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Reform of Russian Supreme Court system – creation of an integrated Supreme Court

The Russian Parliament has recently adopted an amendment to the Constitution of the Russian Federation which would merge the two existing supreme courts, the Supreme Arbitration Court (SAC) which supervises mostly commercial cases and the Supreme Court (the existing SC) which oversees all other cases, including criminal and administrative cases and those involving individuals. This merger and the relevant laws will become effective in August 2014.

As a result of the merger, a new unified Supreme Court of the Russian Federation will be created. This court will be responsible for the supervision of all commercial, administrative and criminal cases. The total number of judges will be reduced from the current 215 (a variable number set annually in the federal budget law) and fixed at 170 and the Supreme Court will relocate from Moscow to St. Petersburg.

According to the sponsors and supporters of the merger, it will promote greater efficiency within the Russian court system and will rationalise contradictory practices in the areas of commercial and civil law between cases of a similar nature handled by each of the two existing courts.

The reaction to the reform within the Russian market, among both business people and commercial lawyers, is rather negative. The main concern is that the number of judges will be reduced on the legacy SAC side of the combined court. SAC judges are generally more familiar with complex corporate and financial law issues than their counterparts at the existing SC. SAC is known for issuing clarifications (which sometimes develop into law) addressing legal uncertainties of particular relevance to corporate and financial transactions, including those in the international sphere. Lower courts are required to follow these guidelines.

Examples of these SAC guidelines have included clarifications as to the ability to assign receivables under future contracts, the flexibility for a creditor to enforce Russian pledges out of court and the survival of Russian suretyships upon the modification of the primary obligation.

It is currently unclear whether, or to what extent, this practice will continue (mainly due to the lack of capacity and experience at the unified Supreme Court) and whether the shifting in the balance of influence to the existing SC judges will have a negative impact on the legal environment in Russia for sophisticated commercial transactions.

Legal and Regulatory Risk Note