Russia Replaces Thugs With 'See You in Court'

The hearing takes all of eight minutes in the office of Judge Lyudmila Dronova. In the end, she orders a food company, which failed to show up in court, to pay the Narofaminsky Refrigeration Works $1,400 in back bills for cold storage.

Her methodical demeanor and black robe lack the sensation of car bombs and sniper assassinations. The relatively new system of arbitration courts is bringing a measure of civilization to the wild pioneering years of post-Soviet capitalism in Russia.

In a society that as recently as the 1980s still occasionally executed its citizens for conducting private commerce, business disputes in Russia have not entirely come in from the cold. Many Russians still resolve disputes by hiring thugs. But after about two years in their present form, the arbitration courts are also seeing heavy traffic - albeit with a catch.

Judge Dronova knows that, despite her ruling, the plaintiff might not be paid. The attorney for the refrigeration plant knows this, too. After a month, he will receive a warrant from the court to take to the bank ordering the removal of the $1,400 (in rubles) from the food company's account. But the money, he knows from experience, may not be there.

Russia's arbitration courts decided more than a quarter million cases last year between corporations.

But the courts have no equivalent of the US marshals or bailiffs to carry out their decisions. Instead, they must apply to the bailiffs of the courts of general jurisdiction. These understaffed ranks are 90 percent women, Russians often point out, and do not intimidate many scofflaws. Banks or enterprises with professional armed guards frequently turn them away at the door.

"Sometimes guards simply won't let them in," says Judge Dronova.

"Maybe in Moscow," says Vyacheslav Zhurov, the attorney for the refrigeration works, who brings two or three suits per week to the arbitration courts. His plant is well outside Moscow, and he has never heard of court bailiffs meeting resistance.

But in big-money circles, it is familiar.

"It happens a lot," says Alexander Krylov, assistant director of Amulet security service for banks. Banks are subject to the most violent disputes in the Russian economy. Dozens of bank executives have been murdered in the past several years. But Mr. Krylov uses the arbitration courts constantly to settle disputes for his clients. He then beefs up the enforcement with his private forces.

"We use our guards to back up the bailiffs and protect them, because sometimes they need protection," he says. Then they alert the local prosecutor and police that they are enforcing a court decision.

The backing of a decision by an arbitration court "gives us the ability to act decisively and effectively - using legal methods."

By contrast, the illegal, violent methods of contract enforcement that have become legendary in post-Soviet Russia "are extremely ineffective," Krylov says.

Sneaky money

Another problem in enforcing court decisions in commercial disputes has nothing to do with muscle power and bulletproof vests. Russian enterprises have also become expert at hiding money from the courts and from creditors much faster than Russian law has adapted to finding it.

Money can be hidden in sophisticated ways, familiar in the West, such as using offshore corporations to skirt laws and putting ownership of assets in the name of spouses. Most judges came out of the old Soviet system of arbitration, and they are just encountering the subtleties of capitalist finances.

In one case worth millions of dollars, Dronova granted a company's request for a building as payment for a debt. Only later did she find out that the building did not actually belong entirely to the defendant in the case but had two owners.

"Western law has [had] hundreds of years to do things like peer through shell corporations," notes Jim Christiansen, an American attorney in the Moscow office of Coudert Brothers. "Here you haven't had that wearing down of sharp lines" - meaning the legal formalism that makes hiding assets easy.

But other judges sometimes suffer from alleged fear of giving offense to the local powers that be. Mikhail Galatin, a Moscow lawyer who works on big-ticket cases, says he watched a local judge in a province north of Moscow deliberately make a blatant legal error so that his decision would be kicked up to the appellate court and he could avoid responsibility.

Judges and goats

The arbitration courts are Russia's commercial courts. They deal only with legal corporations and state agencies. There are 82 lower-level courts, 10 regional courts, and a high court. The closest American counterpart is the bankruptcy court, which has a much narrower scope.

The courts evolved from a Soviet system that worked very differently, but they substantially took their present form only two years ago. Nearly half the judges came from the Soviet system, but every year half of them go through another two to three weeks of training.

Keeping good judges is tough. They earn $350 to $450 per month - good money compared with most state employees. But the good ones are often invited to work for banks or private companies for five or six times more, says Leonid Yefremov, head of the international department of the Higher Arbitration Court.

Getting rid of the bad ones is tough, too. Judges are appointed for life. "Even a goat can wear a judge's robes," says Nikolai Logunov, first deputy chairman of the Moscow City Arbitration Court. "It would have been more wise to appoint them first for a year or two, then for life," he says.

Still, businesses resolving their disputes in court is increasingly common. Despite flaws, the system is working. "As a rule, we get our money," Mr. Zhurov says.