Учебный год 22-23 / William_Simons_Private_and_Civil_Law_in_the_R

(goods, services, and financial assets may be moved freely about on the whole territory of the Russian Federation) that is strikingly similar to the restrictions on state power that the United States courts have imposed under the Commerce Clause of the United States Constitution. In both cases, the purpose is the same: to ensure that the constituent units of the federation cannot erect barriers that would destroy the unity of the free market. The 1993 Russian Constitution—in giving the federal gov- ernment a monopoly of civil legislation—of course, goes further toward centralization than the common-law federations ofAustralia, Canada, and the United States, which have generally seen private law as a matter for the constituent political units. There is no doubt that a unified system of private law greatly facilitates commerce in a federal system. Because of the peculiar ability of the common law to disregard state and even national boundaries in building its rules, the common-law federations have managed to achieve this unity without centralized legislation. Russia has achieved the same end-result: a unified system. It, of course, could not use the alien common-law methodology of achieving this unity.

SpecificAnglo-AmericanLawSources

There are very few legal concepts or institutions in the Code that clearly have a common-law source. Even where they do have an Anglo-American source, they typically have been radically changed to reflect the more prescriptive and/or more formal bent of the Russian lawmaker. A good example is the franchise contract, a legal institution that first gained prominence in the United States.The Code’s provisions on the franchise contract (Arts.1027-1040) adopt the outlines of the American franchise contract, but as others have pointed out, it creates so many nonnegotiable rights in the franchisee as to make use of the contract unattractive.2 More in the general spirit of American law is the Armenian Code version of the franchise contract, which makes all the rules dispositive. (It should be noted, however, that one group in the United States, new-car dealers, have lobbied through anti-cancellation provisions not dissimilar to the Russian legislation.)The drafters of the extremely strict franchise-contract provisions seem to have forgotten the fundamental economic law known to American economists as the “Bowl of Jello” theory. (If you push down on one side of a bowl of Jello, it will rise up an equal amount in another place.) The result of making the franchise contract highly unfavorable to franchisers is likely to be both:

2C.M.Wissels, “The Russian Civil Code:Will it Boost or Bust Franchising in Russia?”, 22 Review of Central and East European Law 1996 No.5, 495 519.

(1)altering contracts so they achieve the economic purpose of the franchise contract without formally falling under the franchisecontract provisions; and

(2)use of vertical integration to avoid creating franchise relationships.

At first glance, the general provisions on lease (Arts.606-625) and in par- ticular finance lease (Arts.665-670) might appear to be a Russian imple- mentation of anAnglo-American concept. However, in fact they represent something quite different. Article 2A and Article 9 of the United States Uniform Commercial Code apply a famous American legal principle—I have in mind the principle, “If it looks like a duck, walks like a duck, and quacks like a duck, it is a duck”—to classify arrangements that are leases in form but secured transactions in fact as secured transactions, thus invoking the protections for third parties inherent in the registration provisions of Article 9. While Article 170(2) of the Russian Code deals with sham transactions, I really doubt that a Russian court would use this article to transform what was a lease contract in form but a pledge in essence into an agreement covered by the Code provisions on pledge.

What is more likely to happen is that financing organizations may find the lease contract more attractive than the pledge contract and may use it to avoid the safeguards (such as judicial sale) found in the pledge law. This and the franchise situation may be cases where two wrongs make a right. The rejection of the American walks-like-a-duck principle allows businesses in Russia to avoid the overly detailed mandatory terms of one type of contract by fitting their transaction under another heading.

In corporate law, there are some reflections ofAnglo-American con- cepts.There was, of course, considerable United States advice offered in the drafting of Russia’s Law “On Joint-Stock Companies”. Most inter- esting has been the American reaction to Article 105 of the Civil Code. The United States has gone further than almost any country in allowing piercing of the corporate veil. However, American investors were very upset at Article 105 of the Civil Code because of the very generalized language it used in describing circumstances when a principal company becameliableforthedebtsofasubsidiarycompany.Thisworryreflected, to a considerable extent, a lack of understanding of (or a lack of faith in) the whole civilian method of drafting in general principles. American law has gone through two phases. Until perhaps the 1950s, it grew largely by accretion of judicial precedents. The result after several hundred years of English and American accretion of precedential law was the emergence of a highly detailed body of law based upon tens of thousands of court deci-

sions. Starting around 1950, as legal change came faster, statutes began to move ahead of judicial decisions as a source of law, but the statutes were drafted in a highly detailed manner, not in the short general phrases of European codes. American lawyers are comfortable with the widespread practice of piercing the corporate veil in the United States because the detailed precedential and statutory law lets them know with considerable precision when such piercing might occur. They were frightened by the lack of detail in Article 105 and imagined worse-case scenarios, much as American generals during the Cold War had sometimes seen nonexistent missile gaps. The result was an intense lobbying effort to secure more detail, an effort that was partially successful in the Law “On Joint-Stock

Companies”.

Common Treaty Source

The Russian Federation and the major common-law countries belong to anumberofimportanttreatiesaffectingprivate-lawrelations.Inparticu- lar, they belong to the United Nations Convention on the International Sale of Goods and to a wide variety of intellectual-property conventions. The intellectual-property provisions of drafts of Part III of the Russian

CivilCodehaveclearlyreflectedthetreatyrules.Likewise,UnitedStates legislation embodies numerous rules taken from international intellectual- property agreements. The fact that the different treaties provide quite different treatment for various types of intellectual property have made it very difficult for the Russian code drafters to create rules for a general part of intellectual property. Despite urging by American experts (Professors James J. White and Robert S. Summers in particular), the provisions of Chapter 30 of the Russian Code on purchase and sale reflect relatively little of the United Nations Convention on the International Sale of Goods. The committee redrafting Article 2 of the United States Uniform Commercial Code has paid much closer attention to the Convention, although it has not always followed it.3 Of course, in international sales contracts involving Russia and a common-law country, the Convention will apply since it supersedes domestic law.

Common Foreign Law Source

Sometimes, provisions in the Russian Code look like those of United States law because both are borrowed from the same foreign source. The most popular form of business organization in Russia, the limited-liability company, looks quite familiar to anAmerican lawyer. But this is because

3See the comments in the recent drafts of revised Art.2 at <http://www.law.upenn. edu/bll/ulc/ulc.htm>.

nearly all the states of the United States have, in recent years, adopted limited-liability-company legislation based upon the same Western European models used by Russia.

Coincidence

Sometimes, resemblance is due to accident. One might think that the Rus- sianCode’sUnitaryEnterprise(Arts.113-115)isalientoAmericanthought.

However, in fact the United States government creates numerous enterprises that manage but do not own property from the indivisible mass of government property.There even are different categories of enterprises:

Recent court decisions, for instance have held the United States Postal Service to the same rules as private businesses, making the Postal Service in some ways equivalent to a Russian enterprise holding property under operative administration. However, I think any similarity between the Russian and American models in this instance is just a coincidence.

Rejection of the Common-Law Approach

An easier task than that set for this chapter would be to note the instances in which the Code drafters considered the common-law approach and deliberately rejected it.The most notable instance was the replacement of the misguided attempt to transplant theAnglo-American trust into Russian law4 with the more civilian contract of entrusted administration inArticles 1012-1026. American advisers argued long and loudly against the idea of required minimum charter capital. They regarded the requirement as a totally illusory protection for creditors and shareholders and as a serious barrier to start-up businesses.5 Nevertheless, the drafters rejected these arguments and put a charter-capital requirement in the Code (Art.99).

Not Even Considering the Common-Law Approach

The common-law rule allowing any person to change his or her name at any time with no formalities is so alien to the civil-law tradition and of so little importance in practice, that the drafters of the Code probably never even considered its adoption, opting instead (Art.19) for the stan- dardcivil-lawapproachofrequiringcompliancewithlegalformalitiesand recording in order to change one’s name.

4Edict of 24 December 1993 “On Trust.”

5Major American enterprises have been started with minimal capital in an ordinary oneor two-car garage. See <http://www.garage.com/famousGarages.shtml>.

Terminology

Methodology

In order to investigate the use of Anglo-American legal terminology in the Code, I used a computer to make an index of all the words used in the text of the Code.6 Next, I read through this list to find what looked like English-language legal terms. Then, I tried to place these words in various categories of overlap. Here is what I found.

English Terminology in the Russian Code

(1)shared from Roman law: emansipatsiia/emancipation;

(2)shared Italian financial terminology: del kredere/del credere;

(3)borrowed English admiralty law: charter/charter;

(4)common international terminology long used in both English and Russian: bank and bank;

(5)borrowings from English to provide slightly differing shades of meaning from the traditional Slavic root word: kontrakt/dogovor;

(6)borrowings from English with little change of meaning from the traditional Slavic root word: vvoz/import;

(7)words transliterated from English legal terminology: lizing/leasing;

(8)words from other languages that are identical in form to English legal terms but quite different in meaning: rent/rent;

(9)words in which the Russian usage has deviated, over time, from the usage of the same international term in English: arbitrazh/arbitration;

(10)words taken from Anglo-American legal terminology but used with a totally different meaning in Russian: kommercheskaia kontsessiia/ commercial concession. (In American legal terminology, a commercial concession is an arrangement whereby a governmental

6Here are some technical details that the reader may wish to skip. I started with the full text Cyrillic version of the Code found in the KODEKS databank. Then, I converted the Code to Latin letters using the freeACONVERTsoftware package by Mr. Konstantin Gredeskoul (available at <http://www.ruscom.org.au/devel/>). Next, I used the ALWORDS program of the free ALEXA software package (available at <http://nora.hd.uib.no/lexainf.html>) to create automatically a list of all words used in each of the two parts of the Code and the frequency with which every word appeared. Then, I sorted the list in WordPerfect. The resulting index was crude because it treated every form of a Russian word, e.g., zakon, zakona, zakonom, etc., as a separate entry. But it was a very useful tool for finding English needles in a Slavic haystack.

authority allows a private business to operate on government-owned premises. For instance, an airport authority may grant a concession to McDonalds to allow it to operate a fast-food restaurant at the airport terminal.)

English Terminology Not in the Russian Code

Most notable is the absence of the word trast (trust in English), reflect- ing the replacement of the short-lived Russian trast with the contract of entrusted administration. Some Anglo-American legal terms that have become a regular part of modern Russian legal terminology do not appear in the Civil Code because they are not related to civil law, e.g., antidemping, ofshor.

Conclusion

This exercise made me very conscious of how Russian the Russian Civil Code is. I found no institutions lifted in detail from the common law. At the same time, I realized the importance of the ongoing process of internationalization of legal rules and legal terminology, which will inevitably bring a much greater convergence of the Russian and Anglo-American legal systems and languages in the twenty-first century.

singling out the consumer work contract as a special type. By comparing the content of Articles 503 to 505 and Article 723, however, it becomes apparent that the difference is much less dramatic than the reference technique leads one to assume. Indeed, one wonders why this reference has been used at all.

In fact, Article 723 provides for customer choices that well reflect the interest of the two contracting parties. The customer has the right to demand elimination of defects that can—under certain circumstances and under special conditions—be replaced by the delivery of a new work

(Art.723(2)). He can claim a reduction in price or—if contractually provided for—compensation for any costs of elimination or compensation for damages (Art.723(3)). It is not explicitly said whether such compensation frees the debtor from specific performance, but this should be presumed to be the case in terms of Article 396(2). It is somewhat unusual that the different remedies have not been put into a chronological hierarchy, and it might be advisable that future interpretation introduces this in the sense that the right of the contractor to eliminate defects or to deliver anew precedes other remedies. This restriction of choice does no harm to the customer.

Notwithstanding the foregoing, the choices of remedies seem appropriate, even where the customer is a consumer. In fact, the reference to Articles 503 to 505 does not deprive him of these remedies since, in this respect, the norms coincide. This is why one wonders at first why

Article 739 breaks away from the system of the work contract. There is, however, a difference.The application ofArticles 503 to 505 leads to two additional remedies. The consumer may claim the costs for elimination of defects, even if not contractually provided for, or return the work/good andneednotpaytheprice(Art.503(3)).Thesedifferenceslead,inturn,to the question why these choices have not been granted to all customers in work contracts; the particular interest of the consumer is not apparent.

It is the same contextual question to which I cannot provide a rationally based answer; that is why insurance (Art.742), compulsory production of documentation (Art.743), the right to associate an expert for inspections (Art. 749), or the obligation to comply with (environmental) law (Art.751) are restricted to the sole construction contract, whereas the compulsory characterofstate-regulatedpricesisconfinedtoconsumerwork(Art.735).

To my mind, all such clauses and articles are not per se limited to specific work contracts and should be applicable as general provisions for all categories, something that is now rendered difficult by the technique of very finely tuned sub-divisions.

There is one more particularity involving Articles 503 to 505. The lat- ter article specifies that compensation for damage suffered does not free

the contractor from specific performance of the original obligation.This contradicts my reading of Article 723(3). The compilation of these obliga- tions is reminiscent of central planning, when specific performance was of utmost importance as a means of fulfilling the planning network.This period has now gone, and market economies place their trust much more on compensation with abstract money than on concrete performance.Article 396(2) has come somewhat closer to that principle by freeing the debtor from performance after having paid compensation for non-performance.

Article 505 provides differently. It is not clear to me why a provision that was crucial in a central planning network has survived in consumer contracts,leadingtothe(perhaps)unwantedconsequenceoflimitingthe amount of money that the consumer might receive as compensation. A formal advantage may, thus, turn into a material disadvantage.

As has been said already,Article 723 is the core provision for improper performance. In line with the general system of the Civil Code, it has to be seen within and fitted into the context of the “General Provisions” of

Part I of the Civil Code, especially its Subdivision 4: “Transactions and Representation”, the “General Part of the Law of Obligations” (Division III) and the other norms applicable for the work contract.

As to the General Provisions, it seems fair to assume that the voidability of the contract as a result of fraud, duress, etc. (Art.179), remains intact and is not supplanted by Articles 714 ff. The same is true in case of error as to capacity of the contractor to perform the work properly (Art.178). As to simple mistakes, it seems more appropriate for risk dis- tribution that the specific norms of improper performance prevail and voidability of the contract be excluded.

The general part of the law of obligations is fully applicable unless otherwise explicitly replaced by specific norms. From this perspective, it seems superfluous and might lead to confusion if individual norms are singled out and declared applicable, as is done byArticle 723(1) with regard to Article 397. Much could, and will have to be, said in this context by future case law and commentaries. I want to concentrate on one point because it has broad and dangerous implications and may destroy the balance of interests of contracting parties that have developed under long traditions of codification.

Articles 719 ff. are silent as to subjective grounds for liability of contractors. In most civil codes, the contractor has to guarantee proper performance and the appropriateness of the works and goods. From there, it follows that the elimination of defects, renewed performance, the re- placement of goods, or the reduction in prices do not require fault. Fault of varying degrees is, however, required whenever the customer claims