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MAJOR AMENDMENTS TO THE CODE OF ARBITRAZH PROCEDURE OF THE RUSSIAN FEDERATION IN 2019
29 march 2019

1 CHANGES IN THE PROCEDURE FOR DECIDING RECUSAL MOTIONS: ARBITRATORS TO DECIDE RECUSAL MOTIONS AT THEIR SOLE DISCRETION

Article 25, Arbitrazh Procedure Code

Current version

A motion to recuse the sole judge hearing the case is decided by the chairman of the arbitrazh court, deputy chairman of the arbitrazh court, or the presiding judge.

Version as revised

A motion to recuse the sole judge hearing the case is decided by that sole judge.

Comments

The Code in its current version leaves at least minimal chances of success for a recusal motion, as the qualification of the judge hearing the case is determined by another (superior) judge, usually the presiding judge. The restated version of Article 25 of the Arbitrazh Procedure Code authorizes the judge to decide whether the recusal motion is to be granted or rejected, which paves way for judicial misconduct and, therefore, materially reduced the efficiency of recusal motions as a tool to address judicial bias.

2 ARTICLE 150 OF THE ARBITRAZH PROCEDURE CODE AS REVISED EXCLUDES THE OPTION OF DISCONTINUING THE PROCEEDINGS IN A NON-ARBITRABLE DISPUTE. IF THE ARBITRAZH COURT HAS NO JURISDICTION OVER A DISPUTE, SUCH DISPUTE IS REFERRED TO A COURT OF GENERAL JURISDICTION

Article 150, Arbitrazh Procedure Code | Article 39, Arbitrazh Procedure Code

Current version

If the arbitrazh court finds that the case is non-arbitrable and should be referred to a court of general jurisdiction, the arbitrazh court discontinues such case.

Version as revised

If, during the trial, the arbitrazh court finds that the case is to be referred to a court of general jurisdiction, the arbitrazh court sends such case to a regional court (court of a constituent entity) of the Russian Federation to be further referred to the court of general jurisdiction having jurisdiction over such case.

Comments

A case which is heard by an arbitrazh court but falls within the competence of a general jurisdiction court is to be referred to a court of general jurisdiction on the regional level (i.e., level of a constituent entity of the Russian Federation) which further sends such case to the competent court (i.e., justice of the peace court, district court, etc.). Therefore, after the amendment comes into effect, the arbitrazh court will no longer be able to merely discontinue the proceedings for lack of jurisdiction. On the one hand, the purpose of the proposed amendment is to guarantee access to justice as it addresses the issue of expiration of the statute of limitation or the claim submission deadline which arises where proceedings are discontinued for arbitrazh court’s lack of jurisdiction. The new version of this Arbitrazh Procedure Code provision excludes this issue as, according to it, the case will not be dropped; rather, the proceedings are to continue before a court of general jurisdiction. On the other hand, the amendment may lead to judicial misconduct. Thus, as the same rule applies to courts of general jurisdiction (under Article 33 of the Civil Procedure Code of the Russian Federation) parties to a dispute, acting in bad faith, may collect evidence supporting their case as part of the proceedings before the court of general jurisdiction so that later, when the dispute is referred to a competent arbitrazh court, such arbitrazh court has to decide the dispute based on the already available evidence gathered earlier when the case was pending before the court of general jurisdiction.

Furthermore, there is a risk that a court of general jurisdiction may grant unlawful/ungrounded interim relief; later, when the case is referred to the competent arbitrazh court, such court is likely to have to keep such interim relief in force. The legislator does not address procedural measures that may be taken by a judge not competent to decide the dispute before such dispute is referred to the competent court; hence, in practice persons willing to abuse their procedural rights will exploit this legal loophole.

3 A DEGREE IN LAW BECOMES A MUST FOR REPRESENTATIVES OF PARTIES TO ARBITRAZH DISPUTES

Article 59, Arbitrazh Procedure Code

Current version

A party may be represented in an arbitrazh court by any person who has legal capacity and has obtained duly issued and verified authority to conduct the proceedings.

Version as revised

A party may be represented before an arbitrazh court by an attorney or other professional specializing in legal assistance who has a University graduate or postgraduate university degree in law.

Comments

Under the new rules, a representative is allowed to attend a court session after they produce the following documents: (1) an identity document, (2) a power of attorney, (3) a document confirming their University graduate or postgraduate degree in law. This provision, however, does not apply to professional attorneys who may produce their practising certificates instead of IDs and degree confirmation.

4 UNDER THE REVISED ARBITRAZH PROCEDURE CODE, PRECLUSIVE EFFECT SHALL BE GIVEN NOT ONLY TO THE FINAL CRIMINAL COURT VERDICT, BUT ALSO TO ANY OTHER COURT RULINGS MADE IN THE CRIMINAL CASE

Article 69, Arbitrazh Procedure Code

Prevision version

The arbitrazh court shall give preclusive effect to the court verdict that was rendered in the criminal case and came into legal effect.

Version as revised

The arbitrazh court shall give preclusive effect to the court verdict and other rulings that were rendered in the criminal case and came into legal effect.

Comments

The legislator has extended the list of legal acts that may be given preclusive effect by adding other rulings made by the court in the criminal case. Such other rulings may include so-called interim court judgments in the criminal case, such as a court ruling on pre-trial restraint, home search warrant, resolution to return the criminal case to the prosecutor, etc. Giving preclusive effect to such judicial acts may have certain negative implications, as criminal judges seldom think too much about the content of their interim rulings or other possible consequences for the case resolution by the arbitrazh court; therefore, in practice criminal courts may, in such interim rulings, rule on matters that are material to the parties to the commercial dispute. Besides, the legislator does not explain how interim rulings made in criminal cases relate to final verdicts in criminal cases (sentence or decision to drop the case).

5 THIRD PARTIES ARE NOW ONLY ENTITLED TO RECOVER THEIR LEGAL EXPENSES IF THEY ARE ACTIVELY INVOLVED IN THE PROCEEDINGS, AND THEIR INVOLVEMENT CONTRIBUTES TO RESOLVING THE DISPUTE (EITHER ON THE CLAIMANT’S SIDE, OR ON THE DEFENDANT’S SIDE)

Article 110, Arbitrazh Procedure Code

Current version

No such rule existed under the law.

Version as revised

Persons joined as in the proceedings as non-party interveners on the side of the party in whose favor the court funds, may recover their legal expenses only if their conduct in such proceedings contributed to the court rendering such decision.

Comments

In its current version, the Arbitrazh Procedure Code does not address compensation of legal expenses incurred by non-party interveners; therefore, the courts decided such matter on a case-by-case basis depending on the facts of the case. The Arbitrazh Procedure Code as amended, however, provides that, if a non-party intervener officially joined in the proceedings failed to be actively involved in the case, such intervener may not claim its legal expenses, even where the court decided in favor of the party on whose side such intervener was joined. The new rule will restrict the number of persons claiming their legal expenses without due grounds while enabling those who have every legal ground to claim compensation of their legal expenses.

6 UNDER THE NEW RULES, THE ARBITRAZH COURT IS REQUIRED TO AUTOMATICALLY RETURN A CLAIM, A PETITION, OR AN APPEAL WITHOUT CONSIDERING THEM IF THE COURT DETERMINES THAT SUCH DOCUMENT IS NOT SIGNED, OR HAS BEEN SIGNED AND FILED BY A PERSON NOT DULY AUTHORIZED TO SIGN AND/OR FILE SUCH DOCUMENT

Article 128, Arbitrazh Procedure Code | Article 129, Arbitrazh Procedure Code
Article 263, Arbitrazh Procedure Code | Article 264, Arbitrazh Procedure Code
Article 280, Arbitrazh Procedure Code | Article 281, Arbitrazh Procedure Code

Current version

- If, in deciding whether to commence proceedings based on a statement of claim, the arbitrazh court determines that such statement of claim is not duly signed or has been filed by a person who does not have the required authority, the arbitrazh court shall not proceed with such statement of claim.

- If, in deciding whether to commence proceedings based on an appeal / a cassation appeal, the arbitrazh court of appeals/cassation determines that such appeal / cassation appeal is not duly signed or has been filed by a person who does not have the required authority, the arbitrazh court of appeals/cassation shall not proceed with such appeal / cassation appeal.

Version as revised

- A statement of claim is to be returned if it is not signed or has been signed and filed by a person not duly authorized to sign and/or file such statement of claim.

- If, in deciding whether to commence proceedings based on an appeal / a cassation appeal, the arbitrazh court of appeals/cassation determines that such appeal / cassation appeal is not signed or has been signed and filed by a person who does not have the required authority, the arbitrazh court of appeals/cassation returns such appeal/cassation appeal.

Comments

Under the current procedure (Articles 128, 263, and 280 of the APC), the arbitrazh court is required not to proceed with a submission (or, if literally translated, “to leave without movement”) if the court discovers that the statement of claim, petition, or appeal is not signed, or has been filed without the required authority (power of attorney). In this case, the claimant/appellant may correct the respective defect in its submission after which it will be deemed to have filed its statement/appeal in due manner on the original date of such submission. Under the new rules, however, the claimant/appellant will not be able to do so, as the statement of claim, petition, or appeal will be immediately returned to the claimant/appellant. This is clearly more convenient for arbitrazh courts and reduces their workload. By quickly returning submissions, arbitrazh courts will save time and resources that would otherwise be required to handle such submissions. The amendment, however, will have an adverse effect on claimants/appellants as they run the risk of missing the statute of limitations or the submission deadline. In its previous version, the procedure protected the claimant/appellant as it allowed them to correct technical defects in their submissions. The amended version excludes such guarantee and creates a significant risk of missing statutory deadlines due to minor technical defects. Therefore, it is recommended to (1) file, together with the submission, the original power of attorney issued to the attorney, so that the court cannot return the statement of claim, petition, or appeal on the grounds that a copy of the power of attorney was submitted, (2) make sure that the submission is duly signed with the signature followed by the signatory’s initials and last name, their job title, and reference to the document granting them the respective authority.

7 ARBITRAZH COURTS ARE GRANTED NEW POWERS: (1) TO DETERMINE THE LENGTH OF ORAL STATEMENTS BY THE PARTIES, (2) TO LIMIT THE PARTY’S RIGHT TO MAKE A STATEMENT

Article 153, Arbitrazh Procedure Code | Article 154, Arbitrazh Procedure Code

Current version

No such rule existed under the law.

Version as revised

- The presiding judge determines the length of oral interventions taking into account the opinion of the parties involved in the proceedings.

- The presiding judge may, on behalf of the court, limit oral statements by a party to proceedings.

Comments

This amendment to Article 153 of the Arbitrazh Procedure Code authorizes the court to set the length of oral statements by parties to the proceedings. This power granted to the court by the legislator is not restricted in any way, which may lead to judicial misconduct as judges now have full discretion to reduce the floor time given to a party to an absolute minimum. Notably, another power granted to the court, i.e. the power to restrict the party’s right to make oral statements, is limited by the law. The presiding judge may restrict the party’s right to make oral statements, if such party does not observe the prescribed order of statements, twice fails to comply with the presiding judge’s orders, uses swearing or abusive language, or encourages others to commit actions punishable under the law. Therefore, the presiding judge may not restrict the party’s right to make oral statements without due cause. Besides, the law does not authorize the court to deprive the parties to the proceedings of their right to make oral statements altogether. The court may only partially limit oral statements (on a certain subject which is not relevant to the case, or at a certain stage of the procedure (during deliberations, unauthorized comments, etc.), or in relation to unacceptable behavior (rude, offensive, or illegal statements, etc.). Under the law, the arbitrazh court may not completely deprive a party of its right to speak.

8 LONGER PERIOD FOR CASE RESOLUTION BY THE LOWER COURT (SIX MONTHS INSTEAD OF THREE)

Article 152, Arbitrazh Procedure Code

Current version

The case length is three months.

Version as revised

The case length is six months.

Comments

This amendment may have adverse effect on the efficiency of judicial process as the cases might be dragged out.
Besides, the parties will be in the state of uncertainty for much longer, which will negatively impact certain persons, for example, those whose property is groundlessly arrested for the duration of the dispute. Another example would be a situation where the creditor’s motion for interim relief against the debtor was refused, and the debtor is using the time available to it due to longer proceedings to leak its assets and get ready for controlled bankruptcy.

9 SHORTER TIME FOR SEEKING RECOVERY OF LEGAL EXPENSES (THREE MONTHS INSTEAD OF SIX MONTHS)

Article 112, Arbitrazh Procedure Code

Current Version

Legal action for the recovery of legal expenses it to be brought within six months.

Version as revised

Legal action for the recovery of legal expenses it to be brought within three months.

Comments

Apparently, the rationale behind this amendment is to reduce courts’ workload by shortening the time allowed to bring a legal action. The current six-month slot for bringing a legal action for the recovery of legal expenses is known to be sufficient to properly prepare a claim. If this period is shorter, technical errors and missed deadlines become more likely.

10 LONGER PERIOD FOR SUBMISSION OF COMMENTS IN RELATION TO COURT MINUTES (FIVE DAYS INSTEAD OF THREE)

Article 155, Arbitrazh Procedure Code

Current version

Comments are to be submitted within three days.

Version as revised

Comments are to be submitted within five days.

Comments

This amendment is of little practical significance as the mechanism for submitting comments in relation to the minutes is basically inoperative. Still, persons involved in the case and willing to exercise their right to submit comments will have more time to make such submission.

11 ABSENCE OF MINUTES IN WRITING DOES NOT CONSTITUTE A GROSS ABUSE OF PROCESS AS PRIORITY IS GIVEN TO AUDIO RECORDINGS OF COURT SESSIONS. IF AN AUDIO RECORDING OF THE COURT SESSION IS AVAILABLE IN THE CASE FILE, LACK OF MINUTES DOES NOT AMOUNT TO SUFFICIENT GROUNDS FOR THE REVERSAL OF THE RESPECTIVE DECISION.

Article 270, Arbitrazh Procedure Code

Current version

If minutes of the court session are missing, or such minutes are signed by unauthorized persons, this constitutes grounds for the reversal of the respective court decision.

Version as revised

If minutes of the court session are missing, or such minutes are signed by unauthorized persons, this constitutes grounds for the reversal of the respective court decision, provided that audio recordings of the court session are not available, either.

Comments

This provision stems from the courts’ policy to give less weight to written minutes as the official court record and prioritize audio recordings of sessions. After the amendment comes into effect, audio recordings of court sessions will become an essential and sufficient element of the case file, fully replacing the written minutes.

12 THE ARBITRAZH PROCEDURE CODE AS REVISED EXCLUDES THE COUNTER-SECURITY AS A CONDITION FOR SUSPENDING THE ENFORCEMENT OF A LOWER COURT DECISION BY THE SUPREME COURT OF THE RUSSIAN FEDERATION (AT THE SECOND CASSATION OR JUDICIAL REVIEW LEVEL)

Article 291.6, Arbitrazh Procedure Code | Article 308.4, Arbitrazh Procedure Code

Current version

A justice of the Supreme Court of the Russian Federation may rule to suspend the enforcement of a lower court decision which is being challenged until the cassation court (reviewing court) decides the cassation appeal / application for judicial review, if the appellant who brought the cassation appeal / application for judicial review seeks such suspension, and further provided that the appellant is able to prove that it would be impossible or challenging to reverse the enforcement of such lower court decision or provides security.

Version as revised

A justice of the Supreme Court of the Russian Federation may rule to suspend the enforcement of a lower court decision which is being challenged until the cassation court (reviewing court) decides the cassation appeal / application for judicial review, if the appellant who brought the cassation appeal / application for judicial review seeks such suspension, and further provided that the appellant is able to prove that it would be impossible or challenging to reverse the enforcement of such lower court decision.

Comments

We believe that this novelty reduces the chances of success for motions to suspend the enforcement of court awards appealed before the Supreme Court of the Russian Federation in cassation or judicial review process. After the amendment comes into effect, it will be close to impossible to obtain an order to suspend the enforcement at the level of the Supreme Court of the Russian Federation; before that, however, in most cases the Supreme Court was likely to suspend the enforcement of court awards if counter-security was provided.

13 THE SUPREME COURT OF THE RUSSIAN FEDERATION MAY ONLY SUSPEND THE ENFORCEMENT OF LOWER COURT DECISIONS (AT THE SECOND CASSATION OR JUDICIAL REVIEW LEVEL) AFTER IT ORDERS LOWER COURTS TO PRODUCE THE CASE FILE.

Article 291.6, Arbitrazh Procedure Code | Article 308.4, Arbitrazh Procedure Code

Current version

Unless the justice sets a different period of suspension, enforcement of a lower court decision is suspended until the justice has ruled not to refer the cassation appeal / review application to the Judicial Panel (Presidium) of the Supreme Court of the Russian Federation for consideration, or until the Judicial Panel (Presidium) of the Supreme Court of the Russian Federation has considered, and issued its ruling on, the appeal / application along with the case files.

Version as revised

A justice of the Supreme Court of the Russian Federation determines whether to suspend a lower court decision or to reject the motion for such suspension immediately after it orders the lower court to produce the case file; if the motion to suspend the enforcement of the lower court decision is filed after the lower court was ordered to produce the case file, within three days after such motion is received. Copies of the respective ruling are served on the parties to the proceedings.

Comments

Under the new rules, suspension is only possible if the Russian Supreme Court justice resolves to order the lower court to produce the case file for review, i.e., when there are grounds for a closer look into the matter. In reality, this amendment can make it harder for bona fide parties to the proceedings to successfully seek interim relief as the Supreme Court justice may decide to submit the appeal to the Judicial Panel (Presidium) without ordering the lower court to produce the case file, which excludes the possibility of suspending enforcement of lower court decisions under the new rule.