TOWARDS THE RULE OF LAW?
2. BUSINESS-GOVERNMENT RELATIONS AND THE LAW
SOURCE. Kathryn Hendley, "Suing the State in Russia," Post-Soviet Affairs, Vol. 18 No. 2 (April-June 2002), pp. 122-147.
Many if not most commentators portray Russian judges as incompetent, ineffective, corrupt, and willing servants of the powers that be on whom they are dependent. One such account, by a retired federal judge, was summarized in RAS No. 9 (Item 4). But might this indictment be a little too sweeping? The author of this article thinks it is.
Professor Hendley (University of Wisconsin-Madison) has studied in depth the working of the economic courts, known in Russian as arbitrazh (arbitration) courts. These courts are institutionally distinct from the courts of general jurisdiction, and deal only with disputes between legal entities, mainly companies and state agencies. They evolved from the Soviet courts of state arbitration (Gosarbitrazh), which heard disputes between state enterprises, but have now acquired much broader functions.
The author has studied the annual reports of nine economic courts for the period from 1993 to 2000. (1) Her direct fieldwork focused on the economic courts of Moscow, Saratov, and Yekaterinburg over the period from 1994 to 2001. She traces the shifting balance in the types of cases being brought before the courts, analyzes outcomes, and explores likely reasons for the changes that have taken place.
The economic courts deal with three categories of cases:
[1] civil cases, i.e., inter-enterprise disputes. This was the original function inherited from Gosarbitrazh, and continued to constitute the bulk of cases until the late 1990s.
[2] administrative cases, i.e., disputes between enterprises and state agencies over such matters as taxation and state regulations. A dramatic increase in the number of such cases occurred in 1999 and 2000.
[3] bankruptcy cases. These became more numerous after a new bankruptcy code was adopted in 1998, but still make up a small proportion of all cases.
The largest group of administrative cases now pertains to taxation. Such cases can be brought either by the state, usually with a view to recovering tax arrears or penalties, or by a taxpaying entity which wishes to contest tax demands imposed on it. Both state-initiated and taxpayer-initiated cases have mushroomed in the last few years. Both kinds of petitioner have obtained favorable verdicts in at least one half of cases. (2)
Professor Hendley discusses possible reasons for the explosion in state-initiated cases. She does not believe that state officials have suddenly become much more legally minded. However, they have been deprived of their former power to requisition taxes on their own authority. Article 104 of the new tax code adopted in 1999 requires the state to obtain court approval before seizing taxpayers' property in lieu of taxes due. Moreover, in July 1999 the Constitutional Court ruled that such confiscation without court approval is unconstitutional.
Another group of administrative cases pertains to state actions or regulations the legal validity of which is contested by an affected enterprise. There has been a steady rise in the number of petitions of this kind as well. The average success rate of petitioners has been 40-50 percent.
A smaller group of administrative cases are those arising from state monitoring of retail establishments. The state brings such cases against retailers who have allegedly infringed regulations on the use of cash registers designed to impede tax evasion. Many small retailers, especially those selling at open air markets, simply do not have the electrical equipment or outlets required by these regulations, and the expediency of taking such people to court is widely questioned.
The author concludes that the economic courts have become increasingly effective in regulating relations between business and the state in accordance with the law. The high success rates of petitions against the state demonstrate that these courts are not in the pocket of governmental authorities. An essential component of their effectiveness is the dispatch with which they carry out their work. Judges are under pressure from their superiors to resolve cases brought before them within a two-month deadline, and in the period 1993-2000 the deadline was missed in only 3 percent of cases.
NOTES
(1) Those of Moscow City, Moscow Province, Leningrad Province, Novosibirsk Province, Sverdlovsk Province, Saratov Province, Voronezh Province, the Altai Territory, and Yaroslavl Province. The geographical scope of the author's work enables her to explore regional variations, but I do not cover this aspect here.
(2) The success rate in state-initiated cases has varied between 50 and 90 percent (in different courts in different years). The success rate in taxpayer-initiated cases has varied between 45 and 99 percent.
Next Article