Some institutions of procedural law can cause difficulties even for the most experienced lawyers. One of these topics is jurisdiction. Recently, the editorial board of "Pravo.ru" compiled a guide to this issue (see "Lawyers disclose secrets: 10 rules of jurisdiction"). And the new material presents a review of the most common mistakes in the jurisdiction: reasons for their appearance and what consequences they bring for the participants of a case – read in our publication.
Judges pay dearly for mistakes in jurisdiction as well. Recently, a career of the Tobolsk district court judge was disfigured because of one corporate dispute for 80 million rubles. The judge not only took up the case but also satisfied a motion of the plaintiff to impose provisional measures on the defendant company. For such a procedural violation she was prematurely discredited (see "The error in subordination cost the career judge"). In the mentioned case, the applicant himself resorted to cunning and intentionally re-registered in Tobolsk to file a suit with a court of general jurisdiction. Such deliberate errors are not always so easy to identify and prove.
Deliberate violations
Quite often legal entity deliberately tries to leave a court of general jurisdiction to arbitration court, believing that the chance to win the dispute in the latter is much higher. Kyurdjev notes that companies thus appeal against decisions on the imposition of administrative sanctions when an offense is not related to entrepreneurial activity. This happened in the case of CJSC Tanais. The enterprise submitted customs declarations with inauthentic information about the imported goods in order to reduce the cost of customs payments. Federal Customs Service (FCS) fined the company almost 3 million rubles for such cunning. Nevertheless, the company tried to challenge this decision at the Arbitration Court of the Nizhny Novgorod region, but with no success (case No. А43-7534 / 2013). The first instance came to the conclusion that Tanais as a customs representative did not show due diligence. As a result, the case reached the Supreme Court, which agreed with the decision of the Arbitration Court of the Nizhny Novgorod region stressing that such a dispute is under the jurisdiction of a court of general jurisdiction, since it is not related to entrepreneurial activity. In this case, the object of the trespass is public relations, which relate to customs rules, noted the Economics Board.
But the most sensational case of late concerning the violation of the jurisdiction rules is the dispute of Konstantin Ponomarev and IKEA (see "The Supreme Court will consider the dispute between Konstantin Ponomarev and IKEA"). Proceedings between the Swedish company and the businessman have been pending for more than 8 years. In 2006, IKEA rented from the Ponomarev’s company generators for electrification of MEGA shopping centers near St. Petersburg. Ponomarev firstly demanded from the retailer prepayment for the rental of generators through court action, and after the expiry contracts refused to take them back from the company. Then IKEA in its turn resorted to court with the requirement about the pickup of diesel generators from its territory. In 2010, the dispute was resolved in a pre-trial order, Ponomarev received 25 billion rubles from the retailer. The basic condition for the agreement was a complete cessation by Ponomarev and affiliated structures of all the requirements and obligations associated with the rent of generators. Despite this, in 2011, Ponomarev again tried to resume the proceedings, arguing that before signing an agreement with IKEA, he conceded the right to claim this debt to the company Rukon controlled by him. In 2014, the Supreme Arbitration Court put an end to the dispute, dismissing Ponomarev’s claims.
Then the contractor of the Swedish company assigned the right of claim to the foreign retailer from his company as an individual and went to the court of general jurisdiction. In August last year Krasninsky District Court of the Smolensk region recovered from IKEA more than 507 million rubles penalty for non-reimbursement of generators, the appeal upheld this decision (see "The appeal approved the recovery of 507 million rubles from IKEA in favor of businessman Ponomarev"). IKEA challenged this decision in the Supreme Court, which canceled the Krasninsky court's decision in favor of Ponomarev and sent the case for further consideration to the Khimki city court of the Moscow region at the place of registration of the Swedish company. In its judgement in the case No. 36-KG16-26, the Supreme Court pointed out that the courts of lower instances incorrectly applied the procedural law rules governing the jurisdiction and admissibility of civil cases.
A similar story happened in the practice of Pavel Khlyustov, lawyer, partner of Barshchevsky and Partnery Law Office. His opponent in the arbitration process (editorial note – legal entity), feeling the loss of the situation, ceded the rights under the contract to an individual and asked to terminate the proceedings. The court of the first instance granted this claim. Then Khlyustov filed an appeal, pointing out that at the time of filing the case the case was under the jurisdiction of the arbitration court. The appeal agreed with the argument of the lawyer and decided that the disputable situation should be resolved by the arbitration court (case No. A40-117691 / 2012).
Malicious mechanism with a guarantor
Another example of unfair practice is the involvement of a guarantor-co-defendant to the dispute between legal entities, which is a natural person, says Viktor Gerbutov, PhD in Law, Noerr partner. Such a guarantee is usually given without the consent of the indebted company. Or it is done intentionally by the beneficiary of the defendant to intentionally change the jurisdiction so that all disputes of his or her company were considered in courts of general jurisdiction. The victims of such a cunning scheme most usually become bona fide creditors of the debtor, who are waiting for arbitration proceedings.
A similar situation arose in the dispute between Constant Alliance JSC against OOO Ram Holding (case No. 2-3098 / 2016). The plaintiff sought debts under the loan agreement, but applied not to arbitration, but to the Khamovnichesky District Court for the defendant's guarantor was Alexey Pavlov, a natural person. This maneuver was a surprise for another creditor of Ram Holding – the ACB, which operates in the interests of PAO M2M Private Bank which was under liquidation. Previously, the requirements of the credit organization were included in the register by the decision of the Moscow Arbitration Court (case No. A40-154428 / 2015). The ACB appealed against the decision of the Khamovnichesky Court, because the bank, which is a competitive creditor of Ram Holding, was not involved in the case. The loan agreement mentioned at the same time is also challenged in the case of Ram Holding's bankruptcy. The money that is collected from it in a court of general jurisdiction could go to the satisfaction of the requirements of the ACB and the depositors of PAO M2M Private Bank.
However, most often difficulties with the issues of jurisdiction are experienced by bona fide applicants. Until September 2015, wrong choice of a court could bring the applicant a lot of problems, says Ekaterina Nikiforova the lawyer of the law office Olevinsky, Buyukyan and partners: "While the case was being examined by "a wrong court" the limitation period often ran out."
Limitation of actions under wrong choice of a court and limitation of arbitration clause
Situation changed when on September 29, 2015 the plenum of the Supreme Court adopted Resolution No. 43 "On some issues related to the application of the provisions of the Civil Code of the Russian Federation on the limitation period." Paragraph 18 of this document states that the limitations does not apply if the claim is filed in violation of the rules of jurisdiction. This innovation has already been confirmed by judicial practice.
Antonina Platonova in order to collect unpaid dividends from OOO Vico, first appealed to the Oktyabrsky District Court of St. Petersburg. When she was explained that such disputes are not considered in courts of general jurisdiction but in arbitration courts, it was already too late – the limitation period had expired. The Arbitration Court of St. Petersburg and the Leningrad Region dismissed Platonova’s suit on this grounds. The matter got to the Economic Council of the Supreme Court, which reminded the Plenum (case No. A56-50131/2014). Platonova's claims were fully satisfied.
Wrong choice of a court can lead to other unpleasant consequences for a plaintiff. Nikiforova warns that while a case gets under jurisdiction to the right court a defendant will have time to dispose of the disputed property and create other obstacles to the implementation of the decision in the future.
Difficulties with the definition of jurisdiction may arise even when there is an arbitration clause in the contract. The latter also appeared in the case of Trust Bank. During the resolution a copy of the agreement on the purchase of bills (from November 2013) to the value of $ 71,276 million from a Cyprus company was found in the office of the former vice-president of the Trust. Such a deal did not seem reasonable and economically justified – the new management decided – and went to challenge it in the Moscow City Arbitration Court (MCAC) (case No. A40-117039/2015). But the central issue of the trial in court was a completely different problem. The first instance decided that the claim should be left without consideration, since the disputed contract contained an arbitration clause. Accordingly, the case must be heard in the International Commercial Arbitration Court of the Chamber of Commerce and Industry of the Russian Federation, for it does not fall under the jurisdiction of the arbitration court – the MCAC concluded. However, the Supreme Court explained that it is not only in bankruptcy, but also in resolution of credit institutions cases, that disputes are to be considered in state courts (see "Sanation should be carried out by state courts – the rationale of the Supreme Court in the case of Trust Bank").
Where do citizens go in "purely economic cases"
But most of all mistakes concerning jurisdiction arise in disputes involving citizens, when the nature of the matter is purely economic, says Alexei Kostovarov, advisor to Liniya Prava Attorneys at Law. A striking example is the case of businessman Shalva Chigirinsky (Decree of the Presidium of the Supreme Arbitration Court dd April 20, 2010 No. 17095/09). The businessman issued a personal guarantee to secure the obligations of the Russian Land company, to the value exceeding $ 32 million. Cyprus company Edimax Ltd demanded to collect this money from Chigirinsky in the London International Arbitration Court, and simultaneously asked the MCAC to impose interim measures on the property of the businessman.
The first instance refused to do so, and the appeal satisfied the Cyprus company’s motion. The District Court, on the contrary, supported the MCAC decision. The first cassation decided that Chigirinsky was not registered as an individual entrepreneur, so the arbitration court should not consider this case. The Presidium of the Supreme Arbitration Court annulled the decision of the district court, obliging it to consider the case, in essence, the Supreme Arbitration Court explained that the arbitration court could arrest the property of a citizen, because the dispute itself derived from economic relations and was considered in international commercial arbitration.
Difficulties are also caused by the cases concerning compensation of losses caused by the director of the company. The Supreme Arbitration Court once explained that such proceedings are subject to arbitration, for they are corporate disputes (paragraph 9 of the Plenum of the Supreme Arbitration Court Resolution No. 62 dd July 30, 2013). But already in 2014, with the efforts of the Supreme Court, practice on this issue has changed, Nikiforova notes. The Civil Chamber Judicial Board indicated that the company must recover damages even from its former director in a court of general jurisdiction. The Supreme Court explained such an idea by the fact that such a dispute arises from labor relations (case No. N 41-KG13-37). However, in less than a year, the Economic Commission of the Supreme Court came to the opposite conclusion in a similar dispute: "The claim for damages against the defendant as a former head of a legal entity is a corporate dispute and is referred by law to the jurisdiction of arbitration courts" (case No. A40-164985/2014). Drawing such a conclusion, Nadezhda Ksenofontova the judge of the Supreme Court referred just to paragraph 9 of the Plenum of the Supreme Arbitration Court Resolution No. 62 dd July 30, 2013.
Another example of a controversial situation is put forward by Denis Krauilis, a lawyer, project manager of the Yakovlev and Partnery Legal Group. The plaintiff, an individual businessman, in an arbitration court recovered losses from the director of a commercial company. The latter refused to comply with this decision, then the businessman appealed to the same court with a demand to receive interest for failure to comply with the judicial act. However, MCAC terminated the proceedings, pointing out that such a dispute was to be considered by a court of general jurisdiction, since it was no longer a corporate one (case No. A40-180070/2015).
Wrong choice leads to the ECHR
Sometimes due to a wrong choice of jurisdiction proceedings are delayed because of a court itself. Yevgeniy Gusiakov, a lawyer of Pavlova & Partnery Law Office, states that this happened in the case of Tamara Avakova, a pensioner from St. Petersburg, which eventually reached the European Court in Strasbourg (ECHR Decree dd June 22, 2006: "Avakova v. the Russian Federation"). The applicant bought an apartment in a newly built house through an intermediator company, but she never received it. The pensioner began to seek her property through court, but this dispute dragged on for long six years.
The Kuybyshevskiy District Court of St. Petersburg and the local Arbitration Court "threw" the case to each other by turns. Servants of Themis were confused by the fact that the apartment was bought through a legal entity, and not directly by Avakova. In the long run, the decision on this dispute was made by a court of general jurisdiction, having satisfied the pensioner’s motion. The ECHR considered such actions of the organs of justice to be "a violation of the constitutional right of citizens to judicial protection and an unreasonable delay of the proceedings."
There arise questions about the jurisdiction when it is necessary to appeal the decision on imposition of administrative sanctions. Mikhail Kyurdjev, partner of A2.Advokaty Attorneys at Law says that quite often administrative bodies insist on resolving such disputes in the courts of general jurisdiction: "While applicants – legal entities – prefer to assert their rights in arbitration courts." Although the Supreme Arbitration Court clarified all the contradictions in this matter in 2002, the lawyer reminds: "Decisions are appealed to courts of general jurisdiction if an offense is not related to business activities. For example, when it comes to a fine for violation of the rules of improvements." (The Plenum of the Supreme Arbitration Court of the Russian Federation Resolution No. 11 dd December 9, 2002)
Life hacks from experts
Pavel Khlyustov from Barshchevsky and Partnery Law Office believes that wrong choices of jurisdiction can be divided into three types.
In the first two cases, there is a very simple advice – before you go to court you should carefully study the rules of law and established judicial practice on similar disputes, the expert advises: "95% of cases related to the problem of determining jurisdiction are positively solved if you just follow this simple rule. The rest 5% can remain "hovering in the air," and then everything depends on the skill of a lawyer leading the case and the views of a judge."
Lawyers shared with "Pravo.ru" some practical advice on how to avoid mistakes in choosing the jurisdiction. Peters reminds that if a court of general jurisdiction refuses to consider the applicant's claim, referring to the lack of jurisdiction, then the arbitration court has to register and consider such a claim on the merits.
Kostovarov gives the following advice: if there are worries about letting the limitation of actions elapse due to a wrong choice of the jurisdiction, then it is possible to file a claim simultaneously to both a court of general jurisdiction and an arbitration court. In this regard, it is important to remember the rule of "procedural estoppel" - you can not refer to the lack of jurisdiction over a dispute at the stage of appealing the judicial acts, Gerbutov explains.
Speaking about resolving the majority of problems of the discussed institute, Kostovarov offers one innovation: to oblige judges to refer cases to courts within the jurisdiction of which they fall. A similar scheme already works when applicants choose a wrong jurisdiction.
