Co-Head of Global Tax Practice
Last week I was defending a client in a billion dollar tax dispute before the 9th Arbitration Appeal Court. At one point I began to feel a strange sensation — was I really in a Russian courtroom or was I perhaps somewhere in the United States?
Speaking to the judges, I referred to the Grundfos case recently heard by the same court (a decision later upheld by the Moscow District Cassation Court). This decision involved certain important issues concerning royalty deductions. My colleagues speaking on promotional expense deductions referred to decisions the same courts rendered in Nike last summer.
The reaction from the bench was quick — yes, the judges were familiar with those cases. The presiding judge then asked the tax authorities’ attorneys to submit arguments as to whether there were any material differences between our case and Grundfos and Nike — with the comment that the court must follow the decisions of the cassation court.
The sensation that I had immediately brought back memories of quite a few years ago. When databases made court decisions available in the late 1990s, it was very hard to persuade a judge to even look at a higher court decision at all. The only way to get them to accept the printouts was with the “magic” words: “For information purposes only, Your Honor, for information purposes.”
It was not until this decade that judges realized the opportunities presented by making use of higher court decisions — and the personal performance assessment risks of not following them. Judges then became quite grateful for case law presented by lawyers. As one judge in Rostov said in 2002 while waving away the arguments of the tax inspector, “Do you really want me to render a decision only to be quashed by a higher court?” Still, it is hard to find a single direct reference to an earlier case in any judicial act from that time. A judge might even reproduce parts of a decision word for word but would never refer to it.
References first appeared in 2004, but only concerning the decisions of the High Arbitration Court (the new procedural code indirectly obliged judges to follow its lead). It was only about three years ago that I first spotted references to district court decisions — and every time they were referred to en masse (four or five long case numbers were quoted, preferably involving the same parties).
Only now are judges (and definitely not all of them as yet) starting to consider themselves bound by a single higher court decision on the same subject matter — at least where this decision is sufficiently well-written to leave no doubt as to the interpretation of the applicable law. Judges have also tired of long, nameless case numbers concerning a taxpayer and begun discussing Grundfos, Nike, etc.
His Honor the President of the High Arbitration Court Judge A. Ivanov does not hesitate to use the word “precedent” in his speeches and articles. Indeed, it seems we are there already. Let the continental law concept of no basis in case law rest in peace — it is only a saying since all legal systems have always recognized the principle of uniformity in application of the law. The next inevitable and necessary development is an improvement in judicial writing quality, as judges realize that with each decision they are creating the law.