges. New evidence can be examined, but the party has to justify the fact that this evidence could not be produced at the rst instance for reasons that are not of the party’s making and the court must acknowledge the reason to be justi able. Parties may apply for new witnesses, experts etc. the petition for which had been rejected by the rst instance court (Art.268, paras.1 and 2).
The duty of the appellate court is to review the legality (compatibility with law) and the well-groundedness of the judgment of the rst instance court. Review of well-groundedness means that the appellate court examines the completeness and correctness of the facts established by the rst instance court.22 This is in fact a repeated examination of the case on legal as well as factual points.23
Until the previous Code, the court was not bound by the scope of appeal and was entitled to examine the entire judgment regardless of the ground of appeal by the party. The new Code, as part of the enhancement of the adversarial system, limited the scope of this power of the appellate court. The appellate court may now only review the procedural aspect of the judgment of the rst instance court outside the scope of appeal by the parties (Art.268, para.6).
The judgment of the rst instance court can be quashed or revised on the following grounds (Art.270, para.1):
i)insuf cient clari cation of the relevant facts;
ii)relevant facts which the court found were not properly proved;
iii)incompatibility of the conclusion of the court and the facts of the case;
iv)breach or erroneous application of substantive and procedural law.
21VVAS 2006 No.5, p.17.
22Iakovlev and Iukov, supra, p.822.
23Zhilin, supra, p.24.
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In order to contest the validity of judgments and decisions which have entered into force, cassation procedure is available. As the name demonstrates, the system was introduced in Russia from France in 1864. However, the system appears to be different from its original institution. The Russian commercial court procedure grants the participants in the rst instance the right to lodge a cassation appeal against judgments of the commercial court and the appellate instance which have entered into force (Art.273). In fact, the system was different under the 1992 Code in which cassation appeal was for judgments which have not taken effect. In contrast, under the previous Code, it was a means of reviewing judgments and decisions which have taken effect together with the supervisory procedure and the procedure for reopening the case upon discovery of new facts. The new Code has inherited this system. According to a commentator, “the new system, by taking into account foreign experience, provides for a supplementary guarantee of the rights of those who took part in the procedure”.24
Cassation appeal is submitted via the commercial court which rendered the contested judgment. The case is heard by the commercial courts of cassation instance. There are 10 such courts. The appeal must be led within two months of the contested judgment taking effect (Art.276, para.1). Upon the petition of the participant who led the appeal, the court may suspend the enforcement of the contested judgment on certain grounds (Art.283, para.1).
In principle, cassation appeal covers only matters of law. The court reviews the legality of the judgments and decisions of the rst instance and/or appellate court, i.e. from the viewpoint of whether substantive or procedural law has been observed or not (Art.286, para.1).Another provision of the Code lists the ground for revising or quashing judgments and decisions of the rst and/or appellate instance court as follows:
i)incompatibility of the conclusion of the court of rst and/or appellate instances and the facts of the case established by those courts or the evidence;
ii)breach or erroneous application of substantive or procedural law.
In 2005, 8% of the judgments and decisions of the rst instance commercial court (125,882 cases) were appealed, of which 20% were quashed or revised. 94,511 cases were appealed by way of cassation, of which 20,748 cases were quashed or revised. It should be noted that 36.2% of the cases handled by the court of cassation instance were appealed directly to the court of cassation without recourse to the appellate court.25
24Ibid., p.376.
25VVAS RF, 2006, No.5, p.27, p.11.
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Finally, supervisory review by the Supreme Commercial Court is available for all judgments and decisions of the commercial court which have taken effect. The supervisory instance is a system that existed in the Tsarist period, inherited by the Bolsheviks and remained in the post-Soviet procedural codes. The differences with the cassation appeal were that only a limited scope of of cials were allowed to initiate these proceedings and also that the grounds for the supervisory review were unlimited. Of cials who were entitled to present “protests” which triggered the procedure were: the President of the Supreme Commercial Court and the Procurator General on the decisions of all commercial courts except those of the Presidium of the Supreme Commercial Court, and the deputies of the above of cials on the decisions of all commercial courts except those of the Supreme Commercial Court. Parties did not have a right to initiate the proceeding, but were merely allowed to le a petition with these of cials to lodge protest.
What was peculiar was that the grounds for supervisory review were almost unlimited, and there was no time limit for lodging protests by the above-men- tioned of cials. Actually, the time gap between the rendering of the contested judgment and the supervisory review was not that long. The ground for altering or quashing the original judgment or decision was either unlawfulness or absence of appropriate grounds of the judgment or decision. Thus it represented a serious threat to legal stability. The only restraint on this institution was that the scope of of cials who are empowered to lodge protest is very much limited.
The 2002 Code has substantially revised this system.
Firstly, parties and other participants in the procedure themselves are now entitled to le a supervisory appeal, rather than leaving the decision to the discretion of senior of cials such as the president of the Supreme Commercial Court or the Procurator General. This is because the previous arrangement was though to inhibit access to justice by the people and did not match international standards.
Secondly, the term “protest” which was inherited from the Soviet time is not used any more. It is a review of judgments and decisions which have taken effect upon application of the participants in the procedure. Procurators are still entitled to initiate the procedure, but this is not a “protest” any more. Their applications are treated in the same way as the applications by others.
Thirdly, the ground for the application for supervisory review has been narrowed. As before, the supervisory instance is designed to review the legality of judgments and decisions of the court and does not concern facts. Breaches of substantive or procedural law were the grounds for the review. However, the new Code provides that parties and other participants in the procedure are entitled tole an application for a supervisory review, if this person nds that a judgment
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or decision of the commercial court has substantially infringed upon his rights and lawful interests in the area of entrepreneurial and other economic activities (Art.292, para.2). Examples of substantial infringement include infringement of rights and freedoms guaranteed by the Constitution, generally accepted principles and norms of international law, as well as the breach of international treaties to which the Russian Federation is a party.26
Fourthly, a time limit for the ling of an application was introduced. This is set at three months after the contested judgment or decision has taken effect (Art.292, para.3).
The application for the supervisory review is submitted to the Supreme Commercial Court. The application is rst screened by the judges of the Supreme Commercial Court. They determine whether or not the case should be referred to the Presidium of the Supreme Commercial Court. It is the Presidium which actually reviews the case in the supervisory instance. Once the case has been referred to the Presidium, parties and other participants in the procedure are informed of the time and place of the court hearing and are entitled to take part in the procedure (Art.303, para.4).
The court may revise or quash judgments and decisions if they are:
i)against the uniform interpretation and application of legal norms employed by the commercial court;
ii)inhibits the adoption of lawful decisions in another case;
iii)infringes upon the rights and lawful interests of an unspeci ed range of people or other public interests (Art.304).
It should be noted that under the current system, supervisory instance is the only way by which a case can be heard by the Supreme Commercial Court. Normally, the Federal territorial courts are the highest instance the parties can reach.Above this level, remedy is very much limited.
According to the 2005 statistics, 15,233 applications were led for supervisory review, i.e.18.2% of the judgments and decision of the cassation instance. Of these applications, only 317 cases were referred to the Presidium. In 271 cases, the Presidium quashed the judgment.27
26Yakovlev and Iukov, supra, p.884.
27VVAS RF, 2006, No.5, pp.11-12.
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12 COSTS
Court costs comprise state duty and costs related to the hearing of the case, e.g. cost and remuneration of witnesses, experts and interpreters, costs of enforcement. In the judgment, the court also rules on the allocation of the cost (Art.127). The Code provides for different rates of state duty for the commercial court and the ordinary court. The amount of state duty depends on the disputed amount. In the commercial court, the highest rate is for disputes the contested amount of which is over one million roubles – 16,500 roubles plus 0.5% of the contested amount over one million roubles, but not exceeding 100 thousand roubles.
Attorneys’ fees were not an issue in the socialist period when the fees were negligible or non-existent. The previous Code of Civil Procedure contained a provision which required the court to order the losing party to bear the cost for the assistance of a representative “within a reasonable scope and by considering speci c circumstances”. However, the Code of Commercial Court Procedure was silent on this matter. With the rapid increase of commercial lawyers involved in the procedure at the commercial court, this issue needed to be addressed by the legislature. The new Code provides that “payment for the service of advocates and other persons providing legal assistant (representatives)” are included in the cost (Art.106), but does not elaborate on its amount.
13 ENFORCEMENT OF JUDGMENTS
1)General
Under the planned economy, the enforcement of decisions did not pose a problem. In disputes between state enterprises, voluntary enforcement by the losing party was the norm. The procedural code at that time accommodated provisions on enforcement, implemented by court bailiffs. The procedure was divided between enforcement with regards to individuals and state enterprises. The assets of the latter were heavily protected against creditors. On the other hand, since there were virtually no private businesses, no reference was made to enforcement vis à vis companies.
In 1997, the new Law on Enforcement Procedure was enacted.28 This law covers the enforcement of decisions of both the ordinary court and the com-
28 Law No.119-FZ of July 21, 1997.
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mercial court and is the basic law on enforcement of civil and commercial judgments. There is also the Law on Bailiffs enacted in 1997.29
The Law on Enforcement Procedure has set out the procedure of enforcement vis à vis companies for the rst time. Another novelty is that the actual enforcement procedure was transferred from the court to bailiffs, who form an of ce – Federal Service of Court Baillifs (Federal’naia sluzhba sudebnykh pristavov) which is part of the Ministry of Justice. Actual enforcement is conducted through the bailiffs who work in the agency’s 2,500 territorial of ces. The underlying idea was that enforcement was not an exercise of judicial power, but of executive power.
On the other hand, the Code also has provisions on enforcement, namely on the granting of the enforcement note, deferring of enforcement, imposing of sanctions for non-enforcement or inappropriate enforcement of judgments etc. by the debtor, banks and other institutions, and the supervision of the enforcement procedure, i.e. contesting the decision of the bailiff. Thus, the court does not enforce judgments and decisions, but it supervises the process.
2)Enforcement Documents
Enforcement documents denote documents in which the requirement by the court to pay is manifested. The Law lists documents including the following which serve as a basis for enforcement (Art.7, para.1):
(a)enforcement notes issued by the court on the following grounds;
i)judgments and decisions of the court
ii)awards of International CommercialArbitration Court (MKAS) and other arbitration institutions
iii)judgments of foreign courts and awards of foreign arbitration institutions;
iv)decisions of international organisations concerning the protection of rights and freedom of people
(b)decisions of government agencies and of cials imposing administrative ne;
(c)decisions of the bailiff.
29 Law No.118-FZ of July 21, 1997.
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The party that wins the case is entitled to apply for an enforcement note to the court or arbitration institution. If the original judgment was rendered by the commercial court, the application is led with the commercial court. For the enforcement of foreign arbitral awards, the application must be led with the commercial court.
3)Enforcement Procedure
The actual enforcement procedure is handled by bailiffs on the basis of the enforcement documents listed above. Bailiffs used to belong to the court, but by virtue of the 1997 Law on Bailiffs, bailiffs were separated from the court.
The bailiff, upon receiving the enforcement documents from the court or the party, within three days, renders a decision to initiate the enforcement proceedings (Art.9, para.1). This decision should not change the judgment of the court, but sometimes, the bailiffs use discretion in interpreting the court’s decision, the reason being that these decisions are unclear.
In principle, enforcement documents should be presented for enforcement within a certain period. Thus, judgments and orders of the ordinary court have to be presented within three years, while judgments of the commercial court have to be presented within six months. The same applies to the awards of international arbitration institutions and other arbitral institutions (Art.14).
Acopyofthedecisiontoinitiatetheprocedureissenttothecreditor,debtorand the court. In order to ensure the effectiveness of the enforcement, upon application of the creditor, while at the same time rendering the decision to initiate the proceedings, the bailiff may arrest the assets of the debtor (Art.9).
The entire proceeding of enforcement must be completed within two months of receiving of the enforcement document (Art.13). There is a short period (within a maximum of ve days from the decision of the bailiff to initiate the enforcement procedure) during which the debtor is expected to enforce the judgment voluntarily. Expiration of this period is a prerequisite of compulsory enforcement (Art.44).
The Law lists ve measures of compulsory enforcement (Art.45):
i)arrest of the property of the debtor and its sale;
ii)seizure of wages, pension, stipend, and other income of the debtor;
iii)seizure of money and other property of the debtor in possession of a third party;
iv)retrieval of property indicated in the enforcement document from the debtor and its transfer to the creditor.
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Seizure of the debtor's property is conducted in three stages – attachment, taking of possession, and mandatory realisation (sale).
The Law provides for a certain order in taking possession of the debtor’s property. First, currency in roubles, foreign currency and other valuables, including those in the possession of banks and other nancial institutions, will be seized. Cash found in possession of the debtor will also be seized. Foreign currency is seized only when there is not a suf cient amount of currency in roubles with the debtor. If there is information that the debtor has money or other valuables in bank accounts or custody, those are also frozen.
According to the Law on Bailiffs, the bailiff is empowered to make inquiries and receive information (Art.12, para.2). Banks and other credit institutions can be approached. However, the Law on Banks and Banking Activities provides for bank con dentiality. This Law lists government agencies to which these institutions are allowed to provide information, but the of ce of court bailiffs is not one of them.30
Bailiffs may also make an inquiry with the tax agency, which is obliged to supply information within three days. Such information is also supplied to the creditor upon application to the Ministry of Finance by presenting the enforcement note (Art.46, paras.2 and 3).
It should be noted that creditors are entitled to present the enforcement document directly to banks and other nancial institutions that are under an obligation to implement the enforcement document, i.e. to freeze the account, or, in cases of absence of suf cient money in the account, make an entry in the document to that effect within three days of receiving the enforcement document from either the bailiff or creditor (Art.6). Non-compliance on the part of banks and nancial institutions may entail a ne imposed by the court of 50% of the amount to be seized (Art.86).
In cases where the amount of money found is insuf cient to ful l the claim, other properties of the debtor can be attached (Art.51). Attachment of the debtor’s property comprises the taking of inventory, declaration of prohibition of disposal of the property, and if necessary, imposition of restriction on the use of property and taking possession of the property. The value of the property is determined by market value. If the evaluation of a speci c property is dif cult or the debtor objects to the evaluation, the bailiff may involve an expert (Art.52, paras.1 and 2).
30 A.Vlasov and A.Maksulov, Grazdanskoe ispolnitel’noe pravo, Moscow 2003, pp.137-140.
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Depending on circumstances of the cases, the bailiff may attach the entire assets of the debtor. The creditor does not have to present the list of assets of the debtor to the bailiff. The debtor, upon the request of the bailiff, must submit it. However, locating the debtor’s assets is often dif cult. One way is apply to the bailiff’s of ce for the search of the debtor’s property.31
Property which is pledged may also be attached, provided that other properties are insuf cient to fully cover the unsecured claims (Art.49, para.1). Thus, in such cases, unsecured creditors may attach secured assets. Presumably, the provision of the Civil Code applies here and the secured lender has priority over unsecured creditors.
As a rule, properties are sold within two months of the attachment. Except for immovables, properties are sold by specialised organisations on the basis of a commission agreement or other arrangements. Immovable property is sold by specialised organisations which are licensed for real property business by public sale (torg). If the property is not sold within two months, the creditor is entitled to this property (Art.54).
From the proceeds of sale, creditors have their claim satis ed in the following order (Art.78, para.2):
First rank – claims for the payment of alimony and compensation of loss caused to the health of others and loss from the death of the breadwinner
Second rank – claims of the employees, advocate’s fees, royalties etc.
Third rank – claims by pension funds and social security funds
Fourth rank – tax claims and other claims which do not fall within the third rank.
The Law also has provisions on the enforcement of non-monetary claims. Particularly important is the enforcement of judgment mandating the debtor to do something or to refrain from doing something. In cases where the debtor does not comply without justi able grounds, the bailiff may impose nes (maximum 200 times the minimum wage) and apply other measures including administrative sanctions and criminal sanctions to be imposed by relevant bodies (Art.85). If the debtor’s involvement is not needed for enforcement, the bailiff may arrange it to be enforced by a third party at the expense of the debtor. In such cases, the debtor will be charged three times as much as the cost of enforcement (Art.73).
In the eight months in 2005, 556 criminal cases were initiated by the bailiffs’ of ce for failure to enforce judgments and decisions of the court.
31 Ibid., pp.136-137.
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4)The Actual State of Enforcement
As of 2005, there are 2,468 territorial subdivisions of the Federal Service of Court Bailiffs. There are 20,422 bailiffs in these of ces. The caseload of the bailiffs is substantial. On average, each bailiff handled 979 proceedings in 2004. Only 49.6% of the cases were completed in 2004. Less than 20% (in 2003, 10.3%, in 2004, 14.8%, and in 2005, 18.7%) of the claimed amount is recovered through enforcement.32
Enforcement often encounters active and passive resistance. In the 8 months period in 2005, 2,347 cases of criminal procedure were initiated in relation to enforcement. These included three cases of obstruction of justice, 77 cases of disrespect of court, and 543 cases of unlawful acts involving the attached property. Eventually, 562 cases were referred to court.33
The report of the Commercial Court of 2000 referred to the “low level of quali cation on the part of the bailiffs”. This is said to be re ected in the number of appeals against the decisions and acts of the bailiffs submitted to the court on the basis of the Law on Enforcement Procedure (Art.90). It is not uncommon for bailiffs to return the enforcement list without grounds, on grounds not provided by law, or on formal grounds.34 In the rst half of 2006, there were 4,942 such appeals, of which 22.7% were found to be with grounds.35
32www.fssprus.ru
33Ibid.
34“Rabota arbitrazhnykh sudov....”, supra.
35www.arbitr.ru