Oda Russian Commercial Law 2007

52	THE SYSTEM OF SETTLING DISPUTES – INSTITUTIONS

ii) disputes involving real property located in the Russian Federation; iii) disputes involving the registration and granting of intellectual property

rights;

iv) disputes involving the validity of State registration administered by a competent agency;

v) disputes involving the establishment, liquidation, or registration of a juridical person in the territory of the Russian Federation and disputes involving the decisions of the bodies of such juridical persons.

The common denominator underlying this list is State registration.According to T.N.Neshataeva, a judge of the Supreme Commercial Court, if a legal relationship involves an entry in a register administered by a competent State authority, any economic disputes arising out of that relationship are to be heard only by the State courts of the Russian Federation.69 In a book devoted to legal/theoretical analyses of the use of sub-soil, the author pointed out that disputes of a public law nature concerning the use of natural resources fall under the exclusive competence of the country that owns them, and recourse to foreign courts (including arbitration) is not possible.70

However, the pendulum seems to have swung too far in favour of state courts. As an authoritative Russian article on the subject has put it, such understanding unjusti ably narrowed the range of matters that can be arbitrated.71 Article 248 of the Code of Commercial Court Procedure provides for the exclusive jurisdiction of the Russian commercial courts and has nothing to do with the arbitrability of disputes.72 As pointed out in the of cial commentary on the Code produced by the Supreme Court and the Supreme Commercial Court, the purpose of this provision is to demarcate the jurisdiction of Russian and foreign courts in cases involving foreign entities.73

Arbitrability is closely related to the question of mandatory norms in arbitration. Although conceptually different, the two are often intertwined in that the requirement to apply State mandatory law is used to justify the non-arbitrability of the dispute. This can be seen in the Eco Swiss case and in the above-mentioned Russian case concerning the termination of a joint venture. In the Russian case,

69T.N.Neshataeva, “O voprosakh kompetentsii arbitrazhnykh sudov v RF po rassmotreniiu del s uchastiem inostrannykh lits” Vestnik VAS, 2004, No.12, pp.92-95.

70V.N.Konin, Nedropol’zobanie: Teoretiko-pravovoi analiz, Moscow, 2005, p.185.

71A.L.Makovskii and B.R.Karabelnikov, “Arbitrabil’nost’ sporov: rossiiskii podkhod” Mezhdunarodnyi kommercheskii arbitrazh, 2004, No. 3, p.27.

72A.Komarov, “Nekotorye aktual’nykh voporosov mezhdunarodnogo kommercheskogo arbitrazha v RF” Mezhdunarodnyi kommercheskii arbitrazh, 2004, No.1, p.16.

73Zhilin ed., supra, p. 632. See also Kommentarii k arbitrazhnomu protessual’nomu kodeksu Rossiiskoi Federatsii, 2d ed., supra at 770-75.

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the Supreme Commercial Court found that Soviet rules should be applied mandatorily and that the award had exceeded the scope of the arbitration agreement due to the fact that the dispute was not arbitrable. These two ndings concern the same issue: the extent to which the prerogative powers of the State should prevail over or interfere with systems of dispute settlement that are based upon party autonomy.

When considering the relationship between mandatory national legal provisions and international commercial arbitration, a distinction needs to be made. According to Article 1192 of the Russian Civil Code, mandatory rules of Russian law are unaffected by choice-of-law provisions. It has been pointed out in an authoritative commentary on this provision that there are two categories of mandatory rules: mandatory rules of national civil law and meta-mandatory rules (lois d’application immediate in French law, and “absolute norms” in Swiss law). The former limits private autonomy under national civil law, but their application can be excluded by con ict-of-law rules. The latter cannot be excluded at all, whether by the parties’ choice or pursuant to con ict-of-law rules.74 It is only non-application of the latter category that can affect the validity of arbitral awards.75

The aforementioned decision of the Supreme Commercial Court in the Pressindustriia case was awed in this respect as well. The instrument in question was the Decree of the Council of Ministers of 1987, No.49. This was therst decree under the Soviet regime permitting joint ventures with Western companies on Russian territory. It naturally imposed various restrictions on such joint ventures. However, there is no reason to invoke this decree as a mandatory norm in order to refuse enforcement of an arbitral award well after the collapse of Socialism. The Foreign Investment Law of 1999 has since made national treatment available to foreign investors and the provisions of the Civil Code and the company law are therefore now generally applicable to joint ventures. The special treatment given to joint ventures under the 1987 Decree has thus long lost its meaning.

74A.L.Makovskii & E.A.Sukhanov, eds., Kommentarii k chasti tret’ei grazhdanskogo kodeksa RF, Moscow, 2002, pp.348-349.

75It should be added thatArticle 1192 is only applicable to cases in which the court or arbitration tribunal is seated in Russia, e.g. when an arbitration tribunal seated in Russia applies foreign law in accordance with the parties’ choice or pursuant to rules of con ict, meta-mandatory rules of Russian law supersede the foreign law. See Makovskii and B.R.Karabelnikov, supra, p.35.

54	THE SYSTEM OF SETTLING DISPUTES – INSTITUTIONS

3THE PROCURACY

Theof ceoftheprocuratorswascreatedbyPetertheGreatintheearly19thcentury. Theprimarytaskoftheprocuratorswastooverseetheadministrationonbehalfofthe Tsar.After the Judicial Reform in 1864, the function of general supervision over the administration was regarded to be obsolete and was abolished. Criminal prosecution was made the procurators’main function.

The Procuracy – the of ce of procurators – was abolished by the October Revolution, but was restored in 1922 on the initiative of Lenin. However, the Procuracy which was restored was not the Procuracy of the post-Judicial Reform period, but of the period of Peter the Great. The Procuracy was entrusted with the task of overseeing the administration on behalf of the rulers – the CPSU. Although it operated as a prosecuting agency, their main area of activities was the “general supervision”, i.e. supervision of the observance of legality by administrative agencies. In the process of perestroika, there were calls for the abolition of the Procuracy, but in the end, the Procuracy survived the changes, despite some setbacks.76 Now, its authority has been restored under the Putin administration and it has again become a powerful agency.

In the area of commercial law, the Procuracy is important in that i) it is empowered to bring an action in court in civil and commercial cases, and ii) it may trigger the supervisory procedure in such cases. In fact, the role of the Procuracy in “supervising” the lawfulness of the civil procedure was perceived as a threat to the independence of the court. Therefore, the role of the Procuracy in civil procedure has been gradually reduced. By the new Code of Commercial Court Procedure which was intended to align the Code with international standard, procurators may initiate an action primarily only when the matter involves public interest.77 In 2005, the commercial court heard 9,050 cases with the participation of procurators. 46.5% of the claims by the procurators were accepted.78

Sometimes, procurators are overzealous in defending public interests:

Aprocurator brought an action against the government of a constituent entity of the Russian Federation, requesting the court to recognise the order of the local government to extend privileges to a joint venture between Russian and foreign enterprises as void, since it was against the interest of the region. The joint venture was formed

76H.Oda, “The Re-Emergence of Pravovoe Gosudarstvo and the Russian Procuracy”, in F.J.M. Feldbrugge ed., Law in Transition, Leiden 2002, pp.157-177.

77A.Iakovlev and M.Iukov eds., Kommentarii k arbitrazhnomu protsessual’nomu kodekusu RF, Moscow 2005, p.5.

78VVAS RF 2006 No.5, p.40.

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by a foreign company (40% stake) and two Russian companies. Originally, the rate of payment for the use of sub-soil was set at 10%, and the rate of pro t tax was 32%. The foreign company invested 40 million US dollars.

Then, after one year of the commencement of business, the tax law and the Law on Sub-Soil were amended and new export duties were introduced. The foreign company asked the government of the constituent entity of the Russian Federation to decrease the scal burden to the original level. This was accepted, and an order of the government to exempt the joint venture from export duties for three years and to reduce the royalty to 5% was granted. This was contested by the procurator.

The government of the constituent entity of the Russian Federation argued that this was in accordance with the Foreign Investment Law of the RFSFR and the Foreign Investment Law of the Russian Federation of 1999 which has a grandfather clause, protecting investors from the worsening of terms of investment. The commercial court found this argument to be justi able and dismissed the claim of the procurator.79

4LEGAL PROFESSIONS

1)Judges

Under socialism, as CPSU members, judges were on the nomenklatura, the list of positions whose appointment required CPSU approval, were directly subordinated to the local CPSU organisations and “were regarded as second grade bureaucrats”. After the collapse of socialism, changes were slow to take place.80 In 1992, the then Minister of Justice reported that 98% of judges were former communists.81 Even after the adoption of the Law on the Status of Judges in 1992, people are said to believe that “many things remain without changes to the better – people come across arbitrariness, boorishness of judges, their hunger for pro ts, lies and lack of ethics”.82

As of January 1st, 2000, there were 2,354 commercial court judges.83 In the commercial court, only around 500 judges out of 3,000 remain from the time of the gosarbitrazh. In the same year, in ordinary courts, there were 16,742 positions for judges at the district court level. There were 3,223 judges at higher courts.84

79Information letter of the Presidium of Supreme Commercial Court, January 18, 2001, No.58. item.8.

80Radchenko, supra, p.55.

81Iu.Stetsovskii, Sudebnaia vlast’, Moscow 1999, p.102.

82Stetsovskii, ibid., p.92.

83VVAS RF, 2000 No.4, p.12.

84RIu, 2000 No.3, p.3.

56	THE SYSTEM OF SETTLING DISPUTES – INSTITUTIONS

The Constitution provides that a Russian citizen over the age of 25, who has had a higher legal education and experience in the legal profession for a minimum of 5 years may become a judge (Art.119). The Law on the Status of Judges provides for more details.

i) Judge of the Constitutional Court – 40 years of age and experience of working in legal profession for no less than 15 years;

ii) Judges of the Supreme Court and the Supreme Commercial Court of the Russian Federation – 35 years of age and experience of working in legal profession for no less than 10 years;

iii) Judges of the courts of the constituent entities and the Federal Territorial Commercial Courts – 30 years of age and experience of working in legal profession for no less than 7 years;

iv) Judges of the commercial courts of the constituent entities – 25 years of age and experience of working in legal profession for no less than 5 years.

The concept of “legal profession” in this context is fairly wide. Positions in the government and local government which require legal education are included. For example, the current chairman of the Supreme Commercial Court, A.A. Ivanov, worked in the territorial agency of the Ministry of Justice, and then in Gazprom Media, but was never a judge.

The system for the appointment of judges has undergone a signi cant change as a result of the Law on the Status of Judges. Candidates are required to pass an examination and receive a recommendation of the quali cation committee.

When there is a vacancy, the chairman of the given court informs the relevant quali cation committee. Quali cation committees are formed at various levels of higher courts including the commercial court. Currently there are 87 of them. The highest is the Supreme Quali cation Committee, members of which are elected by the All Russian Congress of Judges. The examination is organised by an examination committee set up by the relevant quali cation committee. The result is valid for three years. After passing the examination, the candidate is allowed to apply to the relevant quali cation committee for the vacancy (Art.5).

While judges adopted their ethical code in 1993,85 not every judge follows the code. In a case where a judge falsi ed a document regarding the destruction of a weapon – evidence in criminal procedure – the quali cation committee found that the judge had committed an offence and discredited the judiciary, but nevertheless, merely reprimanded him, considering his long service and the fact that this was his rst offence.86

85Ibid., 1993 No.23, p.31.

86Stetsovskii, supra, p.105.

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2)Advocates and lawyers

In contemporary Russia, the term “advocates” means those people who are qual- i ed to provide legal services and represent clients in court. “Advocates” are not the only people who are entitled to provide legal services. There are a signi cant number of lawyers who either work for a law rm or have their own practice and provide legal services, but are not entitled to represent clients in court.

The profession of advokat – attorneys – emerged in Russia as a result of the Great Judicial Reform of 1864. A majority of these advocates practised on their own without being a member of a law rm or consultancy. The rst legal consultancy was established in St.Petersburg in 1870. It was only in three major cities, St.Petersburg, Moscow and Khar’kov, that an association of advocates

– kollegiia – was allowed to be established. Advocates practising in these cities enjoyed the privilege of being “above the hierarchical ladder”. However, those kollegiia of three major cities were supervised by the intermediate court, sudebnaia palata. There were various restrictions on the membership. Jewish people were not allowed to become full members. They were not even allowed to practice as attorneys and had to work as assistants. Women were not allowed to practise law until the February Revolution.87 During the constitutional movement in the early 20th century and in the period leading up to the February Revolution, advocates played a major role in the democratic movement, many of them being members of the Constitutional Democratic Party. They were often persecuted by the Tsarist government. S.Kucherov, who himself was an advocate before the October Revolution, quoted the chairman of the lawyers’guild:88

With the greatest efforts, often forgetting their own interests, our colleagues in all corners of Russia ful lled their modest but great of ce – the of ce of the defence of the individual against the onslaught of the state.

Probably because of such activities, immediately after the October Revolution, the kollegiia of advocates was abolished together with the Tsarist courts and the Procuracy. Although the profession itself was not abolished, the number of advocates declined from 13,000 in 1917 to 659 in 1921. In 1922, at the beginning of the New Economic Policy, the Statute on the Advocates was enacted. The practice of advocates in the traditional way was initially tolerated during this period, but later labelled “juridical kulaks”, they were collectivised into Soviet type kollegiias in the 1930s. Advocates were allowed to practice only as

87M.Iu.Barshchevskii, Organizatsiia i deiatel’nost’advokatury v Rossii, Moscow 1997, p.12.

88Kucherov, supra, p.312.

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members of the legal consultation bureau run by the respective kollegiia in the area. The kollegiias had almost no autonomy at all. They were strictly controlled by the Ministry of Justice, and ultimately by the CPSU. In political trials, only advocates who were issued a special permit by the Presidium of the kollegiia in consultation with the KGB were allowed to take part.

The judicial reform which took place after perestroika did not initially affect the advocates. The reform focussed on the courts and, to a lesser extent, on the Procuracy. However, there was an important development – the establishment of the Union ofAdvocates of the USSR in 1989, which was the rst independent union under socialism.

Although legislative reform had been slow, major changes took place in practice. While the system of state supervision provided by the 1980 Statute still had not been formally abolished, the Ministry of Justice reluctantly gave up its supervisory power over the advocates in favour of the kollegiias. Now kollegiias have the power to decide on issues such as entry, training, remuneration, and creation of new of ces.89 The system of payment for legal services has changed from a xed fee system set by the Ministry of Justice to a system of fees negotiated with the clients.

In the late 1980s, the Ministry of Justice, in order to ensure that legal services are available to small and medium-sized businesses, authorised “parallel kollegiias” to be set up in regions where kollegiias already existed.90 Local governments often supported the creation of the “parallels” in their territory. Indeed, some of them have close links with the local government. In addition to the traditional friction between the Ministry of Justice and traditional kollegiias, there were now con icts between the traditional and parallel kollegiias.91

Another important development was the emergence of private law rms. Already under Gorbachev, a new form of legal business – “legal cooperatives” which were semi-private law rms – was allowed to be set up. In the early 1990s, the Ministry of Justice permitted private law rms to be set up outside the purview of the kollegiias. These were the successors of the legal cooperatives which emerged under Gorbachev. Since the term “advocate” denoted those screened and accepted by a kollegiia of one type or another under the 1980 Statute, members of these law rms could not be called advocates, but simply lawyers or attor-

89P.Jordan, “The Russian Advokatura (Bar) and the State in the 1990s”, Europe-Asia Studies, 1998 No.5, pp.769-770.

90The then Minister of Justice cited in Barshchevskii, supra, p.199.

91Ibid., pp.33-34.

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neys. Instead of concentrating on litigation like the Soviet advocates, members of these law rms primarily focussed on non-contentious corporate work.92

The number of advocates has substantially increased. In mid-1997, there were 26,500 advocates organised in over 100 traditional kollegiias (19,000-2000 members) and 40 parallel kollegiias (7,000 members).93

One of the problems with the profession of lawyers was that there was no formal requirement as to the quali cations needed to become members of the new kollegiias as well as the newly set up law rms. This was recti ed when, in April 1995, the government enacted a decree on the licensing by the Ministry of Justice of providing paid legal advice. Members of the kollegiias were exempted from the licensing requirement. By early 1997, the Ministry and local justice organs had issued approximately 8,000 licenses of which half were issued to members of private law rms.94 However, this decree was abolished and at present, there is no licensing system for lawyers working outside the kollegiias.

Even with the traditional kollegiias, the requirement for quali cation was not so high. The candidate must have had a higher legal education and two years” experience in the legal profession. “Legal profession” includes senior of cers of the police, espionage and counter-espionage, and the head or experts in the legal department of central and local administrative agencies, trade unions and enterprises.95

In 1994, two drafts of the Law on Advocates were prepared by the Ministry of Justice. In 1996, a draft Law prepared by the working group of the Committee for the Judicial Reform was adopted by the Duma in its rst reading. However, in 1997, the president withdrew this draft due to “changing situations”.96 Adraft Law which was submitted to the Duma in 1999 was said to be conceptually different from the earlier draft and was based upon the idea of “state regulation of the activities of advokatura”, for which it is criticised particularly by attorneys from the parallel kollegiias as destroying “7 years of existence of the system of advocates” kollegiia on the basis of democratic principles’ and was described as a return to the “administrative-command system” that existed under socialism.97

The parties involved – members of the advokatura, practising attorneys, local governments, and the Ministry of Justice – have failed to reach a consen-

92Jordan, supra, p.773.

93Ibid., pp.771-772.

94Ibid., p.773.

95Circular Letter of the Ministry of Justice, October 10, 1995.

96“Advokatura – institut grazhdanskogo obshchestvo”, RIu 2002 no.6, p.19.

97“Zakonoproekt ob advokature protovorechit Konstitutsii Rossii i zdravomu smyslu”, RIu 1999 No.4, p.1.

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sus. One advocate singled out the differences between the interested parties – i) the organisational structure of the kollegiia (whether it should be a non-pro t organisation or a pro t-making organisation), ii) the procedure for creating and liquidating kollegiias, iii) the number of kollegiias in each subject of Federation, iv) the mechanism of self-administration, and v) the relationship between the advokatura and the state. The Ministry of Justice turned into a strong opponent of the autonomy of the advokatura. Of cials maintained that state control over the advokatura should be reinforced, and even proposed to have a committee of judges and procurators under the aegis of the Ministry to license advocates. “Parallel kollegiias” were also to be abolished.98

ThenewLawontheAdvocates’ActivitiesandAdvokaturawas nallyadopted in 2002.99 Activities of the advocates are de ned as a “quali ed legal assistance (pomoshch’) provided on a professional basis by those who have obtained the status of advocates to individuals and juridical persons in order to defend their rights, freedoms and interests, and for the ensurance of access to justice” (Art.1, para.1). The Law explicitly provides that advocates” activities are not entrepreneurial (ibid., para.2).

In terms of organisation, the crucial point is that parallel kollegiias were abolished and the kollegias were reorganised into regional chambers (palatas) of advocates set up in each constituent entity of the Russian Federation. The Federal Chamber of Russian Advocates was set up at the Federal level. There is increased state control over advocates in that the government now sends representatives to the quali cation committee of advocates, although advocates still retain a majority.

The Law, however, states that legal services provided by members of the legal department of juridical persons, of cials of the agencies of state and local power, members and employees of organisations as well as individual entrepreneurs which provide legal service are not included in advocates’activities (Art.1, para.3). Therefore, lawyers working in a law rm as a partner or an associate or working on their own are not covered by this Law. There is no requirement for license or quali cation with regards to these people.

Those who have nished higher legal education and have got experience in legal work for no less than two years are quali ed to become an advocate, provided that they pass the examination organised by the quali cation committee for advocates (Arts.9, paras.1 and 2, and 10, para.1). The quali cation committee comprises seven advocates, two representatives of the territorial agency of the

98“V.Smirnov, “Zakon ob advokature nado priniiat’nesamedlitel’no”, RIu 1999 No.5, pp.12-13. See also Jordan, supra, pp.776-777.

99Law Mo.63-FZ of May 31, 2002.

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Ministry of Justice, two representatives from the legislature of the constituent entities, one judge from the courts of the constituent entities, and one judge from the commercial court of a constituent entity. The committee takes a decision by means of a two-thirds majority (Art.33, para.2).

Advocates are guaranteed independence. Interference with, or inhibition of the advocates’ activities is prohibited. Advocates are not pursued liability for the views expressed in the course of their professional activities, unless the advocate’s guilt was established by a judgement in force. Acquisition of information from the advocate or advocate’s chamber concerning a speci c case is not allowed (Art.18, paras.1-3).

3)Notary Public

The profession of notary public dates back to the 19th century. They were government of cials – “of cials of the 8th rank”. This system of the notary public as a state institution continued under socialism. One of the primary tasks of the notary public at that time was to check the legality of contracts concluded by state enterprises. It was another device used by the state to keep control over such enterprises.

After the collapse of socialism, signi cant changes took place. First of all, the scope of the activities of the notary public has become narrower; part of their activities came to be replaced by the system of registration of transactions involving immovables. Second, notaries were allowed to engage in private practice (Art.8). At present, there are state notaries public and notaries public in private practice. It is mandatory for a notary public in private practice to be a member of the chamber (palata) of notaries (Art.56).

The legal basis for the activity of the notary public is the Fundamental Principles of the Legislation on Notary Public of 1993.100 According to this Law, the task of the notary public is to defend the right and the legitimate interests of individuals and juridical persons by performing, inter alia, the following acts in the name of the Russian Federation (arts.1 and 35):

i) notarisation of transactions;

ii) authentication of copies of documents and excerpts; iii) authentication of the translation of documents;

iv) con rmation of the time of presentation of a document; v) accepting of money and securities as a deposit;

100 Law No.4462-1 of February 11, 1993.