| "Letter of the Law": Any Commercial Organization May Establish Its Own Permanent Court |
| Sunday, 12 September 2010 12:58 |
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The Chamber of Representatives has adopted the Law on Arbitration in the first hearing. Any commercial organization may establish its privately-owned court. The adoption of the Law was due to the necessity to fulfill the goal of establishment and improvement of an alternative jury system. What for does the government need alternative justice? Will the private court decision be equivalent to that of the state court? In what way will be those decisions executed? Will the state keep an eye on legality of such decisions? These and some other questions within the frames of Letter of the Law, the author’s program of Denis Aleynikov, Senior Partner of Law Group Argument, were answered by special guests of the program Irina Belskaya, Head of Legal Department of Supreme Economic Court of the Republic of Belarus, Elena Ardyako, Deputy Head of Law Department for National Security and Law Enforcement Activities, Yan Funk, Professor of BSU, Doctor of Legal Sciences, President of Arbitration Court of BelCCI.
What is arbitration court according to the draft law? Elena Ardyako (Е.А.): According to the draft law, arbitration court is an organization outside the judicial system of the Republic of Belarus which stays away from the court of general and economic jurisdiction and is being established for the purpose of resolving disputes in the form a permanent arbitration court for the particular dispute settlement.
Permanent arbitration court is a noncommercial organization or it can be established by the legal entity in form of a separate division (subdivision) of this legal entity.
It is coming out that any legal entity may establish its own court after the law has been adopted? Е.А.: Formally it is so. Any legal entity, including but not limited to a commercial organization may establish such a court and administrate arbitration justice. As per the law draft there are some limits set for the state bodies and local authorities which may not establish any arbitration courts and be the party of an arbitration agreement.
What practical actions should be taken by the legal entity to establish its own arbitration court in accordance with the law? What is the registration procedure? What bodies should be applied to?
Е.А.: For the purpose of establishment of an arbitration court by the legal entity a simplified notification procedure is stipulated. As far is it goes to a commercial organization, registration shall be effected by the Ministry of Justice according to the procedure stipulated by the laws, for today Decree of the President of the Republic of Belarus No.1 of January 16, 2009 On State Registration and Liquidation (Termination of Activities) of Economic Entities is one of them.
Yan Funk (Y.F.): There is a problem in the Law, to my mind, and being someone who has to deal with corporate law, I cannot but point it out.
This problem goes with the fact that the legal form of the arbitration court has not been defined by the Law. Such a notion as noncommercial organization has a very broad meaning according to the Belarusian law and includes a whole range of legal forms. May be a legislator wanted to say it to be a one more legal form? If yes, then the legal forms should be spelled out, the structure of management bodies should be also prescribed, as well as ownership relations, and the order of interaction between the founders (partners, members) and the established person.
Much to my regret, all these provisions are not stipulated by the Law. If so, then the legislator should have attached the permanent arbitration court to one of the existing legal forms of noncommercial organizations, for example, to the form of foundation. Even so, if applied to the form of foundation some questions would have also arisen, in particular, why is the arbitration court treated as noncommercial organization if there is an arbitration charge for arbitrating “ad hoc”. If so, it is acting as a commercial organization and is making profit out its activity.
In the context of the above described relations there is a very important aspect, namely what is the main objective of establishment of such a legal body? If the main objective is settlement of disputes then its one thing. If we should understand that during settlement of disputes a certain profit is being made, then it’s another thing. To my mind, determining of a permanent arbitration court as a noncommercial organization is not quite correct. It is also not correct that the legislator declares the permanent arbitration court to be a noncommercial organization, one hand, and on the other hand, he points out that such an arbitration court may be established also as a separate subdivision of any legal entity, including commercial organizations. There is an inconsistence towards one and the same relations. I believe, such an inconsistence should not appear in a legislative instrument.
Proceeding to the issue on possibility of establishment of quite a number of arbitration courts, it is essential to specify that on one hand, when we are talking about the “private justice” we should not be afraid of such a big quantity of arbitration courts. (Individuals and legal entities! If you should have any private problems, do not go to the state). On the other hand, there are some problems, for example, in the Baltic Republics: there are over five hundred arbitration courts in a little Baltic country. The subjects have already tied up in knots and do not understand which one of these courts is actually a court, and which one is not.
Some consumers are worried about, whether they could establish their own arbitration court, for instance, some individuals who are partners of an apartment building condominium wishing to have such a court for the purpose of resolving inhabitants’ disputes?
Unfortunately, the legislator failed to point out the filed of application of the mentioned Law. In initial statutory wording of this draft law some certain fields were mentioned in the frames of which settlement of disputes by the arbitration court was possible to take place, and pros and cons of these fields were also indicated, but we were aware of what was meant there. Today the legislator restricted himself to indicate the disputes which are not under jurisdiction of an arbitration court, such as disputes affecting interests of third persons and disputes forbidden by the law to be settled by arbitration courts. I would like to have a look at such “disputes list”.
Elena, you participated in development of the law. Why was it impossible to determine the full list of disputes?
Е.А.: While preparing the draft law in the first stage we were trying to specify particular fields but afterwards for the purpose of creating no loophole in legal regulation we restricted ourselves to a more well-rounded statement in relation to the disputes settled by the arbitration court. It is obvious today that the arbitration court is authorized to arbitrate any disputes between the parties (citizens or legal entities) who have signed the arbitration agreement, including civil, economic disputes except those affecting rights and legal interests of third persons who are not the parties of an arbitration agreement, and disputes with such a subject-matter which cannot refer to the subject of arbitration proceeding according to the laws of the Republic of Belarus or a foreign state in case if the arbitration agreement stipulates the applicable law for settlement of disputes as of that state.
Has the Supreme Economic Court as public body of justice initiated the development of this draft law? Why does it need any alternative courts? Why is it needed to develop competition?  Irina Belskaya (I.B.): We should start from the public approach to the issue as a whole. In the first place, it ensures the quality of economic judicial proceeding regardless of economic and legal situation. Today economic courts have quite hard circumstances: judges are working under great workload and do cope with it, although the labor intensity certainly goes beyond the human capability. In the meantime, the Supreme Economic Court had one more objective, which is extending the legal protection instruments for individuals and organizations.
We may say that de facto economic courts today are economic justice monopolists, but whether it’s good or bad it’s a question. The structure of disputes settled by the economic courts today does not require delivery of justice in its classical interpretation: there are so many cases which are not actually disputes, but the parties apply to the economic court just to get their court order. Side by side there are also some complicated disputes and their number grows bigger, in particular when it comes to corporate disputes. There is also such a segment which could entirely be transferred to arbitration to lessen the burden of economic courts system.
Will our individuals go to arbitration courts after this law comes into effect? Will that actually contribute to development of alternative justice means? Will that be in great demand? Yan Iosifovich, how many legal matters do you handle today?
Y.F.: International Arbitration Court had been the sole permanent non-state court in the territory of the Republic of Belarus during 15 years. The average number of cases we handle during a year is over seventy. Last year was very successful; we have settled almost a hundred disputes. And I would like to emphasize that the fair amount of disputes are rather complicated cases, apart from that there are also national disputes, but that segment is not as big.
A hundred cases per year, is it a big or small amount? I do state that for a ministate it’s quite enough, so that a Belarusian person had an opportunity at least to find the body which could protect his rights. If there were no IAC at BelCCI, then for resolving any international disputes by common law, the Belarusian person would have to apply to the public court at the location of defendant. By doing so, the Belarusian person, as a rule, would do nothing in Europe, America or Asia without having national attorney, which is very expensive. Our court has removed such problem.
A hundred cases is being resolved by the International Arbitration Court per year… Irina, please tell us, how many cases are being handled by the public court a year, let’s take the Economic Court of Minsk?
I.B.: The economic courts system got over a hundred thousand references last year. The Economic Court of Minsk alone resolved almost 25 thousand disputes of different nature last year. It is essential to notice that this court deals with the most complicated cases.
Y.F.: Meanwhile, the most cases being resolved by the Economic Court of Minsk are very simple matters, such as “delivery done- no payment”, or “payment done – no delivery”. The majority of cases we handle are of a different nature. I would not compare these courts. I affirm that each court fulfils its own function in its own segment, and there is no need to compare them on the basis of number of resolved disputes. The most important thing is to look to the “quality”.
If I got it right, the government hopes to develop the alternative court system through this law, for the purpose of lessening the burden of public courts. But we do have an alternative today, that is the IAC at BelCCI which has been working for 15 years already, but it handles not more than a hundred cases per year. It obviously fails to lessen the economic courts load. Why do you believe people will go to the alternative courts after this law comes into effect?
I.B.: We may take guess-work and see what will come. We may also say that the law draft is poor and unfinished. But if we come back to the year 2004 when legislative rules on court mediation were adopted we were told that it would not work and that it didn’t suit our circumstances. Nonetheless by virtue of system’s efforts the institution began to work and our further task is to improve and modify it and include further elements into it. This also holds true for arbitration. Yes, we do have a unique court (IAC at BelCCI), the first in the Republic of Belarus, where highly qualified arbitrators work on a very high quality level, and this high hurdle should be taken into account while establishing new arbitration courts.
What factors today hold the number of applications to IAC?
Yan Iosifovich, is your proceeding more expensive that that of the economic courts?
Y.F.: If the dispute has arisen between the national parties, then the case is national dispute, and the “cost” is almost the same as if it were settled by the economic court. If the issue is about international disputes, I would focus your attention on the fact that the International Arbitration Court at BelCCI is the court having the lowest arbitration fee in Europe. Of course, we may give an example of Japan where the arbitration court is handling nine cases per year, free of charge, by the way. The Japanese don’t like to be at suit, which is why settling nine cases a year free of charge is not a big deal. If we compare our fees to those of practically all neighboring states and what is more, to those of public courts of Western Europe and the USA, the Belarusian person is certainly saving money. That is why it’s impossible to oppose our court to any economic court in this respect.
As far as settlement of disputes by arbitration is concerned I claim that its future is lying not only in saving money. The arbitration court shall be appealed to, primarily by reference to the following logic: such courts first emerged in the Middle Ages in connection with the so called merchant corporations and craft guilds. The merchants thought it important that the disputes between them were settled only by the merchants, without intervention of the government due to the reason that “it could have its own interests”. The craftsmen believed that a dispute between them could be resolved only by the person with a particular occupation and who is an expert in it. The bottom line is that arbitration courts are the courts which do not wash dirty linen in public, and which are within the system and not out of it. Remember the soviet arbitration court existing at the ministries on the same principles, resolving disputes between the parties subordinate to the proper ministry.
Today eventual establishment of arbitration courts has already been formalized in Regulation on Arbitration Courts in Annex No.3 of Code of Civil Procedure. Were these arbitration courts developing?
Y.F.: As far as it goes to settlement of disputes between individuals arbitration courts won’t “mushroom up”, and it is unlikely that they will be very popular. You will need a certain level of legal culture to apply to an arbitration court. First of all, I assume that an arbitration court is sphere of entrepreneurial turnover. That is why Annex No.3 of Code of Civil procedure is not a good example. Frankly speaking, I don’t know any examples of establishment of such courts.
Е.А.: The law draft had an idea that in case of settlement of disputes by the arbitrator solely this is a must for him to have higher legal education. In case of examination of cases by several judges such a requirement of higher education shall refer only for the chairman of arbitration court bench, the rest of the arbitrators may have no legal education. However, opposing them to the judges of ordinary and economic courts the arbitrators don’t need to pass any qualification exams.
Why having higher legal education for an arbitrator who administrates justice and decides other people’s destinies is not a must? Why it is not obligatory for him to pass a qualification exam?
Е.А.: Passing an exam is not the most important thing. For example any potential attorney shall pass a qualification exam, but not each attorney will be applied to for legal assistance, because there is the so called “word of mouth “which is making its work. The same is here. A list of arbitrators shall be made specifying their education, last place of employment, sphere of issues the arbitrator specializes at. Each person who wants to settle a dispute by the arbitration court has right to apply to this court, get acquainted with the list of arbitrators and to choose a particular arbitrator on the basis of reliance to his qualification or to establish arbitration court for settlement of a specific dispute.
I.B: The opinion of Supreme Economic Court in relation to the choice of candidates for such positions, unfortunately, was not taken into account while we were modifying the draft, although we have repeatedly expressed it. Our suggestions came down to the idea that the candidates should be very competent and should have appropriate recommendations of significant legal institutes and scientists. As long as the law stipulates compulsory execution of decisions made, the qualification requirements for the judges, to our mind, are not sufficiently covered in the draft law. But we have failed to pursue our line.
Any legal entity will be able to open its own court tomorrow and appoint judges independently. How to inform this legal entity that the arbitrators should be competent and intelligent people? Who could inform such a private court or give it proper instructions tomorrow?
I.B.: No one. Yes, this is a liberal approach. An arbitration court itself should be interested in building its own prestige.
Y.F.: The law proceeds from the idea that the market will dot all the i’s and cross all the t’s, so the governmental regulation is not needed in that respect. As to general canons, according to the principles existing in all countries, it is really so. What makes me personally doubt is that the idea of arbitration is very easy to discredit: if any legal entity shall have its structural subdivision for the purpose of resolving disputes and shall handle the disputes between its customers acting as a plaintiff, as a defendant, and as an arbitrator, it won’t do any good in the end.
There is one more problem - that is establishment of an arbitration court by the market monopolist. Unfortunately, particular markets are rather monopolized. The party may demand from its counter parties to stipulate exclusively one disputes settlement procedure in all agreements and determine it as arbitration court. Much to our regret, the Law does not contain the mechanism to avoid such situations, so that the monopolists don’t send everybody to the court, which is more favorable for them.
Monopolization of this activity is threatening you. What about absence of proper qualification?  Y.F.: It can certainly turn out to be a problem, because according to the law, there are only two requirements for the arbitrators: higher legal education only for the sole arbitrator or for the presiding arbitrator plus three years of working experience. As far as we understand, three years of working experience may say nothing and have nothing to do with “the qualification of the person”.
What legal force will decisions of private court have?
Е.А.: Decisions of an arbitration court will actually have no difference to that of any other ordinary or economic court. They will have legal force equal to that of the public courts. It is stipulated that the court decision shall be executed on voluntary basis, but compulsory execution of such a decision by the public court in case of its non-execution is also specified.
What shall be submitted to the public court to force the execution of arbitration court decision?
I.B.: Arbitration court decision shall be forcefully executed by the ordinary or economic court due to the same procedure as the decisions of the proper ordinary or economic court. The law specifies the documents which are to be submitted to the public court for execution of the arbitration court decision. The idea is not new: this is an existing order applied in relation to the arbitration court decisions or to the decisions of foreign public courts.
The law contains a full list of grounds according to which the public court may deny the issue of court order required for the enforcement of an arbitration court decision. Furthermore, dealing with the problem of court order issue, the public court does not consider the subject-matter of the dispute. The public court is not authorized to reconsider an arbitration court decision on merits or to reverse it.
Y.F. There is an approach behind the law draft which is very much close to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958). The law draft on arbitration courts has escaped from the only “controversial moment” of the above Convention, that is public order disturbance. In view of that fact we should understand that in case of appeal of arbitration award the public court shall not revise the award on merits and shall not affect the legal base of this award. The only justification due to which such an award may be discharged is the procedural ground and defectiveness of the arbitration agreement. This imposes great responsibility on the arbitrator who is adjudicating on the matter.
I.B. I would like to remind you that any decision of the public court may be appealed against in several instances and thus being reviewed on merits.
Could an arbitration award be appealed against?
I.B.: Arbitration award can not be reviewed on merits. The law shall provide the limiting list of grounds due to which the arbitration awards could be appealed against and reversed. First of all, among them is mistrial or irregular proceeding.
It is coming out that if a company selling office supplies established an arbitration court composed of a supply manger, traffic and transportation manager and a lawyer, who have made an award which does not agree with the fact pattern and is based on gross violation of substantive law norms of the Republic of Belarus, then the party injured in the result of such justice won’t be able to reverse the award in any court instance of the country?
I.B.: You are right, the award can not be appealed against on merits, and it can not be reversed due to the violation of substantive law norms. But you are exaggerating the whole situation. We assume that such court procedure quality is basically impossible. Any arbitration court will be interested in its own authority and won’t appoint illiterate persons unable to pronounce on the substantive law.
Yes, but such a problem may find place. Let’s assume that some nonqualified arbitrators have made an award which is unjust on merits. What shall one do in such a situation?
Y.F.: Indeed, sometimes while examining the case it is not the lawyers who are more important but the specialists in a particular field. That is why while examining the case in arbitration courts I would not confine myself just to the representatives of our profession. But I do admit that on a particular stage an arbitration court may come across such a problem. To support the law drafters I would say that our laws undergo some changes from time to time. And on a particular stage our laws fulfill “the function of textbooks” and the subjects are “learning on them” and then we start to understand the loopholes of such textbooks and make amendments to the law. I believe that in the course of time when we see the loopholes in the Law on arbitration courts we shall remove them (through proper amendments to the law).
Probably, understanding the eventual range of problems at this point we should monitor the issues under consideration more accurately in the future.
Nevertheless, according to the common law, the public court can not reverse the unjust award.
As far as I understand, this problem has affected not only our country. What about the tendencies in foreign states?
Y.F.: The number of International Arbitration Courts is very few, and as a rule, the interests of the parties have been represented by the same lawyers. If a particular arbitration court is making awards in a way we have just discussed, the talks about that are getting around with great speed, so no lawyer having self-respect will make an arbitration reference to such a court. Such a situation may have “fatal consequences” for that court, and we are perfectly aware of this circumstance and “keep up to the mark”.
The arbitration courts established for the purpose of resolving only one dispute in favour of a particular party, don’t care about what comes next and it makes no difference to them what rumours are spread about them. In the context of civil and economic proceeding we can not influence them while making an arbitration award, but there are some other instruments and mechanisms to change the situation.
Let’s give the opportunity for the law to work for a year, and afterwards we’ll come back to the topic at issue. We’ll see whether such incidents occur, and then we may tighten the approach towards arbitration courts.
I.B.: There could be other retaliation, apart from criminal responsibility towards these courts. The organization shall be registered in accordance with Decree No.1; consequently, there could be legal grounds for liquidation of such organizations in case of gross law violations.
 In your opinion, what advantages does an arbitration court have today as opposed to the ordinary or economic court system?
Е.А.: It is time-saving for both, the individuals and organizations: there is no need to appeal against the made award time and time again. Today the process of making definitive decisions in the economic court may last for years; an arbitration court does not imply such a possibility. The award shall be made once. This dispute may be handled between the defendant and the plaintiff in private without “washing the dirty linen”. Apart from that there is an alternative for choosing the arbitrator you trust and who is more open for negotiation, which is not possible in the economic court. Finally, the environment of the court proceeding is more comfortable as opposed to that of the economic court.
I.B.: From my side I would say that all disputes existing today are supposed to be applied to arbitration court. There is a particular cases segment which perfectly suits the arbitration procedure, in the first place, corporate employment and family disputes, in which confidentiality is of great importance when considering. The arbitration court may give due consideration to each case because it is not limited to short procedural timeframe for hearing of cases.
Y.F.: The greatest advantage for such a court, if it is “the right arbitration court”, is the qualification of the arbitrator (judge), to my mind. One more positive thing about arbitration courts which is also the most important obstacle towards making a definitive award is that traditionally the disputes are being arbitrated collectively by the bench of judges (arbitrators), one of the arbitrators shall be chosen by the plaintiff, the other one shall be chosen by the defendant, and the both chosen arbitrators choose the presiding arbitrator. While choosing the arbitrator the party judges by his qualification, personal qualities, and this is “a great guarantee” of the illegal award.
What do you think, if there were an alternative, what court would individuals and organizations trust more, a private (arbitration) court or a public court?
Y.F.: I believe, the credit of arbitration court will always be on top if a party selecting the arbitrator realizes that that it selects a competent and independent person who would resolve the dispute in due order, not the representative of him.
I.B.: We do not see any opposition of systems in that. Each dispute has its own way of settlement, and each settlement method has its pros and cons. What is important is that the legal awareness of a particular individual enables to make the right choice for the purpose of matching particular situations with a particular defense approach.
So, it is important not only to develop and to launch the law, but also to form legal awareness of people. To explain them, what are the alternative ways of dispute settlement needed for and in what cases they should be applied. What is being done in our country in that direction?
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E.A.: I suppose the process expensiveness in arbitration courts. This holds from appealing to IAC and that is why a big number of applications is coming to the economic courts. 
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