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Russia: Judges, Plaintiffs, Defendants Face Arbitration Court Problems -- Part 2

  • Sophie Lambroschini

During last year's presidential campaign, Vladimir Putin pledged to carry out a thorough reform of Russia's judicial system. Now, five months after a special presidential commission was instructed to work out a reform program, several bills are expected to be presented to the Duma as soon as early next month. In part one of a two-part series on Russia's judiciary RFE/RL Moscow correspondent Sophie Lambroschini looked at reform plans and the resistance they face. In this second part, she focuses on the country's arbitration courts, examining the special problems faced by judges, plaintiffs, and defendants, and the solutions reforms could offer.

Moscow, 25 April 2001 (RFE/RL) -- Arbitration courts are called upon to hear some of Russia most important cases -- at least in terms of money.

Set up eight years ago to settle conflicts between companies and the state, or between one company and another, the arbitration courts are regularly pulled into privatization battles or takeovers worth millions of dollars. They are now key players in the process of property distribution in Russia. But at the same time, they display all the failings of Russia's ordinary courts, and that scares away potential investors.

Analysts say that arbitration judges, who formerly specialized in Soviet economic conflicts, are considered more efficient than the broad-ranging general judges who hear criminal, administrative, and civil cases. But, the analysts add, the arbitration judges suffer from the same failings that undermine trust in Russia's overall judiciary.

Oleg Fyodorov serves as an adviser to two non-governmental organizations that seek to protect the rights of Russian stock investors -- the National Association of Securities Market Participants and the Investors' Rights Association. He has followed several arbitration court cases that involved Russian or foreign investors in conflict either with the state or major Russian companies. He says that, in his experience, the courts are biased in favor of wealthier, more influential parties.

"The most important problem is probably that the court is called 'arbitration' but is not an arbitrator at all. [If] two parties of very different size are facing each other in court -- for instance, one very influential, very rich, and the other having only the law behind him -- then almost no case is known of the court taking the side of the lesser-known side."

According to Fyodorov, the lack of trust in Russian courts is one major reason why many Russian companies try to file their arbitration suits abroad.

"Even our own entrepreneurs don't go to a Russian court when they need an arbitrator. If, let's say, a big oil company wants to open proceedings, say, against an aluminum company, then they'll try to hold the trial somewhere in Great Britain or in the United States. So when they really want the court to have some influence, they don't even trust our highest jurisdictions, neither the Supreme Court nor the supreme arbitration court. And they all try to get under foreign jurisdiction when need to have [stock] shares frozen -- because here [in Russia] of course, the rules of the game are completely different."

Fyodorov explains that while bribe-taking does exist, pressure on judges is usually exercised in a more indirect and subtle way. He says that often it's not money but administrative pressure that will sway the judge.

For instance, says Fyodorov, one of Russian investors' biggest grievances is that it's almost impossible to win a case against the Moscow city government. He says that's not because the city government is paying each and every judge a bribe. Rather, according to Fyodorov, the real reason is that the city government regularly pays judges significant bonuses to supplement their very low salaries.

This financial dependence exists in most of Russia's regions, with judges not only beholden to local government for their apartments but sometimes also for basic utilities like electricity.

Russia's projected judicial reform, drafted by presidential aide Dmitry Kozak, seeks to address this problem by raising judicial salaries in an effort to detach judges from their dependence on local authorities.

Also, according to supreme arbitration court head Veniamin Yakovlev, the number of arbitration judges should be increased to address their courts' increasing workload. In an interview earlier this year in the daily "Vedomosti," Yakovlev said the arbitration courts' workload had increased in recent years ("since the late 1990s") by 15 percent.

But some important failings of the arbitration courts are not expected to be eliminated any time soon.

One major problem is that arbitration courts have become the instruments of redistributing property under Russia's imperfect bankruptcy laws. Yakovlev says that bankruptcy suits can be filed automatically if there's a proven debt of more than $1,400 and that courts have to start proceedings almost immediately. This, he says, leads to many cases of illegal property redistribution. He cites one instance where a court suspended bankruptcy proceedings just in time against the Klinsky brewery -- an enterprise that by all accounts was doing well.

But, Yakovlev says, for arbitration courts to minimize such misuse of the law, judges need to increase their qualifications in an ever-changing economic and legal environment. He urges that arbitration judges, and courts, seek to specialize in specific areas.

Non-governmental adviser Fyodorov is also concerned with judges' lack of understanding of complicated shareholders' rights legislation. He says their ignorance leads them, in his phrase, to "do things the old-fashioned way" -- that is, hear each side for half an hour, recess for an hour, and emerge with a decision.

Xavier Barre is the head of a European Union TACIS aid program that is providing instruction over two years to some 700 arbitration court judges. He calls Russia's training of "two weeks every two years" insufficient.

But Barre stresses that judicial reform will not make any significant progress in Russia until it tackles a very touchy subject -- the state's accountability for its own mistakes.

"There's a lack of legal fundamentals. There's no [notion] of administrative fault, of state accountability, the way we understand it in French or in other Western law. And when there is no fault, it is impossible or at least difficult to convict."

According to the supreme arbitration court, administrative disputes account for 46 percent of all cases. Many involve taxation and customs duties. Court head Yakovlev says that plaintiffs who claim they have overpaid taxes win in as many as half of the cases.

The EU's Barre says that claims against tax authorities are indeed an encouraging step forward -- but an exception to the rule. He points out that that there is no law on the state's responsibility in economic relations. As a result, he says, companies are helpless against routine administrative harassment that can paralyze them.

"In a [Russian] company's life, what is often subject to abuse are inspections. Inspections [come] from different administrations -- firemen, security officials, hygiene, municipal, ecological, sanitary. Where we [at TACIS] work in Krasnodar, there are cases of companies that get such 'visits' more than 400 times a year, twice a day from civil servants."

Kozak's planned judiciary reform is attempting at least to lessen the grip of the Prosecutor-General's Office in purely business conflicts. Kozak says the projected arbitration procedure code adopted in a first reading by the Duma earlier this month would strip the Prosecutor-General of his right to protest an arbitration court decision if the adversaries are private companies settling a bilateral business conflict.

But the Prosecutor-General's Office opposes any reduction in its authority. Badir Kekhlerov, deputy prosecutor-general, says his office is the last barrier against court corruption

"Today we are being banned from protesting to the supreme arbitration court. We're talking about few cases -- 100, 200 a year. But in those cases [when we intervene] all the courts have sold out [to moneyed parties], and we come to the conclusion that the state's interests are being violated and that it is necessary to go all the way to the highest jurisdiction."

However far the projected judicial reform may go, Oleg Fyodorov points out that the system will work efficiently only under a new generation of judges, appointed and formed under a more democratic and more honest system. Of the present judges, educated under Soviet rule, he says: "They have the old system in their blood. and you can't overcome that with reforms or with money."