Merger of the RF Supreme Court and the RF Supreme Arbitration Court into a single court
The most important event for the Russian justice system in 2013 was undoubtedly the beginning of the merger of the Russian Federation Supreme Court (“RF SC”) and
Russian Federation Supreme Arbitration Court (“RF SAC”).
At the end of 2013, President Vladimir Putin introduced a number of draft laws to the State Duma providing for
the abolition of the RF SAC and the transfer of its powers to the RF SC. The new RF SC will thus become the sole judicial body for civil and criminal cases, as well as economic disputes. Economic disputes will be heard by the Supreme Court Judicial Panel for Economic Disputes.
The reforms will involve amendments to the Constitution, the Federal Constitutional Law on the Judicial System of the Russian Federation, and a number of other acts.
The new RF SC is to be based in St. Petersburg, with a permanent representation in Moscow.
Many experts in the legal community are strongly opposed to the proposed merger, and indeed a merger as such. The greatest concern is for the preservation
of the achievements made in the commercial court system before the reform. This is especially true with respect to the existence of the single public database of commercial court decisions, as well as the recently introduced electronic filing system.
Strangely, the RF SAC has itself criticized the draft laws, and several of its judges have even announced their retirement. The greatest criticism from judges was of the procedure for forming the new RF SC, which will include the creation of a Special Qualifications Panel to select candidate judges for the RF SC. At the same time, judges will be selected on a competitive basis, which many in the judicial community see as violating the irremovability of judges principle.
One of the main advantages to merging the supreme courts that is often mentioned is the potential unification of judicial practice in civil and economic disputes; previously, the practice of the two supreme courts on a single issue could diverge, and the courts of one system practically never took the guidance issued by a higher court or practice in the other system into consideration.
The legislative process for the merger of the supreme courts began at the end of 2013, and by January 2014 the State Duma had already adopted a package of the three main laws concerning the merger in the third reading.
It appears that the amendments will enter force over the course of six months from the effective date of the corresponding amendments to the Constitution.
Given the pace of reform, it is likely that the main phase of the merger will be completed in 2014 and the RF SAC will cease to exist. After that there are likely to be amendments to procedural law also.
Intellectual rights court opens
The Court of Intellectual Rights (“Court”) opened on July 3, 2013. The Court’s competence is clarified in RF SAC Plenum Ruling No. 60 of October 8, 2012 on Certain Issues Arising in Connection with the Creation of a Court of Intellectual Rights in the Commercial Court System.
Depending on whether the parties to the relations under consideration are citizens, sole proprietors or organizations, the Court has jurisdiction as the court of first instance in the following categories of cases (art.
43.4 Federal Constitutional Law on Commercial Courts in the Russian Federation):
Cases challenging regulatory legal acts of federal executive authorities affecting the rights and lawful interests of the claimant with respect to the legal protection of intellectual property and means
Disputes concerning the granting or termination of legal protection for intellectual property and equivalent means of individualization of legal entities, goods, works. Services and enterprises (except property subject to author’s and neighboring rights, and integrated circuit topologies).
The second category includes the following kinds of case:
Challenges to decisions of the federal antimonopoly service deeming the acquisition of exclusive rights to means of individualization of a legal entity, goods, works, services, and enterprises to be unfair competition;
Claims seeking the establishment of the patent owner;
Claims for early termination of legal protection of a trademark due to non-use;
Cases seeking compensation for violations of the right to justice within a reasonable period in cases in the jurisdiction of the Court of Intellectual Rights as court of first instance, and the consideration by
commercial courts of disputes concerning the defense of intellectual property rights, or violation of the right to enforcement of court judgments taken in such cases within a reasonable period (clause 10 of RF SAC Plenum Ruling No. 60 of October 8, 2012 on Certain Matters Arising in Connection with the Creation of a Court of Intellectual Property Rights in the Commercial Court System) and other cases.
In accordance with art. 180.2 APC RF1, decisions of the Court of Intellectual Rights as the court of first instance have immediate effect. The APC RF therefore does not provide for appealing decisions of the Court.
The Court serves as the cassation instance in cases it considers at the first instance, and in cases of defense of intellectual rights considered by regional commercial
courts of the Russian Federation at the first instance, and commercial appeal courts.
In an Information Letter of July 9, 2013, the RF SAC clarified that cases of defense of intellectual rights means cases
in the jurisdiction of the commercial courts involving the defense of intellectual rights to any intellectual property or equivalent means of individualization of legal entities, goods, works, services, and enterprises to which legal protection is granted, namely: works of science, literature and art, inventions, utility models, firm names, trademarks and service marks, etc.
Cases for the defense of intellectual rights therefore in particular include the following:
Disputes concerning infringement of intellectual rights to intellectual property and equivalent means of individualization of legal entities, goods, works, services, and enterprises;
Cases involving prior use or later use rights;
Disputes arising from agreements on the alienation of exclusive rights and license agreements;
Cases of administrative prosecution for the commission of administrative offenses under art. 14.10 RF APeC2;
Cases of administrative prosecution for the commission of the administrative offenses provided for in part 1 (with respect to unfair competition relating to the acquisition and exercise of exclusive rights to means of individualization of a legal entity, product, works, services) and part 2 of art. 14.33 RF APeC;
Arbitration Procedure Code of the Russian Federation. Administrative Penal Code of the Russian Federation.
Cases disputing rulings of administrative authorities on administrative prosecution for a violation of intellectual property rights.
The RF SAC also clarified that cases referred to the competence of the new court that are in proceedings before the courts of general jurisdiction or commercial courts on the date the Court opened (July 3, 2013) are subject to further consideration on the merits and shall not be assigned to the Court.
In the event of a statement of claim in a case referred to the competence of the Court being filed with another commercial court after July 3, 2013, the claim shall be returned to the claimant. If the said circumstance comes to light after a statement of claim has been accepted
for proceedings by a commercial court, the commercial court shall transfer the respective case to the Court in accordance with rules of jurisdiction.
pre-action remedies to defend exclusive rights to films introduced
Article 144.1 has been added to the RF CPC3 providing that upon written application of an organization or citizen, the court has the power to grant pre-action remedies
to secure the defense of the claimant’s exclusive rights to films on computer networks, including the Internet, before a claim is filed. Pre-action remedies (remedies applied before filing a statement of claim) previously only existed in commercial proceedings.
An application for pre-action remedies can only be filed with Moscow City Court. Importantly, if the application is granted, the statement of claim for defense of exclusive rights to a film must also be filed with Moscow City Court. At the same time, the general rule is that cases of defense of exclusive rights to a film are in the jurisdiction of the district court. Therefore, this rule provides the claimant with an additional choice of court to hear its claims for defense of exclusive rights to films.
RF SAC Presidium survey of practice in consideration of cases involving foreign entities
RF SAC Presidium Information Letter No. 158 of July 9, 2013 (“Letter”) provides recommendations on certain matters relating to the consideration of cases involving foreign entities, in particular, with respect to the competence of the commercial courts in considering such cases, the particulars of determining applicable law, and the application of interim remedies.
The RF SAC confirmed the validity of prorogation agreements, under which disputes arising from the legal relations of the parties must be heard in the court of the country of the party acting as claimant (or respondent). Such agreements remain in force in the event of an assignment of the receivables in the underlying agreement.
With respect to determining international jurisdiction, the RF SAC established that the criterion of the location of a branch/representative office of a legal entity cannot be applied in cases where the claims do not relate to the activities of the said executive body, branch or representative office of the foreign entity.
The Letter also clarifies that the permanent place of business through which a foreign entity conducts all or some of its commercial activities in the Russian Federation may be deemed a branch or representative office of the said entity, irrespective of whether it is formally registered in accordance with the established procedure.
With respect to determining the applicable law, the RF SAC stated that an agreement on applicable law is deemed concluded if the parties to the disputed
relations cite one and the same applicable law in support of their claims and objections.
With respect to interim remedies, the RF SAC stated that interim remedies in a dispute in the competence of a foreign international commercial arbitration court may be adopted locally to the debtor or its property.
The RF SAC stated that it is necessary for the Russian court to have effective jurisdiction when applying interim remedies in a claim considered on the merits by a foreign court. “Effective jurisdiction” in this instance means that
a jurisdiction within which the interim remedies may be effectively enforced. Thus, provided there is effective jurisdiction, interim remedies may be adopted, including locally to the claimant, the location of the funds or
other property with respect to which the claimant seeks
remedies to secure its property interests, or where the
Civil Procedure Code of the Russian Federation.
claimant’s rights were infringed.
The Letter states that it is not permissible to carry out the instructions of a foreign court to impose interim remedies if sent through the legal assistance procedure. This position is based on the legal assistance procedure being intended for the serving and forwarding of documents, performance of expert examinations, and other procedural acts. Therefore, the application of interim remedies, like the initiation of claim proceedings upon the application of a foreign court in favor of any private person, lies outside the bounds of reciprocal legal assistance and cannot be performed without the corresponding regulatory legal base.
RF SAC Plenum clarifies certain issues relating
to challenging regulatory legal acts
RF SAC Plenum Ruling No. 58 of July 30, 2013 (“Ruling”) clarifies certain issues relating to challenging regulatory legal acts (“RLA”).
First, the RF SAC once again directed the attention of courts to the two essential features of an RLA: they are intended for systematic application, and they are generally applicable. According to these criteria, acts approving the general plans of population centers and districts are RLA. However, acts of the competent authorities approving land use plans and territorial
boundaries, establishing the boundaries of special use zones, and reserving land for public needs, are not RLA.
The general criterion for referring a challenge against an RLA to the competence of the commercial courts is a reference to such competence in the law, or
a provision that disputes in a certain area of legal regulation are considered by the commercial courts.
If a commercial court establishes that there is no law referring the consideration of a challenge against an RLA to its competence, it must dismiss the case (except in cases where the claim disputing the act was previously filed with a court of general jurisdiction and was not considered on the merits citing the courts of general jurisdiction’s lack of jurisdiction).
This Ruling clarifies the parties with standing in cases of this kind:
If the law states that a claim appealing an RLA may be filed by organizations and sole proprietors, then a claim must be brought by the same;
If it is an appeal against an RLA affecting the rights and lawful interests of persons in entrepreneurial and
other economic activities, any person whose rights and lawful interests in the respective area are affected by the challenged act may bring the action;
If the law does not expressly state who has the right to bring a claim challenging an RLA in the commercial
courts, such disputes are considered irrespective of the status of the applicant.
The Ruling establishes that in challenges of acts including provisions that are both regulatory and non- regulatory, the commercial court has the right to split the claims challenging non-regulatory provisions of the act into a separate case considered in accordance with Chapter 24 APC RF, if the court decides that separate consideration of the claims would achieve the objectives of effective justice.
With respect to interim remedies when challenging an RLA, the Ruling states that the court is not entitled to suspend the application of the disputed act by way of an interim remedy. This is because, unlike non-regulatory acts, which may be suspended upon petition of the claimant, the filing of a claim seeking the invalidation of an RLA does not suspend its effect.
The RF SAC Ruling also provides an algorithm for testing the lawfulness of a contested RLA:
First, the court must verify the powers of the body that adopted the RLA, even if the statement of claim for invalidation of the RLA does not request that it do so.
Then, the court must clarify whether the disputed act contains provisions of a regulatory nature. The court must not limit itself to formalistically determining whether procedure and form were duly observed in the adoption of the act, to whom the act is addressed, and whether it has undergone state registration and been duly published.
The withdrawal of the claim by the claimant, or the acceptance of the claim by the public authority or other body that adopted the disputed act, does not prevent the commercial court considering the case on the merits.
The RF SAC also clarified that if a disputed RLA is duly cancelled before the commercial court makes its decision, or if it is terminated, proceedings in the case cannot be dismissed if the rights and lawful interests of the claimant or other persons were infringed during the period in which the act was in effect.
RF SAC Presidium clarifies the application of public order clauses
The RF SAC Presidium’s Information Letter No. 156 of February 26, 2013 (“Letter”) clarifies a number of issues relating to the application of public order clauses. The RF SAC Presidium notes the special character of the use of public order clauses as grounds for denying the recognition and enforcement of foreign judgments and arbitral awards and states that this ground is used in
exceptional cases, and not as a substitute for the special grounds for denying recognition and enforcement provided in international treaties of the Russian Federation and the RF APC.
The RF SAC also directed the attention of courts to the fact that the recognition and enforcement of a foreign judgment or arbitral award cannot be contrary to Russian Federation public order solely on the basis that Russian law does not contain rules analogous to the applied rules of foreign law.
The RF SAC Presidium letter then sets out the following position as to the applicability of public order provisos in the enforcement of decisions with respect to liquidated damages and penalties. Enforcement of a foreign judgment or arbitral award is not contrary to Russian Federation public order if the evidence presented by the debtor does not show that the liquidated damages or penalties to be recovered on the basis of a civil law agreement are punitive. However, if the punitive nature of the liability is proven, it will be contrary to the principle
of commensurate civil law liability.
RF SAC clarifies challenging transactions on the grounds provided in the Federal Law on Insolvency (Bankruptcy)
RF SAC Plenum Ruling No. 60 of July 30, 2013 provides clarifications with respect to challenging a debtor’s transactions on the grounds and in accordance with the procedure provided in Federal Law No. 127-FZ on Insolvency (Bankruptcy) of October 26, 2002 (“Law”). In particular, the RF SAC clarified the following questions arising in practice with respect to statutes of limitation and the circumstances to be established when determining the purpose of a challenged transaction.
The statute of limitations in a claim for invalidation of transactions by a debtor that is subsequently declared bankrupt, if such transactions were intended to infringe the rights and lawful interests of creditors, is three years calculated from the date on which the person challenging the transaction learned or should have learned of the circumstances serving as grounds for deeming the transaction invalid, but not earlier than the date on which the first bankruptcy procedure was imposed on the debtor.
A transaction between a debtor and an interested party that results or may result in losses for creditors or the debtor shall not be deemed invalid, provided that the counterparty of the insolvent debtor can prove that it did not pursue the objective of causing losses to creditors or the debtor, or that at the time of the transaction it did not and could not have known that that was the objective of the transaction.
In particular, when considering a claim on the basis of art.
103.2 of the Law against a suretyship (pledge) agreement for the obligation of an interested party, the RF SAC advises that the following factors should be considered:
Were the debtor and the interested party solvent at the time the disputed agreement was concluded?
Was the conclusion of the agreement intended for the realization of the normal economic interests of the debtor (for example, to enable the interested party to obtain a loan to develop its common business with the debtor)?
What was the ratio of the value of the surety to the debtor’s net assets at the conclusion of the agreement?
Was the potential ability of the debtor after payment of the debt to obtain the amount paid from the interested party duly secured (for example, by a pledge of the interested party’s property), etc.?
Was and should the creditor have been aware of these circumstances?
A new party to commercial proceedings: commissioner for entrepreneurs’ rights
A federal law of November 2, 2013 introduced the commissioner for entrepreneurs’ rights as a party to commercial proceedings (art. 53.1 APC RF). The institution of the commissioner for entrepreneurs’ rights has been established at the federal (Commissioner of the RF President for Entrepreneurs’ Rights), and regional levels (regional commissioners for entrepreneurs’ rights) to monitor the observance of the rights and lawful interests of entrepreneurs by the authorities.
The commissioner may apply independently to a court (with a claimant’s rights and obligations), or act as a third party on behalf of the claimant or respondent.
It is likely that the commissioner will mostly participate in commercial proceedings by bringing actions for the recognition of non-regulatory legal acts as invalid and decisions and acts/omissions of state and local officials as unlawful. The commissioner will bring actions of this kind after reviewing complaints from entrepreneurs.
Justices of the peace no longer required to provide reasoning in civil decisions
Federal Law No. 20-FZ of March 4, 2013 amended art. 199 RF CPC (Writing of Court Decisions) to provide that justices of the peace need not provide the reasoning for decisions in cases they consider.
A justice of the peace is only obligated to write a reasoned decision if a party to the case or its
representative files a petition for a reasoned decision.
This change is clearly intended to reduce the load on justices of the peace. Nevertheless, it should be noted that it is only possible to determine whether a court has properly examined the evidence and reached justified conclusions if the reasoning is provided for the decision. Therefore, without the reasoning it will effectively be impossible to appeal a decision on the basis that the court’s findings are inconsistent with the evidence or not supported by the evidence in the case.