Appeal Against Determinations of Arbitration Court on Rejection and Return of a Third Party’s Application for Joining the Case with Separate Claims and of a Counterclaim.
Pursuant to Part 1, Article 160 of the Code of Arbitration Practice of RF arbitration determinations may be appealed in the cases provided for by the Code. As shown by court rulings, this provision of the procedural law is interpreted by arbitration courts, in our opinion, sometimes not quite correctly, and that sometimes results in essential limitation of the rights of the parties involved in respective cases and, first of all, of their right to appeal against a judicial act (Part 1, Article 33 of the Code of Arbitration Practice of RF) which is a part of the constitutional right to protection in court (Articles 18, 45 (para 2), 46 (para 1), 47 (para 1) of the Constitution of RF, Article 4 of the Code of Arbitration Practice). First of all, this concerns determinations which do not directly fall under determinations barring further proceedings (Articles 81, 82, 85, 87 of the Code of Arbitration Practice), but per se may be compared with these. In this respect, it should be noted that most frequently the matter concerns impeding appeals against the following determinations:
a) on rejection of a third party’s application for joining the case with separate claims;
b) on rejection of a counterclaim.
I.      Appeal Against Determinations on Rejection of a Third Party’s Application for Joining the Case with Separate Claims.
The Moscow Arbitration Court of Appeal by its determination issued in case # A40-2863/00-42-33 rejected the appeal against the determination of record on rejection of the application for joining the case as a third party with separate claims. Besides, the Court of Appeal invoked Article 38 of the Code of Arbitration Practices which does not provide for an appeal against determinations issued as a result of consideration of the application for joining the case as a third party filing separate claims on the contention.
Thus, the Court of Appeal narrowly construed the rule of Part 1, Article 160 of the Code of Arbitration Practice of RF which provides for the right to appeal against the arbitration court determinations «in the cases stipulated by this Code», namely as follows: an appeal against the determination might have been possible had it been explicitly provided for by Article 38 of the Code of Arbitration Practice. In our opinion, such construction is not consistent with the procedural law on the following grounds.
The application of a third party for joining the case with separate claims is nothing but a document which by its procedural and legal nature is a statement of claim. This conclusion is based on the fact that the party filing separate claims on the contention is equated by the law with a claimant, since Article 38 of the Code of Arbitration Practice establishes that it enjoys all the rights and has all the obligations of a claimant, except for the obligation to follow the pretrial procedure of a dispute settlement with the respondent, when it is provided for by a federal law for this kind of disputes or by a contract.
In our opinion, in such circumstances the exhaustive list of grounds on which possible is to reject and return the statement of claim to the claimant, is also applicable to third parties with separate claims. The above also implies that legal grounds for rejection or return of an application for joining the case as a third party with separate claims must be the same grounds as stipulated for statements of claim by Articles 107 and 108 of the Code of Arbitration Practice, accordingly.
Consequently, the right to appeal against disallowance for the third party to join the case with separate claims, same as the respective right of the claimant, is based on Articles 107 and 108 of the Code of Arbitration Practice.
Para 3, Article 107 and para 3, Article 108 of the Code of Arbitration Practice provide, accordingly, for an appeal against determination on rejection and return of a statement of claim. It is precisely by these rules that the Court of Appeal should have been guided, as we conceive it, in deciding whether to accept or reject (as well as return) a respective appeal.
In such circumstances, the Court’s of Appeal reference in justification of its rejection of the appeal, to the fact that Article 38 of the Code of Arbitration Practice does not provide for an appeal against determinations issued on the results of consideration of an application for joining the case as a third party with separate claims on the contention, appears to be unconvincing. Neither convincing in the determination concerned is the reference to para 3 of the Resolution of the Plenary Session of the High Arbitration Court of RF # 11 dated 19.06.97. The said paragraph of the Resolution of the Plenary Session says that if an appeal is filed by a party who ipso jure has no right to appeal against an award, in particular, by a party not involved in the case or by a party on whose rights and obligations the court of first instance has taken no decision, or if an appeal is filed against awards that are subject to no appeal (Resolution of the High Arbitration Court of RF), or an appeal is filed against the determination which, pursuant to the Code of Arbitration Practice, is subject to no appeal, the arbitrator rejects an appeal by referring to para 1, part 1, Article 107 of the Code of Arbitration Practice of RF.
However, as shown above, determinations on rejection of an application by a third party for joining the case with separate claims (as well as a determination to return such application) are not attributed to those which, in compliance with the Code of Arbitration Practice of RF, are subject to no appeal, since the right to such an appeal is provided for by Articles 107 and 108 of the Code of Arbitration Practice.
Hence, as we deem it, the absence of the reference to an appeal against a respective determination in a specific article of the Code of Arbitration Practice (in our case - in Article 38) does not mean that the Code of Arbitration Practice altogether lacks the right to appeal.
II.      Appeal Against Determinations on Rejection of Counterclaims.
According to the current arbitration practice, determinations on return of a counterclaim, as well as on its rejection are issued not in the form of a separate act, but are incorporated in the records and subject to no appeal.
As an example, let us review case # A40-42080/99-34-143 considered by the Arbitration Court of Moscow.
In the course of proceedings the respondent filed several counterclaims for set-off, i.e. on the grounds provided for by para 1, Part 3, Art.110 of the Code of Arbitration Practice («if a counterclaim is aimed at set-off of the principal claim»). The Arbitration Court by its determinations of record rejected the respondent’s counterclaims on the ground that the principal and counter claims were not interconnected and their concurrent consideration would neither expedite resolution of the dispute, nor make it more correct. In other words, the Arbitration Court, in assessment of the statements of claim, applied the rule of para 3, Part 3, Art. 110 of the Code of Arbitration Practice, and not para 1, Part 3, Art. 110 of the Code, which can hardly be deemed as appropriate.
In such situation the respondent was practically deprived of any effective and legal defense of his interests within the framework of the existing action proceedings. Besides, owing to the existing court practice he was also deprived of the possibility to appeal against the determination on rejection of his counterclaim, which was confirmed by a respective Federal Court. The latter by its determination rejected cassational appeals against respective determinations of record of the first instance court on rejection of counterclaims filed by the respondent. At the same time, the Federal Court pointed out that as «follows from Art.110 of the Code of Arbitration Practice, the determination of the Arbitration Court on rejection of the counterclaim is subject to no appeal, since it does not prevent from filing a separate claim before the arbitration court, and in this connection, with reference to para 1, Part 1, Art.107 of the Code of Arbitration Practice, the appeal against the determination of record of the first instance court must be rejected...».
Compliance of such practice with law is highly doubtful. Systems analysis of Articles 106, 107 and 108 of the Code of Arbitration Practice makes it possible to conclude that, firstly, the statement of claim filed in compliance with all the requirements stipulated by the Code of Arbitration Practice must be accepted by the judge by all means and, secondly, the rejection of a statement of claim (accomplished by way of determination either on rejection or on return of the statement of claim) may be appealed. Moreover, both para 3, Art. 107 and para 3, Art.108 of the Code of Arbitration Practice contain an important guarantee for a claimant against a wrongful rejection or return of his statement of claim. This guarantee consists in that in case of reversal of a respective determination, the statement of claim is deemed filed on the day of the first recourse to the arbitration court, which is exceptionally important primarily for the limitation period not to be deemed expired as a result of a judicial error. One can hardly agree with the Federal Court’s argument to the effect that the determination on rejection of the claim «is subject to no appeal, since it does not prevent from filing a separate claim».
First, the determination on rejection of the statement of claim, as well as that on its return, are judicial acts barring further proceedings in the action brought. As regards such acts (including determinations on abatement of proceedings in a case - Art. 85, stay of proceedings - Articles 81, 82, shelving a claim - Art. 87 of the Code of Arbitration Practice), the Code manifests a unified approach to the possibility of appeal against these. All determinations barring the proceedings may be appealed by virtue of Articles 84, 86, 88, 107, 108 of the Code of Arbitration Practice. At the same time, the Code does not regard the possibility to file an action anew, which has not been lost, as a circumstance excluding appeal against a respective determination. In case of return of the statement of claim or its shelving the claimant is entitled to file the action anew before the arbitration court following a general procedure; however, it does not mean that for this reason respective determinations cannot be appealed.
Second, by a counterclaim the respondent realizes its material and legal interest in the defense against the claim filed against him. In some cases the same claim in action cannot be realized as a separate claim because the claimant lacks both a defendable right and a defendable interest; consequently, he will not be deemed a proper claimant in a separate action.
Third, a distinctive feature of a counterclaim is prevention or neutralization of the relief sought by the claimant in his principal claim against the respondent, rather than allowance of his own claims. In most cases the respondent had had no intentions to bring an action against the claimant until the latter filed a claim against the respondent. For instance, the respondent understands that his claims against the claimant are comparable with those of the claimant, and to a certain extent their claims counterbalance each other. In such circumstances, the claimant, by filing all his claims, breaks the balance and forces the respondent to bring his claims against the claimant. At the same time, the respondent’s interest consists, first of all, in prevention of the recovery sought under the principal claim. The respondent’s interest in seeking subsequent relief under a separate claim is secondary. Such subsequent relief does not prevent the recovery from the respondent, since if the court allows the respondent’s claim against the claimant, even in the amount exceeding recovery in favor of the claimant under the principal claim, the respondent cannot set-off the amount of his own claims, since the Code of Arbitration Practice permits this only in one case: in the event the principal claim and the counterclaim are met in whole or in part, when the operative part of the award specifies the amount to be recovered as a result of a set-off (Part 2, Art. 127 of the Code of Arbitration Practice). In other cases, including in the course of executory process, since neither the Code of Arbitration Practice, nor the Federal Law On the Executory Process provide for any set-off, both awards will be enforced.
III.      We believe that the aforesaid shows a juridical ambiguity of the current court practice based on the nonadmission of appeals against determinations on rejection (as well as on return) of the so-called specific claims: applications of third parties for joining the case with separate claims and counterclaims. In our opinion, such practice runs contrary to a number of constitutional rules, particularly the rules of Articles 18, 45, 46, 47 of the Constitution of RF, as well as of Articles 4, 107, 108, and 160 of the Code of Arbitration Practice. As we deem it, Articles 38 and 110 of the Code of Arbitration Practice should be applied with due regard for the above rules of the Constitution of RF and the Code of Arbitration Practice of RF.
The determination on rejection (as well as on return) of the so-called specific claims cannot be equaled, for example, to the determination on a stay of proceedings (Art. 120 of the Code of Arbitration Practice) and similar determinations, which per se cannot affect material and legal interests of respective parties.
Having chosen the way provided by the procedural law, the party bringing separate claims on the contention or filing a counterclaim (and not a separate statement of claim) in so doing has exercised its right to choose a remedy of its own interests. Since the right to the choice concerned hardly evokes any justified juridical doubts, the refusal to consider the claim in action in the form it has been filed, by reasons other than those provided for by Art. 38, Part 1, Art. 107, Part 1, Art 108, and Art 110 of the Code of Arbitration Practice, constricts considerably (or may constrict) material and legal interests of a respective party (for example, by reason of expiration of the limitation period by the date of filing the claim anew, this time as a separate claim, etc.).
In this connection the following should be taken into account. By both rejecting a third party’s application for joining the case with separate claims or a counterclaim and returning it in the circumstances when a respective determination is not being appealed (and, consequently, there is no procedural means for correction of a possible judicial error by way of appeal or in exercise of supervisory powers), and at the same time not accepting a counterclaim or application by a third party with separate claims already filed in the form of a general action (if the court found that there were no grounds specified by Articles 38 and 110 of the Code of Arbitration Practice for consideration of such claims in the proceedings already instituted), the arbitration court actually denies justice to a respective party (para 1, Art. 46 of the Constitution of RF). And this may be construed as deviation from the rule of para 2, Art. 45 of the Constitution of RF establishing that «every person is entitled to defend his rights and freedoms by all means which are not prohibited by law». The Constitutional Court of RF has repeatedly pointed out that it is inadmissible to violate these rules of the Constitution of RF in the course of entertaining the disputes, including arbitration disputes (the determination dated 14.01.2000 in case # 3-o; the ruling dated 03.02.1998 in case # 5-ï).
Both the counterclaims and applications of third parties with separate claims on the contention are characterized by the fact that, first of all, they have absolutely all features of an ordinary claim. This implies that in the approach to the procedural possibility of their (as any other claim) rejection or return it is also necessary to be governed solely (and exclusively) by the grounds stipulated in Articles 107 and 108 of the Code of Arbitration Practice. The second conclusion is that a rejection (or return) of these specific claims may be appealed, same as rejection of any other claim.
Specific features of these claims ñome to the fact that the claimant requests to consider them in already instituted proceedings, having assumed that there is a connection specified in Articles 38 and 110 of the Code of Arbitration Practice between his claim and another claim pendent in the instituted proceedings. These assumptions of the claimant at the time of filing the claim may or may not coincide with the reality. For example, by the time the third party files the statement of separate claims the contention might have been changed as a result, for instance, of the claimant having changed the subject of the claim in the course of the proceedings already instituted, or if a judgment on the contention has already been delivered, or the dispute has ceased (for example, in consequence of shelving the claim, its release, or compromise, etc.). In all these cases the grounds for a third party with separate claims to join the proceedings already instituted cease to exist. Therefore, in absence of the grounds specified by Art. 38 of the Code of Arbitration Practice for consideration of the third party’s statement of separate claims in the proceedings already instituted between other parties, the court is entitled to deny its participation in such proceedings. However, this has absolutely no relevance to para 1, Art. 107 of the Code of Arbitration Practice (with reference to which the court rejects such statement), since the latter states that such case is beyond the jurisdiction of arbitration courts, and not that it is impossible (or the grounds are missing) to consider the claim within the framework of a specific arbitration case.
Filing a respective application, a third party with separate claims, though indicating the number of the specific case within the framework of which it requests to consider its statement of claim, nevertheless applies not to a particular arbitrator in charge of the case, but to the arbitration court of a respective subject of the Russian Federation. Hence, the arbitration court’s rejection of such statement of claim must be justified by statutory legal grounds (in this case – by the grounds specified in Art. 107 of the Code of Arbitration Practice).
Articles 38 and 110 of the Code of Arbitration Practice do not specify any directions with respect to the subsequent destiny of the third parties’ claims and counterclaims in those cases when the court finds no grounds for their consideration in the ongoing proceedings. However, it is important to note that neither Art. 38, nor Art. 110 of the Code of Arbitration Practice provide for any separate (in addition to those specified in Articles 107 and 108 of the Code) grounds for rejection or return of such claims. However, in absence of legal grounds both for their rejection and those specified in Articles 38 and 110 of the Code of Arbitration Practice for consideration in ongoing proceedings, it may be concluded, apparently, that in such case these claims must be accepted as separate claims (Art. 106 of the Code of Arbitration Practice).
In our opinion, such claims need not be filed anew (this time as separate ones), since having been filed as counterclaims or applications of third parties with separate claims they, firstly, do not have any defects which would require elimination and, secondly, there are neither objective, nor subjective impediments for their consideration as separate claims by the given arbitration court (naturally, excluding the events when such claims as separate ones are beyond the jurisdiction of the given arbitration court; however, in this event the statement of claim must be returned on general grounds – pursuant to para 3, Part 1, Art. 108 of the Code of Arbitration Practice).
In this event (i.e. if a specific claim has been accepted as separate), as we deem it, one can say that the claimant was denied a remedy in the procedural form he asked for (i.e. within the framework of the ongoing proceedings), rather than a court protection for his material and legal claim (same as in the event of rejection or return of the statement of action). Apparently, one can agree that under the current Code of Arbitration Practice the denial of admittance of a third party with separate claims to the proceedings instituted earlier, as well as rejection of the claim as a counterclaim, are subject to no appeal, provided that such claims were not returned to the claimant, but accepted as separate. However, the problem of appeal against denial of a court protection precisely in the procedural form the claimant asked for does exist as such. As shown above, it is especially true for counterclaims.
Taking into account that an intensive work of drafting an actually new Code of Arbitration Practice is currently under way, we believe it necessary to supplement the articles similar to Articles 38 and 110 of the Code presently in force with the rule which, firstly, would provide for a separate procedural form of denial to admit a third party with separate claims, as well as denial to admit a claimant in a counterclaim, to the ongoing proceedings for lack of the grounds provided for by Articles 38 and 110 of the Code of Arbitration Practice (currently, since there is no such procedural form, the courts apply the procedure of rejection or return of a claim which, in our opinion, is not based on the law) and, secondly, would provide for the possibility to appeal against such denial if the party thinks that the conditions provided for by Articles 38 and 110 of the Code of Arbitration Practice for joining the proceedings (acceptance of a counterclaim) do actually exist, and the court, having denied the party the chosen form of participation in the ongoing proceedings, has committed an error. With such wording of respective rules of the Code of Arbitration Practice the current court rulings impeding appeals against rejection (as well as against return) of the so-called specific claims will be impossible.
At the same time, the following should be noted. In our opinion, the new Code of Arbitration Practice must provide for vesting the court of appeal with the authority to consider on the merits the counterclaims and applications of third parties for joining the case with separate claims in those cases when the said judicial instance finds it necessary to review the determination of the court of first instance on rejection (or return) of a counterclaim or an application of the third party for joining the case with separate claims. This is quite necessary in view of the fact that Art 157 of the current Code of Arbitration Practice does not provide for such authority of a court of appeal. This, in its turn, hampers a quick and thorough correction of possible judicial errors. In its acts the Constitutional Court of RF has repeatedly pointed out that it is necessary to ensure unconditionally the effective procedural and legal mechanism for correction of judicial errors (e.g. in ruling # 5-ï dated 03.02.1988). Without this it is really difficult to say that the justice administered in this case by the arbitration court «meets the requirements of equity and ensures an effective rehabilitation» (the ruling of the Constitutional Court of RF # 3-o dated 14.01.2000).