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. Last Updated: 07/27/2016

Putin Appeals for Better Arbitration

VedomostiOne judge at the Supreme Arbitration Court said, "You can't economize on justice."
Lawmakers this month will sink their teeth into a Kremlin-backed plan to clean up an incestuous corner of the judicial system by breaking too-close ties between arbitration and appeals courts.

The amendments to the law on arbitration courts, which President Vladimir Putin submitted to the Duma in February, if passed, would cut down on biased appellate rulings by replacing local appeals courts with 20 interregional appeals courts, supporters say.

The current system allows the same judge who presides over an arbitration trial -- Russian arbitration courts hear only economic and commercial cases -- to rule on the appeal.

And even when the appeal is heard by another judge, who often sits just down the hall, the degree of separation may be too low for comfort.

"The courts may be different, but their offices are all next to each other," said Sergei Pepelyaev, managing partner with Pepelyaev, Goltsblat & Partners. "All the people work in the same collective and their relations naturally influence the decisions they take."

The country's appeals courts and its 10 cassation courts, which were created in 1995 as watchdogs to rule on the procedural integrity of arbitration court hearings, overturned almost the same percent of rulings they heard last year.

Last year, the country's appeals courts heard 68,769 cases from arbitration courts, of which they overturned 27 percent.

The cassation courts found violations in 29.3 percent of the 51,022 arbitration cases they considered.

However, it is not the quantity that counts, Pepelyaev said, what matters is that the new system would smooth out imbalances. Some courts -- such as the Moscow arbitration court -- are reputed for almost never overturning initial arbitration rulings.

Prototype courts could go into operation in Moscow, the Moscow region, St. Petersburg and the North-Western region as early as next year, while the amendments propose a countrywide switch by 2006.

Lawyers and analysts say the new appellate courts would make the arbitration court system more effective and transparent.

"I have been involved in litigation for eight years and often come across court decisions being appealed in the same court," said Yaroslav Klimov, a senior lawyer in Freshfields Bruckhaus Deringer's litigation department.

"This has never inspired confidence that the ruling would be independent. All sorts of factors play their role, it's partly psychological -- who is friends with who," he said.

Klimov said he once appealed a trial judge's refusal to accept five different procedural requests, but the appeals court rejected him out of hand.

''The appellate court -- which of course was located in the same court building as the court for the first case -- quickly supported the trial court's decision on all five requests," Klimov said.

Furthermore, a clause in the current arbitration law allows local authorities to distribute federal budget funds earmarked for the courts, including medical care and housing for judges and other employees.

Thus, the appeals and the arbitration courts depend on the goodwill of the same local authorities for funding -- which may sap their independence and makes it less likely for an appeal to succeed in politically charged cases.

Making the appeals courts super-regional would render it harder to influence both court decisions.

"The Supreme Arbitration Court [which developed the amendments] always had one idea: free-up the lower arbitration courts, so cases don't pile up and the regional elite doesn't interfere in the work of federal courts," Vedomosti quoted a source in the president's legal department as saying.

Such fundamental changes could take a long time to implement, Klimov warned.

"How this will operate is not clear, and in Russia these transitional periods can go on for years," he said.

Others say the government is serious about moving the reforms forward.

Presidential Deputy Chief of Staff Dmitry Kozak, an adamant supporter of court reforms, promised in February that the amendments would be pushed through the Duma as quickly as possible.

"Judicial services have seen the highest percentage increase in terms of budget spending,'' said Christopher Granville, a senior political analyst and equity strategist at United Financial Group.

"It may still be tiny compared to other budget articles, but it shows that Putin is putting his money where his mouth is."

Oleg Naumov, a judge with the Supreme Arbitration Court, said that the new system would be well worth the funds that have been earmarked in the 2003 budget.

"The state will have to spend a little more, but then -- you don't economize on justice."