Pre-trial dispute settlements: clarifications from the Supreme Court of the Russian Federation

At the end of July 2020, the Supreme Court summarized1 the judicial practice regarding the procedure for pre-trial settlement of commercial disputes. The Supreme Court gave answers to such questions as whether a claim is required before filing a counterclaim, whether negotiations may replace it, whether errors in calculations are allowed in the claim, and many others.

We decided to cover the most important aspects of the said summary in this article.

Pre-trial dispute settlements

Main objectives of arbitration proceedings are not only protection of violated rights and legitimate interests of the parties, but also promotion of initiation and development of business partnerships, as well as the peaceful settlement of disputes and development of business ethics.

One of the ways to achieve these objectives is to apply the pre-trial dispute settlement procedure by the disputing parties, which is aimed at prompt resolution of the conflict.

This procedure is mandatory:

  1. If you intend to file a lawsuit to the arbitration court for recovery of money under the agreement or following unjust enrichment.
  2. If you need to terminate or amend the agreement through legal action.
  3. In cases stipulated by the federal law or agreement, if you claim in the arbitration court:
  • Other property under agreements and other transactions (e.g. goods from a supplier) rather than money;
  • Unjust enrichment in kind (e.g. when you claim the return of a building that you transferred under an uncompleted lease agreement);
  • Money, but not under a transaction or following unjust enrichment (e.g. being a rightholder you claim exclusive rights to compensate for damages or repayment from an offending party).

In this case, the procedural legislation insists on applying pre-trial settlement measures by the disputing parties. Thus, civil law disputes regarding recovery of funds under claims arising from agreements may be submitted to the arbitration court only after the parties have taken pre-trial settlement measures to settle such a dispute.

The court will not consider a lawsuit if no claim was sent, in case the claimant should have sent it. In this case, the court will:

  • Leave a lawsuit without action, and then return it. Initially, the court leaves a lawsuit without action and gives an opportunity to the claimant to provide evidence of compliance with the claim procedure. But since a claim was not sent, the claimant will be unable to fulfill the court’s requirement, and a lawsuit will be returned after the expiration of the period set by the court.
  • Terminate consideration of the case if it finds that the claim procedure is not followed after accepting a statement of claim for court proceedings. The court may do so on its own initiative or at the request of the defendant.

The court shall return a statement of claim if by the day of the appeal to the court the period of pre-trial dispute settlement established by law or agreement has not expired and there is no response to the claim.

Moreover, if the arbitration court decides that the dispute arose due to a violation of the claim procedure by a person, it will assign legal costs to this person regardless of the judgment on the case.

At the same time, in practice there are cases when implementation of pre-trial settlement measures is unreasonable and unable to achieve the stated goals from the start. The Supreme Court issued clarifications regarding some of these cases.

When is a claim required?

As clarified by the Supreme Court, the claim procedure shall not apply to lawsuits for pledge foreclosure, lawsuits for damages and cases for which the Arbitration Procedure Code of the Russian Federation sets special rules for consideration (corporate disputes, writ proceedings cases, etc.).

Moreover, the Supreme Court mentioned that the assignee’s compliance with the pre-trial dispute settlement procedure is not required if this procedure was followed by the original lender before notifying the debtor of the right assignment. Furthermore, when filing a counterclaim it is not required to send a claim if the counterclaim is based on the same legal relationship and the content of the response to the claim shows the substance of the counterclaim.

What is the procedure for filing a claim?

The Supreme Court confirmed that the claim might be sent to the address specified in the agreement (e.g. for correspondence), rather than only to the registered address. If a claim is sent by the Russian Post, it is not required to make a list of enclosures, unless the claimant sent other correspondence to the defendant during this period.

It is possible to send a claim by e-mail if this is expressly provided for in the agreement and the parties have agreed upon the e-mail address to which such a claim may be sent.

In order to avoid missing legally significant messages during personnel changes, it is possible to provide for a common corporate email address for claims correspondence, which may be accessed not only by an employee responsible for working with the counterparty.

What is the procedure for pre-trial dispute settlement?

The procedure for pre-trial dispute settlement should be specified in detail in the agreement.

Numerous agreements include a general provision for dispute settlement through negotiations, but in the absence of details it does not exclude the necessity to file a claim.

The procedure for negotiations or mediation should be regulated in detail by the agreement in order for the relevant actions to be qualified as compliance with the non-pre-trial dispute settlement procedure.

The claim procedure is deemed to be complied with in case of an arithmetic error in the claim or an increase in the period for calculating the penalty after the claim is filed.

The discrepancy between the amounts in the claim and the lawsuit does not constitute a violation if the claim specifies the circumstances on which the claim is based and the relevant terms of the agreement, and the difference in the claimed requests is due to an error in calculations or a continuing delay in performance.

When drawing up claims it is required to describe in detail grounds for claims with reference to the primary documents and the relevant terms of the agreement. Periods of occurrence of the principal debt and the amount of debt for each of the periods that expired at the time of sending the claim should be definitely specified in the claim.

What are the terms?

Pre-trial settlement suspends the statute of limitations.

The party’s compliance with the requirements for mandatory pre-trial dispute settlement suspends the statute of limitations for the period of actual compliance with the claim procedure. A failure to receive a response to the claim within 30 days, or any other period set by the agreement shall be qualified as a refusal to satisfy the claim received on the 30th day or on the last day of the period set by the agreement.

A failure to comply with the deadline for pre-trial settlement may result in a refund of the claim, filing a claim to the court before the deadline for consideration of the claim has expired, provided that the response to it has not been received, hinders the consideration of the dispute.

The Supreme Court emphasizes that the pre-trial settlement period should expire by the time the documents are filed to court. One should not expect the pre-trial settlement period to expire by the time the issue of accepting a lawsuit for court proceedings is resolved. It is required to declare non-compliance with the pre-trial procedure in the court of first instance.

The argument about non-compliance with the pre-trial dispute settlement procedure should be submitted by the defendant only in the court of first instance. Otherwise, the defendant loses the right to refer to the relevant circumstances in the courts of appeal and cassation.

The result of this summary is obvious: rules of the procedural legislation on pre-trial dispute settlement should not be interpreted from a purely formal point of view. The court needs them to make sure that pre-trial attempts to resolve the legal conflict have been exhausted subject to the assessment of the circumstances.

This approach seems to be consistent with the goals of legal regulation and creates no unreasonable obstacles to the exercise of rights by bona fide participants of civil law transactions.

At the same time, it seems imperative to abandon the practice of including meaningless phrases, such as “all disputes shall be resolved through negotiations” into agreements. Instead, it is advisable to spend some time and effort on truly coherent and consistent pre-trial settlement procedures and inclusion of a “working” condition into the agreement.

  1. Summary of the practice of application by arbitration courts of the provisions of the procedural legislation on mandatory pre-trial dispute settlement (approved by the Presidium of the Supreme Court of the Russian Federation on 22.07.2020).
Roman Moskovskikh

Lawyer

Tax and Legal Practice

Korpus Prava (Russia)

Other Articles on Topics
CONTENTS OF LAST ISSUE
See Also Articles from the Issue
Income tax: once in writing, it is time to put it into practice

In November 2018, the Ministry of Finance of the Russian Federation amended Accounting Regulations “Accounting for Corporate Income Tax” PBU 18/02, which are mandatory for accounting statements for 2020, i.e. for accounting from January 1, 2020.

November 17, 2020

DAC 6 Directive: sixth step of the european evolution of information disclosure

DAC6 Directive is the sixth in a series of directives developed to encourage cross-border exchange of tax information in EU, and makes a part of step 12 in the BEPS Project (OECD base erosion and profit shifting project).

November 17, 2020

Financial market organizations, what are you?

Since 2020, currency individual residents of the Russian Federation are required to submit notices to the tax authorities on opening (closing, changing details) accounts opened not only with foreign banks, but also with other financial institutions.

November 17, 2020

Amendments to double taxation conventions. Process is set in motion

Not so long ago, changing terms of international taxation became a priority. The main objective is to prevent income siphoning to low-tax or tax-free jurisdictions by increasing the withholding tax rate in the Russian Federation.

November 17, 2020

Amendments to provisions governing liability for violations of the currency legislation of the Russian Federation

From July 31, 2020, Federal Law No. 218-ФЗ “On Amendments to Articles 3.5 and 15.25 of the Code of Administrative Offences of the Russian Federation” dated 20.07.2020 became effective and amended provisions governing liability for violations of the currency legislation.

November 17, 2020

Through court or not, that is the question

Starting from September 1, 2020, Federal Law No. 289-ФЗ “On Amendments to the Federal Law “On Insolvency (Bankruptcy)” and Certain Legislative Acts of the Russian Federation Regarding Out-of-Court Bankruptcy of Citizens” dated 31.07.2020 shall become effective.

November 17, 2020

Digital financial assets

On July 31, Federal Law No. 259-ФЗ “On Digital Financial Assets, Digital Currency and Amendments to Certain Legislative Acts of the Russian Federation” was published. The Law will allow to convert traditional financial instruments into a digital form and increase the number of ways to attract investments.

November 17, 2020