The protection of entrepreneurs rights in an arbitration court

Oct, 18 2021

Contents:

Doing business, apart from its attractive side in the form of making a profit, also has less pleasant consequences. These are primarily unfair competitors and penalties imposed by the state. 

Market participants can protect themselves by using modern legal methods provided by modern regulations and codes. Some of them are implemented out of court, while others require mandatory state intervention.

Most often, disputes related to commerce are resolved in arbitration: for example, in the case of non-performance by one of the partners in a transaction of its obligations to pay for goods or services, the refusal to provide certain documents, bankruptcy of the counterparty.

The arbitral tribunal also protects the rights of entrepreneurs by means of appeals filed by business entities against orders issued by supervisory authorities or administrative penalties imposed by them.

Stages of the case

Legal protection for entrepreneurs is a multi-stage process that begins long before a claim is submitted to arbitration. For the lawsuit to be accepted, it is necessary, prior to its filing, to send the claim to the defendant with a request to voluntarily satisfy the requirements contained therein. Only if the pre-trial settlement procedure is followed can one begin to defend one’s interests by means of arbitration proceedings in court. 

The main thing to do is to submit a lawsuit to the defendant and to the arbitral tribunal setting out all of the plaintiff’s claims and providing a legal basis for them. The defendant, in turn, must provide a reply to the lawsuit containing its position on the case with reference to the provisions of the law in force. 

After all the sessions have been held, the proceedings are completed with a decision to satisfy the lawsuit or to refuse to satisfy it. Such a document, once issued, may be appealed by the party whose interests are violated by it. 

Once the judgment that has been made and pronounced by the Arbitral Tribunal enters into force, the obliged party shall have the opportunity to enforce it voluntarily. If the party to the proceedings fails to exercise this right, the plaintiff may send the writ of execution for the compulsory enforcement of the court’s decision.

Procedure for appealing decisions

Interested persons may appeal a decision rendered by a first instance court to the Arbitration Court of Appeal, which is entitled to review the case and make a new decision if the assessment of the arguments of the complaint reveals a violation of the law by the lower instance.

The next instance of appeal is the arbitral tribunal of the district (cassation). At this stage, the parties are deprived of the opportunity to submit new evidence to the court, and the judges only check the legality of the acts issued by the lower instances.

The next link where one can appeal against an act is the Judicial Collegium for Economic Disputes of the Supreme Court of the Russian Federation. However, there must be a good reason for appealing here. For this reason, the number of complaints considered by the chamber is relatively small – about 1.2 percent in 2020 of the total number of cases whose participants intended to appeal their decisions to the Supreme Court.

In exceptional cases, business disputes may be heard by the Presidium of the Supreme Court. These are situations where a decision taken by lower tiers of the judicial system affects the interests and/or rights of an indefinite range of persons, concerns public issues or uniformity in the application (interpretation) of current legislation by courts of the Russian Federation. Between 2014 and 2019, the Presidium received 3,224 complaints, of which only 12 were accepted for consideration. Last year, 2020, there were 500 complaints and only two were admitted.

Means of protecting the rights of businessmen and companies

Such methods are understood as measures provided for in generally binding normative documents to restore the violated rights and protect legal entities and individual entrepreneurs.  

In legal theory, it is customary to distinguish substantive and procedural means of protecting entrepreneurial status. The use of each of them is only possible if all legal requirements are met. The choice of a particular method of protection depends on a number of factors, including 

  • extent of the damage caused; 
  • status of the person who has infringed the rights of the business entity (public authority, citizen or large company); 
  • willingness to incur costs due to the fact that going to arbitration requires payment of state fees, the amount of which often depends on the price of the claim.

Whichever method of protection a merchant chooses, the most important thing is to comply with the time limits and the procedure for implementing it. Only in this case can they hope to recover their rights and money completely.

Substantive legal remedies 

These include measures set out in codes and aimed at protecting legal entities using the norms of substantive branches of law. According to Article 12 of the Russian Civil Code, such forms include: 

  1. recognition of a certain power (used, for example, to establish an easement);
  2. self-protection; 
  3. compulsion to perform the obligation in kind – for instance, if the services have not been rendered in full;
  4. compensation of damages caused; 
  5. forcible recovery of penalties in the amount established by a legal act or a contract;
  6. compensation for moral damage and damage to business reputation, including for dissemination of false information; 
  7. invalidation of the transaction; 
  8. unilateral termination or change of legal relations. 

Thus, in addition to the protection of entrepreneurs’ rights in an arbitration court, Russian legislation provides for many other means and measures to protect the commercial interests of market participants.

Procedural protection

The main procedural method is the application to the court that has jurisdiction and competence over the specific dispute. This also includes the resolution of a dispute by an arbitration tribunal, if this is not contrary to the law and the contract between the parties to the dispute. That is why contracts often include an arbitration (court) clause. Such a clause determines which branch of the contractual dispute will be dealt with when the dispute arises.

Judicial protection of entrepreneurs in arbitration proceedings is guaranteed by the coercive power of the apparatus of power and is therefore one of the most effective means to restore rights violated in the field of commercial activity.

Forms of protection for businessmen

Depending on which public authority, official or other person a business owner turns to when his or her interests are violated, there are different forms of protection: 

  • judicial forms of defence;
  • non-judicial forms of protection. 

Forms belonging to the first category are resorted to when a court decision is required to end a legal conflict. 

For example, in Russia, the rights of entrepreneurs are protected by courts of arbitration and courts of general jurisdiction, depending on which of their rights has been violated and which court has jurisdiction over the case. 

Extrajudicial forms of protection of the interests of market players include 

  • pre-trial dispute resolution through a claim procedure;
  • the possibility of referring the conflict to an arbitration tribunal. 

Out-of-court methods generally allow for a shorter period of time to recover violations committed by the partner, but are ineffective if the other party to the proceedings is dishonest and has no interest in fairness.

Law on the protection of sole proprietors and organisations

This regulation was issued on 26 December 2008 (No. 294-FZ) and is intended to regulate the work of the supervisory and controlling units of the authorities. It defines the requirements for conducting inspections of merchants and legal entities and regulates the relationship between inspectors and business structures.

By referring to the provisions of this legislative act, it is possible to challenge the results of inspections and supervisory measures in arbitration proceedings or to declare an action or inaction of a certain authority invalid if it violates the powers of the business owner.

Author of the article
The protection of entrepreneurs rights in an arbitration court
Valentina Khlavich
Managing Partner
Send Request
By clicking on the button "Submit", you give your consent to the processing of your personal data and agree to the privacy policy.