Look What an Altai Prospector Dug Up: Creeping Federalism

When a Russian prospector who had duly registered as an individual entrepreneur in the Altai Territory set out to find nonferrous metals, he was astonished to learn that the local authorities required him to obtain a special license. He promptly brought suit in a local court to have the Altai decree declared unconstitutional, being contrary to Article 34 of the Russian Constitution that guarantees to each the free use of his abilities and property for entrepreneurial activity.

The court in Altai, and later the Judicial Division for Civil Cases of the Russian Supreme Court, denied relief on what would seem to have been classic principles of constitutional law: Licensing types of economic activity is not relegated by the constitution either to the jurisdiction of the Russian Federation or to the joint jurisdiction of the federation and the subjects of the federation (Altai Territory being a subject of the federation). Accordingly, since there is no federal law on licensing that pre-empts the Altai Territory from acting, the Altai authorities were entirely at liberty to enact their own legislation on the issue.

The presidium of the Supreme Court took quite a different view. The prospector had not raised a simple constitutional question at all. Under the Civil Code (Article 49), licensing is a part of civil legislation. The Constitution provides in Article 71(n) that civil legislation is within the jurisdiction of the Russian Federation. The presidium rejected arguments that licensing was a part of administrative law (in which case the Altai Territory might have legislated on the subject). Licensing, the presidium averred, might have an administrative aspect to it, but the list of activities subject to licensing was beyond doubt a matter of civil law.

The State Duma has been considering for years a draft law on licensing individual types of activity. The Supreme Court's presidium also rejected the view that until such law is enacted, Altai Territory might help fill the void. The existing governmental decree on licensing, recognized ad interim by the Civil Code, does not grant Altai Territory the right to introduce its own licensing. The presidium of the Supreme Court therefore accepted the argument that Altai Territory had acted unconstitutionally in adopting an act requiring the prospector to obtain a license, and even more remarkably, rather than returning the case for further proceedings by the trial court, decided entirely in favor of the plaintiff.

The balance of powers is delicate and fluid within any federal system, but the attentive reader will have observed that: first, the Constitutional Court was not involved at all in this matter; second, that the constitutional allocation of jurisdiction was profoundly affected by the classification of certain activities into civil or administrative (which is largely a matter of legal theory); and third, licensing of mineral exploration under this decision is firmly in federal hands unless reversed by federal legislation on the subject. Does this decision constitute a precedent? There is a powerful movement under way in Russia to recognize judicial practice as a source of law. This decision would seem to be a clear and compelling example of the Supreme Court performing a "law-creating" function.

W.E. Butler and Maryann Gashi-Butler are resident partners of Price Waterhouse CIS Law Offices BV.