23 January 2010
Dmitry Stepanov commented for the Moscow Times on recognition of the Supreme Arbitration Court’s right to set legal guidelines

Courts Take Step Toward Precedent-Based System of Law

By Dmitry Kazmin and Filipp Stepkin / Vedomosti

The Constitutional Court has decided that the Supreme Arbitration Court has the right to set legal guidelines, not just follow the law — a move that lawyers say is the first step toward a precedent-based system of law.

The Constitutional Court has found that the Supreme Arbitration Court's right to review a decision that has already come into force poses no contradictions to the fundamental law. This conclusion follows from a court decision announced Friday on claims filed by four companies: Karbolit, Respirator, Mikroprovod and Bereg.

The firms had petitioned the court to declare as unconstitutional a number of articles in the Arbitration Procedural Code, which the Supreme Arbitration Court relies on to review decisions that have already gone into force but which face new circumstances.

This mechanism received practical support in February 2008, when the presidium of the Supreme Arbitration Court held that decisions made by the presidium in other cases could count as such a circumstance. At the time, this was perceived as revolutionary: Even lower courts did not always take into account the presidium's rulings, said Dmitry Stepanov, a partner at Egorov, Puginsky, Afanasiev & Partners.

The plaintiffs in Friday's Constitutional Court case were among the first victims of the new development. Each of the companies had won lawsuits against Mosenergosbyt for charging too much for electricity. The electricity trader took advantage of the presidium's decision in a similar case and won reversals on all of the lawsuits for a total of 42.8 million rubles ($1.4 million).

The Constitutional Court's recognition of such a right for the Supreme Arbitration Court is a significant step, Stepanov said.

For practicing lawyers, the existence of a de facto precedent system has been recognized for some time, but academic lawyers and the Constitutional Court have urged judges to ignore the rulings if they diverge from the law, he said.

Now it recognized that, despite all the stipulations, the Supreme Arbitration Court can review decisions that have already gone into force if they diverge with established practice, said Galina Akchurina, head of practice at FBK-Prava.

In practice, an even stricter system of dependence on higher courts has developed, said Tamara Morshchakova, a retired Constitutional Court judge.

But the fact that many judges are afraid of being dismissed if their decisions are overturned does not make it a system of precedent law, she said.

Although the Constitutional Court has not forbidden the Supreme Arbitration Court from reviewing decisions already in force, it has tried to make it as difficult as possible, said Denis Shchekin, a partner at Pepeliaev, Goltsblat & Partners. The decisions of the presidium will have retroactive authority only when explicitly indicated.

There must be a stipulation that the legal positions in a court decision can be used for reviewing decisions already in force, Stepanov said. The Supreme Arbitration Court has never made such stipulations before, so earlier decisions, according to the logic of the Constitutional Court, cannot be used to review a case. That does not mean that the court won't find a way to get around this requirement by issuing other interpretations, he said.

The chairman of the Supreme Arbitration Court declined to comment, saying the Constitutional Court's ruling had not yet reached the court.

The Constitutional Court's ruling also limited the number of cases that could be reviewed. Among such cases are all disputes with the state, including administrative and tax-related cases, and reviews of civil cases are possible only for defending the interests of the general public or the obviously weaker side, the Constitutional Court said in its ruling, a copy of which was obtained by Vedomosti.

It is also not permitted to attach retroactive power to the interpretation of legal norms that would weaken the position of someone involved in a dispute with the state.

An observation about the prohibition against weakening the position of a company in a dispute with the company is also apropos, said Eduard Godzdanker, head of the legal department of TNK-BP Management. Samotlorneftegaz, a subsidiary of TNK-BP, filed a similar complaint in the Constitutional Court. The company is involved in a dispute with the tax service over whether or not the value-added tax for services can be refunded by registering certificates of origin. At first the courts supported the company, but later the Supreme Arbitration Court allowed the case to be reconsidered, agreeing to the legal position of one of the decisions of the presidium. It turned out that the company's position was worsened by these reviews, Godzdanker said.

There was a similar case concerning the declaration of company expenditures, Akchurina said. Before 2008, practice was in favor of the company, but that changed, and courts began to review cases that had already concluded in favor of the tax service.

Firms now have a chance to use the decision of the Constitutional Court as a newly developed circumstance; the court has repeatedly said this can be done, Morshchakova said.

The firms in question hope for a review of their case as well. The Constitutional Court indicated in the decision that it was possible for the plaintiffs' cases to be reviewed. But it is still too early to draw conclusions before receiving the full text of the decision, said Tatyana Kamenskaya, managing partner at Kamenskaya & Partners, representing the interests of Respirator and Mikroprovod in the Constitutional Court.