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The Supreme Court negated decisions of the Supreme Arbitration Court of the Russian Federation (SAC RF)

The decision of the Supreme Court of the Russian Federation (SC RF) of 30 July 2015, regarding case number A40-110786/2013, was remarkable. The judicial board on economic disputes of the SC RF took a position, expressed in the judicial review number 1 of the SC RF of 4 March 2015, concerning past regulations. This decision halted the proceedings because they did not fall under the general jurisdiction of the arbitration court.

The dispute arose from the nonfulfilment of a credit contract between Prosper River Limited, the plaintiff, and United Cargo Fleet, the borrower, with Yury Lebedev, the defendant, as the beneficiary. A guarantee of the defendant ensured the performance of the contract. After United Cargo Fleet failed to repay the credit on time, Prosper River Limited took Lebedev before the Moscow City Arbitration Court in order to recover the debt. The funds, according to the agreement, were for building a ship, which was constructed.

The court of first instance sustained the suit, and the appeal and cassation court upheld the decision. Deputy vice-chairman of the SC RF, Oleg Sviridenko, submitted the case to the Economic College of the SC RF for revision, based on the legal positions contained in Review number 1 dated 4 March 2015. In particular, the defendant maintained that the arbitazh courts were not competent to consider the case. Nevertheless, the arbitrazh court determined that it was competent to do so, which it stated in the ruling of the Presidium of the SAC RF of 13 November 2012, number 9007/2012. The ruling held that “a dispute arising from a contract of guarantee concluded by a person who is the sole founder (participant) of the entity to ensure an economic transaction of this entity also has an economic character.” The Economic College of the SC RF did not support this position.

The review of the judicial practice of the SC RF referred to above states the opposite. According to the current laws, the arbitrazh courts are not competent to consider disputes regarding debt recovery from a guarantor or natural person. The SC RF did not take the position of the SAC RF into account case because of the claim against Mr. Lebedev. The Economic College of SC RF said that arbitrazh courts did not take into consideration the principle of the distribution of court jurisdictions, based on the nature of the dispute and the subject matter. As a result, it terminated the proceedings because of the lack of jurisdiction.

Trying to refute the arguments of the respondent, the complainant, in the second appeal, claimed a violation of the principle of legal certainty, which resulted from the dismissal of the case. Nevertheless, the judicial board on economic disputes, referring to the resolution of the European Court of Human Rights (ECHR) in the case “Sutyajnik against the Russian Federation,” of 23 July 2009, explained that the lower courts did not investigate matters relating to the substantive legal relationship of the parties, so the cancellation of judicial decisions and the termination of the proceedings was justified.

Based on this decision, the question arises whether a party to a dispute now can rely on the position of the SAC RF or if the SC RF decision will be the basis for their revision. If the result is the review all legal positions of the SAC RF, the present case can threaten the legal certainty, stability, and uniformity of judicial practice.

The decision of the SC RF raises another question: will this approach cause violations of the rights of individuals and legal entities with respect to judicial protection? In their decision, the judges of the Economic College of the SC RF noted that the termination of the proceedings does not affect the applicant’s right to judicial protection because a court of general jurisdiction can hear the case. However, during the proceedings in the court competent to hear the case, the other party can claim that the statute of limitations applies, leading to a denial of the claim. It is difficult to predict whether the court of general jurisdiction will extend the statute of limitations.

The decision of the SC RF raises more questions than it answers. At the moment, it is difficult to assess the actual effect and the consequences of the practice of overturning the legal findings of the disbanded court. Will the SC RF continue adhering to this position, or should the decision be seen as sui generis?

Acts on the case are available here