Constitutional Court Moves Toward Precedent-Based System of Law

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 the court decision (a copy of which was obtained by Vedomosti) announced Friday on claims filed by companies Karbolit, Respirator, Mikroprovod and Bereg.

The firms had petitioned the court to declare 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 didn't always take into account positions in the decisions of the presidium, said Dmitry Stepanov, a partner at Egorov, Puginsky, Afanasiyev & Partners.

The plaintiffs to the Constitutional Court 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 suits 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 that it is necessary to ignore the rulings of higher courts if they diverge from the law, he said.

Now it recognizes 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 judges are afraid of being dismissed if their decisions are overturned doesn't make it a system of precedent law. On the contrary, in the Constitutional Court's finding it specifically held that courts must nevertheless follow the requirements of the law, she said. If the presidium of the Supreme Arbitration Court diverges from the law, then it is necessary to make decision on the grounds of the latter.

Though the Constitutional Court didn't forbid the Supreme Arbitration Court from reviewing decisions already in force, it did try to make it as difficult as possible, said Denis Shchekin, a partner at Pepeliayev, Goltsblat & Partners. The decisions of the presidium will have retroactive authority only when it is explicitly indicated.

There must be a stipulation that the legal positions in the 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 the logic of the Constitutional Court, cannot be used to review a case. But that doesn't 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 (administrative, tax-related, etc.), and reviews of civil cases are possible only for defending the interests of the general public or the obviously weaker side, the Constitutional Court held.

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, he said.

There was a similar case concerning the declaration of company expenditures in a later period, Akchurina said. Before 2008, practice was in favor of the company, but that changed, and courts began 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 that 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 and Partners, which represents the interests of Respirator and Mikroprovod in the Constitutional Court.

See also:

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Must Try Harder: Russia's Constitution in Theory and Practice

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