Academic journal article Demokratizatsiya

Reforming the Procedural Rules for Business Litigation in Russia: To What End?

Academic journal article Demokratizatsiya

Reforming the Procedural Rules for Business Litigation in Russia: To What End?

Article excerpt

Disputes are a sad fact of life in business. The optimism with which many commercial transactions begin can fall victim to problems arising as a result of changes in the economy or opportunistic behavior by one of the participants. Perfect knowledge, either about the economy or about trading partners, always lies just beyond our grasp. Written contracts offer protection from some of life's vicissitudes, although they are inevitably incomplete. Even the most detailed agreement cannot contemplate all possible outcomes. Law comes into play by setting substantive parameters for contractual relations and by establishing procedures for handling disputes. When problems arise, however, both the law and the terms of the contract often take a back seat to concerns over preserving the relationship. Especially where those involved have worked together for an extended period, they may be reluctant to resort to legalistic solutions that require them to don the cloak of adversaries, preferring to seek out a compromise that both can live with. Such negotiations take place in the shadow of the law. The nagging realization that any failure to reach an accord could result in a lawsuit influences behavior. The perceived fairness of the courts colors the precise nature of that influence, such as whether litigation is to be avoided at all costs or is regarded as a viable option. Procedural rules are critical in setting the tone in that they establish the rights and duties of all the involved parties.

The basic facts of business life hold true in Russia as they do elsewhere. Although the popular media and much of the scholarly literature has dismissed the relevance of law and legal institutions for Russian businessmen, those who have actually investigated the question empirically have come to recognize that law is not as marginal as is generally thought. (1) Just as in other market economies, businessmen in Russia rarely rush to the courthouse when dissatisfied with the performance of a trading partner. Rather, they try to find some way to settle the dispute to their mutual satisfaction. Perhaps they are more open to extra-legal solutions, including those that raise the specter of violence, than are their counterparts in the West. But just as in the West, informal strategies represent only part of the spectrum. The caseload data, together with the results of enterprise surveys, show that Russian businesses are also open to using the courts to resolve their disputes when negotiations prove futile.

In Russia, economic disputes are heard by arbitrazh courts, which are institutionally distinct from both the courts of general jurisdiction and the constitutional court. Elsewhere I have documented that the criticisms of these courts for being slow, expensive, incompetent, and corrupt have been overblown. (2) Although far from perfect, the arbitrazh courts have demonstrated a capacity to resolve basic commercial disputes in a relatively timely and low cost manner. Recognizing that room for improvement remained, policymakers embarked on an overhaul of the procedural code. A new code was passed by the legislature in the summer and went into effect in September 2002. In this article, I reflect on the changes introduced in that code in terms of five criteria that encapsulate what businessmen most need from courts.

* Independence. The Soviet heritage of "telephone law" magnifies the importance of ensuring the independence of the arbitrazh courts from outside influence, whether it emanates from those with political or economic power.

* Competence. Russian arbitrazh judges' experience in handling market transactions dates back only a decade, leaving some businessmen skeptical of theft ability to comprehend and resolve complex commercial disputes.

* Even-handedness. Businessmen want a level playing field in the courts. They want assurances that their access to justice is not influenced by the relative wealth, courthouse connections, or prior legal experience of those involved. …

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