Учебный год 22-23 / William_Simons_Private_and_Civil_Law_in_the_R

this law—granting federal bodies of the tax police the right toautomatically impose claims on fines from legal persons—as well as on all sums of undisclosedorartificiallyloweredrevenues—weredeclaredtobecontrary to the RF Constitution, in particular to Article 35. At the same time, no distinction was made between claims made upon things, belonging to taxpayers, and upon rights, including funds in a bank. In the judgment of the Constitutional Court, both were deemed to be co-equal as private property in the sense given in Article 35 of the Constitution.

Article 35(3) of the Constitution contains two extremely significant guarantees. The first may conditionally be called judicial (“no one may be deprived of his property other than by a judgment of a court”). The second has an aspect of value (“forced taking of property for the needs of the state may be effected only on condition of adequate, advance com- pensation”).

In its judgment of 20 May 1997, in a case involving the constitutionality of a series of provisions contained in Articles 242 and 280 of the RF Customs Code, the Court drew a distinction among state entities and bodies and horizontal relations arising between private citizens. The constitutional guarantee in question extends to both of these fields of public relations.

However, if in the field of private law this guarantee proposes only preliminaryjudicialreviewoveradeprivationofproperty,theninthefield of public relations subsequent judicial review is possible as well.

In the field of civil law relations, the aforementioned guarantee signifies that one subject of civil law may not deprive another subject of property in the absence of a valid court judgment. Concerning the field of public law, in analyzing relations arising among customs bodies and entities in violation of customs legislation resulting in the confiscation

(i.e., sanctions for violation of customs regulations) of certain property, the

ConstitutionalCourthasheldthatsubsequentjudicialreviewissufficient.

In the opinion of the Constitutional Court, the issuance by customs bod- ies of orders to confiscate property—with the guarantee of subsequent judicial review over the legality of confiscation—does not contradict the requirements of Article 35 of the RF Constitution. However, from said holding of the Constitutional Court, it does not follow that in all other instancesinvolvingthefieldofpubliclawonlysubsequentjudicialreview is sufficient. The property of commercial organizations with foreign in- vestment created on the territory of Russia may not be requisitioned or confiscated by way of administrative procedure.12

12Art.7, RF Law “On Foreign Investments in the RSFSR” (with amendments of 19 June 1995).

trepreneurs and consumers. The Code’s promulgation has significantly improvedthedevelopmentofcivillaw,andhasfilledinnumerousgapsleft in the previous 1964 Civil Code, gaps which had prevented the regulation of new commercial relations, contracts, and obligations.

By respecting historical continuity, employing provisions of prerevolutionary Russian civil law, of the 1922 Civil Code, and of modern-day experience in Western countries in regulating commercial relations, and also by observing the norms of international agreements, the new Civil

Code—asadequatelyaspossible—meetstheneedsofatransformedRus- sian economy.

It includes provisions for the legal regulation of contracts (and variation thereof) that were not previously covered by Russian civil legislation. These include the purchase and sale of businesses (enterprises), the lease of businesses, financial leasing, factoring, franchising (i.e., the transfer of rights to utilize industrial property such as a company name, trademark, etc.), property under trust, agents’ contracts, and others.

Aside from these new provisions, other contracts have been separated from broad legal constructs and are now treated independently for the first time in the new Code. These include contracts on transporta- tion, contracts on performing research, research and development and technological work, and contracts for bank accounts, bank deposits, and credit agreements.

Even traditional institutions have undergone significant further development. These include purchase and sale agreements, gift, lease, construction, transportation, commission, agency, loans, storage, etc.

Obviously, the sphere of regulated activity has been expanded most of all in the business sector (i.e., entrepreneurial activity). In noting the universality of the Civil Code, it is appropriate to remark here that both the first and second parts of the Code specifically distinguish business activity, and that somewhat different rules govern “business to business” arrangements as opposed to those which apply to relations among con- sumers.Indealingwithentrepreneurs,theCodeallowssignificantlymore freedom of discretion in the conclusion and determination of terms and conditions for contracts among entrepreneurs, while also establishing stricter rules of liability, regardless of fault.

2. Inintroducing—withtheaidoftheCivilCode—civillawmethodsfor regulating the economy, the state has thereby widened the sphere for free and dynamic activity by domestic subjects who have become full-fledged participants in commercial relations. This has significantly reduced the state’sroleindeterminingthetermsandconditionsofcontractsandother binding relations of businesses and organizations. At the same time, the

states’ regulatory role via new (amended) legislation—and the role of the judiciary in implementing this legislation—must grow.

The Civil Code, despite its considerable volume, cannot regulate all commercial relations in their entirety. A number of its provisions are filled in and made concrete by the promulgation of special laws and by- laws (ustavy) regulating the activity of rail, sea, air, and river transport, as well as corporations (joint-stock companies), financial-industrial groups, limited liability companies, laws on government registration of rights in and transactions involving immoveable property, bankruptcy, and other regulatory acts.

Especially important has been the development of appropriate (pravil’noe) and all-encompassing legislation regulating relations between the state and the private sector (state and private property), the order and conditions for the transfer of land, immoveable property, monetary funds and other property from state to private property and ownership, while establishing the optimal relationship between public-law and private-law regulatory methods.

In order to expedite the drafting and promulgation of the most important legal acts, the federal government has set up a Council for the Preparation of Prioritized Normative Legal Acts in the Economic Sphere (Sovet po podgotovkve prioritetnykh normativnykh pravovykh aktov v ekonomicheskoi sfere).Thisadvisorybody—whichincludesrepresentativesfromall branches of government as well as scholars and community leaders—is entrusted with developing recommendations for subjects of the legislative process and has as its goal the coordination of the work of drafting and adopting of legislation that will help to best achieve the strategic goals of economic reform.

In order to bring civil legislation into line with the needs of the economy, as well as to provide for its further improvement, the Russian President has also set up a Council on Codifying and Reforming Civil Legislation (Sovet po kodifikatsii i sovershenstvovaniiu grazhdanskogo zakonodatel’stva). This council is a consultative body which is also called upon to facilitate cooperation among various levels of government agen- cies, social groups, and scientific-research organizations on issues relat- ing to the preparation of proposals on government policy in the sphere of civil legislation. The Council has also been entrusted with providing reviews of federal legislation in this field as well as analysis of practice in implementing the Civil Code.

The Higher Arbitrazh Court of the Russian Federation also plays a crucial role in this process. The Court has been active in the preparation of the Civil Code from the very beginning and—with its experience in

applying civil law in the judicial process—has also been instrumental in developing other necessary legislative acts.

3. Since the passage of the Parts One and Two of the Civil Code, arbitrazh courts have been focusing on the interpreting of the new civil-law norms and on ensuring the proper (pravil’noe) and well-founded application thereofinresolvingspecificeconomic(commercial)disputes.Inparticular, at a time when the legal foundation of the Russian economy is still under development, the arbitrazh courts play a major role in laying down that foundation and elaborating its major elements.

The provisions of the Civil Code allow arbitrazh courts to play an active role in selecting and forming the necessary legal concepts and positions for resolving commercial disputes. Article 6 of the Code stipulates that in cases where the commercial relations of two litigants are not regulated by legislation or by the agreement of the two parties, and where there are neither standard business procedures nor corresponding legal norms which could be applied as extensions of the law, the court may proceed by analogy of law (analogiia zakona), i.e., from the general principles and intent of civil legislation (analogiia prava) and from the demands of good faith, reasonableness, and fairness (dobrosovestnost’, razumnost’, spravedlivost’).

In addition, a number of the Code’s provisions leave to the court’s discretion (usmotrenie)thedefinitionofsuchconceptsassignificantviola- tion” (sushchestvennoe narushenie),“significantshortcomings”(sushchestvennye nedostatki), “reasonable time-frame” (razumnyi srok) “necessary expenditures” (neobkhodimye raskhody) etc.These concepts can only be defined by the resolving of, and then generalizing from, specific cases via an analysis of the court’s decisions over time.This is the task of the arbitrazh courts, and above all of the Higher Arbitrazh Court, which issues Rulings (postanovleniia) and Guiding Explanations (raz”iasneniia) on the basis of generalized court practice and the examination of specific cases, as provided for by

Article 127 of the 1993 Constitution of the Russian Federation.

In the four years during which the new Civil Code has been in place, the Higher Arbitrazh Court has performed a gargantuan task in interpreting legal norms and standardizing judicial practice in the sphere of busi- ness activity.This work has been codified in the adoption of a number of the rulings (postanovleniia) by the Plenum of the Higher Arbitrazh Court, as well as in judgments of the Court in specific cases. As far as the most important issues connected with the activities of the arbitrazh courts and of courts of general jurisdiction (obshchei iurisdiktsii) are concerned, this work has been done jointly with the Supreme Court of the Russian Federation. Therefore, numerous joint rulings (postanovleniia) have been

adopted by the Plenum of the RF Supreme Court and the Plenum of the Higher Arbitrazh Court.

For example, soon after the Part One of the Civil Code had been adopted, Ruling No.2/1 (28 February 1995) set forth interpretations of is- sues dealing with the Code’s relation to the norms of previously adopted legalacts,questionswhichhadnotbeenfullyaddressedinthefederallaw governing the entry into force of Part One of the Code.

This same ruling resolved a very interesting issue which arose in judicial practice in connection with the application of Article 205 of the Civil Code. According to this article, where a statute of limitations (srok iskovoi davnosti) has expired, it may only be waived in special cases when the court finds that the claimant was unable to file its claim due to ex- traordinary personal circumstances (such as serious illness, a helpless state, illiteracy, etc.). This article had not envisaged the possibility of waiving the limitation period for a legal person representing another organization in trade and commerce.

In practice, a question arose as to whether or not the waiver in Ar- ticle 205 governed to a business relationship in which one of the parties was a citizen/entrepreneur. The Plenums of the Supreme Court and the Higher Arbitrazh Court answered that it did not, taking the position that the expiration of a statute of limitations involving a citizen/entrepreneur engaging in her (his) business duties could not be waived since it was also not possible to waive the limitation period for a legal person—regardless of the reasons for the expiration thereof.

In Ruling No.6/8 (1 July 1996)—consisting of 60 sections—the Ple- nums of the Supreme Court and the Higher Arbitrazh Court formulated approximately one hundred clarifications dealing with the application of the Code’s provisions in judicial practice. In part, it was expressly held out that norms of civil law contained in acts of Subjects of the Russian

Federation—promulgated prior to the adoption of the 1993 RF Consti- tution—may be applied by courts only insofar as they do not contradict the Constitution or the new Civil Code.

The norms of the RF Civil Code establishing the bases and procedure for declaring transactions to be invalid differ significantly from those of the previous Code. A great deal of attention has been devoted to this questions in the course of judicial practice: first of all, because courts are often called upon to decide whether specific transactions are voidable

(osporimye) or void (nichtozhnye); secondly, because the rules set forth in Article 168 must be concretized in order to determine whether a given transaction is invalid (nedeistvitel’no), that is, void ab initio.

The issue of whether a transaction was voidable or void arose in the matter of so-called ultra vires transactions (vneustavnye sdelki) concluded by legal persons. According to the 1964 RSFSR Civil Code, and in light of the principle of the special legal capacity of legal persons, all such transactions were deemed to be void. The new Civil Code solves this problem in a different manner.

In their joint ruling of 1 July 1996, the supreme judicial organs have held that if the special legal capacity of legal persons is established by law (for unitary state companies, banks, insurance and other organizations), they cannot conclude transactions which contradict their purposes (tseli) or the subject of their activity (predmet ikh deiatel’nosti) as these are defined in a normative fashion (v normativnom poriadke). In such a case, these transactions are void on the basis of Article 168 of the Civil Code. However, if the legal capacity (pravosposobnost’) of a commercial organi- zation is not defined in a normative fashion but, rather, by its charter

(ustav) documents, and the given transaction contradicts its goals, then this transaction falls under the purview of Article 173 of the Civil Code; as such, it is voidable and may be declared invalid only if the conditions indicated in Article 173 are present.

Judicial practice uses an analogous method of resolving the issue of the validity of transactions concluded in the name of a legal person by an organ, the powers of which are limited. If the organ has exceeded its powers, as defined by normative act, then judicial practice considers this transaction as void. But if in making the transaction the organ has exceeded its powers set only by charter documents, then such a transaction is voidable and can be declared void only: (a) if a suit is brought by those persons enumerated in Article 174; and (b) where the conditions stipulated in that article are present.

This same ruling defines as invalid (nedeistvitel’no) any transactions concluded after the Civil Code entered into force and related to the ac- quisition of shares in joint-stock companies (or a portion of the charter capital of other economic societies [associations]) by state agencies or agencies of local government that have not been authorized to do so by a law (zakon).

In accordance with Article 340, para.3, of the Civil Code, buildings or structures can only be mortgaged if a mortgage is also taken out on the plot of land on which the building or structure is located. If the mortgagor is the owner or lessee of the land plot and—according to the mortgage agreement—mortgages only the building or structure without the corresponding land plot, then according to the 1 July 1996 Ruling of the Plenums of the higher courts, this agreement is void.

Several instances from judicial practice have been most useful as they relate to the application of legislation on the procedure for concluding agreements. Paragraph 20 of the July 1996 Ruling holds that if an agreement signed by the head of a branch (filial) of a legal person does not contain an indication that it was concluded in the name of the legal person and under his (her) power of attorney (doverennost’), but nevertheless the branch’s head does in fact have a power of attorney and the relevant authorization, then the agreement will be deemed to have been concluded in the name of the legal person. The 1996 Ruling (para.58) also provides an important practical interpretation: in addition to an answer attesting to the full and unconditional acceptance of the terms and conditions of an offer—unless otherwise provided by agreement or a law—acts in ful- fillment of a contract performed by a person who has received an offer, bound with a time limit for the acceptance thereof, will be deemed to be acceptance of such offer.

Mortgage contracts have been widely applied in practice where ownership of the object of the mortgage will pass to the mortgagee if the mortgagor breaches a basic obligation of the mortgage agreement. Such agreements are characterized as void in the joint ruling mentioned above, except in those cases where the contract can be considered a release of rights (otstupnoe) or a novation (novatsiia) of the underlying obligation.The basis for declaring such contracts invalid is that they contradict Articles 344 and 349 of the Civil Code. Article 349 stipulates that if a mortgagor fails to fulfill the obligations guaranteed by the security, the mortgagee merelybecomesthefirstinlineamongthemortgagor’sothercreditorsto receive his (her) satisfaction from the proceeds of the mortgaged property. Since the norms of these articles are imperative, the parties to a contract cannot establish different rights for the mortgagee.

Under para.47 of the Plenums’ ruling, any term or condition which affirmstherightofthemortgageetolevyexecutionagainstthemortgaged immoveable property without filing a claim in court will also be deemed to be void unless such an agreement is expressly set forth in the security agreement (dogovor o zaloge). Such a condition would contradictArticle 349 of the Civil Code, which allows such conditions to be imposed only in a notarized contract between the mortgager and the mortgagee concluded after a breach of the original commitment.

According to the new Civil Code, commercial organizations (excluding state and municipal enterprises) are the owners of all the property transferred to them in the form of investments (contributions) by their founders, partners, or members. Therefore, a Plenum Ruling (25 February 1998) has held that once property has been contributed to the charter

(cumulative) capital and there has been official state registration of the relevant legal person, the founders of these legal persons lose their right of ownership to this property.

Of great importance is the courts’ interpretation of the principles of civil law as set forth in Article 1 of the Civil Code, especially of one of the most important of these—the principle of freedom of contract.

Judicial practice in this sphere was initially riddled with contradictions. In some cases, courts had based their decisions on the full and absolute freedom of contract, being guided by any contract concluded by two parties, regardless of its content. In other cases, the courts held that freedom of contracts cannot be unlimited and that courts are obliged to evaluate the content of contracts from the point of view of their conformity with fundamental principles of civil legislation. In such cases, the courts took into account certain general principles as well as specific rules pertaining to individual institutions.

Eventually, the courts have come to apply an approach whereby disputed contracts are evaluated in accordance with the rules laid down in Article 10 of the Code. If in the court’s opinion a contract contains terms and conditions the realization of which could significantly harm the interests of one of the sides—i.e., if a right was abused by one of the parties—then the arbitrazh courts have refused to protect the right so abused.

The norms contained in Chapter 25 of the Civil Code, “Liability for Breach of Obligations”, have in particular been thoroughly elaborated in judicial practice. The courts have accumulated a wealth of experience in applying Article 333 of the Code on “Reducing Contractual Sanctions”.

At first, the courts differed in their understanding and use of this article. SomecourtsbelievedthattheimplementationofArticle333wasaright— but not a duty—of the court, and that the court could determine the amount of the contractual sanction only in cases where the defendant had filedamotionrequestingittodo so.Thesecourtsbelieved,furthermore, that a higher appellate court had no right to reduce the sanction if the lower court had not availed itself of this right. Other courts, on the other hand—basing their findings on the view that given objective proof of the obvious disparity between the proposed sanction and the actual effects of the breach—believed that they were required to reduce the amount of the sanction by applying Article 333. Eventually, the second approach has come to dominate judicial practice, and this has been reflected in a review (obzor) of the application of Article 33 approved by the Presidium of the RF Higher Arbitrazh Court (14 July 1997).

Numerous difficulties arose in interpreting Article 395 of the Civil

Code dealing with the imposition of interest on loaned monies after a failure to fulfill monetary obligations. The greatest problem has been in definingtheinterestrateasprovidedforinArticle395.Accordingtosome, this interest was merely a normal payment for the use of borrowed funds. Others believed that imposing interest on the basis of Article 395 was a type of civil-law liability for breach of a legal duty. The rules for applying

Article 395 depend on one’s answer to this question.

If interest is a form of liability for breach of an obligation, then imposing interest on this basis could only be mandated if all the terms and conditions for apportioning liability are present. In such a case, it would be impossible to apply both Article 395 and the sanction provided for either by law or by the contract—first of all because this would mean subject- ing one of the parties to liability twice for the same infraction, and also becausethecompensatory sanction would ineffectbecome punitive. On the other hand, if the interest provided for in Article 395 is considered a regular payment for the use of borrowed monies, then it can be imposed regardless of whether or not the conditions for liability are present.

Despite some hesitation, judicial practice has eventually moved toward applying Article 395 as a form of (and, therefore, according to the rules for imposing) liability. In this, the courts have been directed not only (and not so much) by the fact that Article 395 is entitled, “Liability for Breach of Monetary Obligations”, and is found in Chapter 25, “Liability for Breach of Obligations” but, rather, by the fact that interest can be imposed according toArticle 395 only after a finding of wrongdoing (pravonarushenie), in the form of the improper use of borrowed funds in the wake of failure to fulfill one’s monetary obligations. Another factor that has been taken into account was that, compared to the total damages, the interest imposed by Article 395 had an essentially compensatory function, making it identical in this sense with a compensatory penalty, which indicates that these are legal equivalents, and which is what the Plenums of the Supreme Court and the Higher Arbitrazh Court have indicated in their Ruling of 8 October 1998.

The work of interpreting the norms of the Civil Code continues. It includes legislative acts promulgated during the development of the Code. In this way, the legal basis for the economy widens, and the sphere of commercial relations falling outside the framework of legal regulation narrows.

4. In accordance with Article 46 of the Russian Constitution, the Civil

Codehassignificantlyexpanded thejurisdictionofthecourts.TheCode