Oda Russian Commercial Law 2007-1

example, the draft concept of the reform of road transportation prepared by a working group of the Ministry of Transport pointed out that “based upon international experience regarding the development of automobile roads, priority is given to the continuing nancing of projects by the government, but with a broad application of government-private partnership”.

A concession agreement is de ned by the Law as an agreement in which a party (concessionaire) is under an obligation to build or re-build an object (immovable) agreed upon in the concession agreement at its own cost and carry out business by using this object, while the counter party, the granting authority, is under an obligation to grant the right to possess and use the object to the concessionaire for an agreed period. The title to the object belongs, or is to belong to, the granting authority.

According to the Law, concession contracts are “hybrid” contracts. The problem is that the nature of a concession agreement – whether it is a public law contract or a private law contract – is not clear. This means that the Civil Code is not automatically applicable to concession agreements. The Law provides that the legislation on concession comprises the present Law, other Federal laws and normative acts of the Russian Federation. The Civil Code is not explicitly referred to here, although in the Law itself, some provisions of the Code are cited.

Parties to the concession agreement are the granting (public) authority on one hand and the concessionaire on the other. The granting authority can be the Russian Federation, constituent entities of the Russian Federation, and municipalities. Russian as well as foreign juridical persons or consortia of juridical persons can be a concessionaire.

Change of the concessionaire by means of assignment or assumption of obligation is allowed only with the consent of the granting authority and after the object is put into operation.

The Law lists various projects which fall within its scope. These include:

i)Highways and engineering installations of transport infrastructure, including bridges, tunnels, tool gates etc.

ii)Railways;

iii)Pipelines;

iv)Sea and river ports;

v)Airport terminals;

vi)Hydropower plants;

vii)Power and thermal generation, transport and distribution installations;

viii)Communal infrastructure including water, heating, gas and energy supply, sewage system etc;

ix)Installations destined for the health system and objects of tourism;

x)Sports, education, and cultural installations.

The length of concession is to be determined by agreement, by taking into account the object of concession, the amount of investment, the period needed for the recovery of the investment, and other obligations of the concessionaire.

Payment for the concession is made by the concessionaire during the period of concession. Payment can take the form of a xed amount which is paid periodically, or in a lump sum, a portion of the income received by the concessionaire, or as a transfer of property from the concessionaire to the granting authority. These means of payment can be combined.

Rights of the concessionaire as provided by the Law are rather sparse. Concessionaires have the right to:

i)use the object of concession in accordance with the agreement;

ii)perform the concession agreement on their own or by sub-contracting to others;

iii)utilise exclusive rights over the products of intellectual activities.

On the other hand, concessionaires are under an obligation to:

i)build the object and start operation within the agreed period;

ii)use the object in accordance with the purpose and the procedure set out in the agreement;

iii)carry out the activities as provided in the agreement and not to terminate the activities without the consent of the granting authority;

iv)ensure that the consumers receive the products, work or service;

v)provide the consumer privileges as provided by the Federal law and the law of the constituent entities and municipalities insofar as stipulated in the agreement;

vi)maintain the object in an appropriate state and carry out repairs etc., unless otherwise agreed.

Particularly problematic is the obligation to provide privileges to consumers. In Russia, prices of public service such as electricity, water, heating etc. are heavily subsidised. The concessionaire needs to ensure that the subsidised price is backed up by the granting authority in one way or another.

Another problem is that the Law explicitly provides that the object of the concession agreement cannot be pledged, or disposed of, by the concessionaire. The concessionaire is not allowed to pledge his rights – income stream – emerging from the concession agreement. This naturally makes nancing dif cult for investors.

The concessionaire is liable for any breach of the requirements of the agreement as well as technical regulations and project documents, and other mandatory requirements concerning the quality of the object in the course of

construction of the object. If the breach is serious, the concessionaire must pay compensation.

The parties are liable for the non-performance or inadequate performance of any obligation provided for by the Law and other Federal laws, or by the agreement.

The concessionaire is also liable for the quality of the object throughout the period of the concession agreement.

The procedure by which the granting authority is to supervise the observance of the terms of the agreement by the concessionaire shall be established by the agreement.

In addition to the essential terms of the concession agreement, the following matters can be provided for by the agreement:

i)procedure and conditions of the setting and changing of the tariff;

ii)the scope of investment for the project;

iii)the date of the commencement of the operation of the object in accordance with the technical-economic parameters set out in the agreement;

iv)obligation of the concessionaire to provide privileges to consumers;

v)obligation of the granting authority to nance part of the cost of building the object and/or its maintenance.

Concession agreements are concluded through a tender procedure for the right to conclude the agreement. Unlike the draft Sub-soil Law which was submitted to the Duma last year, there is no explicit restriction on foreign participation.

A model concession contract for each type of objects listed in the Law is expected to be published in due course. The agreement must be concluded in accordance with the model agreement.

Concession agreements can be revised upon request of either party by the decision of the court on the grounds as provided for in the Civil Code. This seems to refer to the substantial change of circumstances.

Concession agreements are terminated on the following grounds:

i)expiration of the concession agreement;

ii)mutual agreement of the parties;

iii)termination of the concession agreement by the decision of the court.

There are no problems regarding the rst two grounds. The third point, however, is problematic. The court can revoke the contract in the following cases:

i)material breach of the terms of the agreement;

ii)substantial change of circumstance;

iii)other grounds as provided by Federal law or the concession agreement.

Instructions of the Federal administrative agencies and regulatory bodies of the constituent entities are also a ground for changes. “Objective changes” include changes to the Federal legislation, in ation above the level foreseen at the time of setting the tariff, rise of energy prices beyond the scope provided by the Russian Federation, and change of other conditions as determined by the Federal government.

7)Joint Venture Contracts

Joint venture contracts are denoted as a contract of simple partnership (prostoe tovarishchestvo) in the Civil Code. In this kind of a contract, two or more parties are under obligation to invest in a joint scheme and join force with the goal of making pro ts or achieving other goals without forming a juridical person (Art.1041, para.1).

As is the case with other typical contracts provided by the Civil Code, most of the provisions are optional and as such, can be modi ed by contracts.

The contribution is presumed to be equal among the parties, but the parties may agree otherwise (Art.1042, para.2). The property which the joint venture obtained or produced belongs to the co-ownership with shares of the participants, unless otherwise agreed by the parties (Art.1043, para.1). It should be noted that creditors of the participants are entitled to require the split of the share of the debtor-participant from the common property of the joint venture (Art.1049). Participants are liable for the debt of the joint venture jointly and severally, if the joint venture is involved in entrepreneurial activities (Art.1047, para.2).

The contract of joint venture is terminated on the grounds including the following (Art.1050):

i)bankruptcy of the participant;

ii)rescission of the contract with a xed period by the participant;

iii)withdrawal of the participant from a contract without a xed period;

iv)splitting of a share of the participant by a creditor.

However, this does not apply, if the contract provides that the contract would continue to be valid among the remaining participants (Art.1050, para.1).

Another important ground of the termination of a joint venture contract is the change of circumstances. In addition to the general provision on the change of circumstances in the general part of the contract law (Art.450, para.2), there is a special provision in the Chapter on Joint Venture Contracts to this effect. Thus, in a contract of joint venture with a xed period, or a xed purpose as a condition pending, participants are entitled to rescind the contract between

9

PROPERTYAND LAND LAW

1OWNERSHIP RIGHT AND OTHER REAL RIGHTS

Part One, Book Two of the Civil Code is entitled “the Right of Ownership and other Real Rights”. This part, which begins with a provision on the “content of the right of ownership”, covers property law. It comprises eight chapters, including chapters on the acquisition of ownership, the termination of ownership, joint ownership, and the protection of ownership and other real rights. Chapter 17, which covered the rights over land, nally took effect when the long-awaited Land Code was adopted and came into force in November 2001.

The concept of real rights (veshchnoe pravo) was known in Tsarist Russia. The draft Civil Code of the Tsarist period had its Book Two devoted to real rights. However, in the socialist period, this concept totally disappeared, since land and other “means of production” were nationalised and became subject to administrative law. A separate Code – the Land Code – was enacted in 1922. Thus “Land Law” came into being as a new area of law. Property relations covered by civil law were very much limited in scope. The civil law concept of real rights had little use in such circumstances. It was revived only by the 1990 Law on Ownership and the Fundamental Principles of Civil Legislation of the USSR.

In the area of Land Law, there exists a dual system consisting of the Civil Code (Chapter 17) and the Land Code. The Land Code is a product of the socialist time, based upon the concept of state monopoly over the means of production. The rst Land Code after the collapse of socialism was enacted in 1991. It was substantially curtailed in 1993, and then replaced by the current Land Code in 2001. The Land Code is part of the administrative law aimed at regulating ownership and use of land, while the Civil Code presupposes freedom of ownership of land as well as freedom of its circulation. For this reason, whether this dual system is still justi able in the era of the market economy is questionable.

There has been some overlap as well as some contradictions between the two codes. The 1991 Land Code did not give precise de nition of “land relations”

There is a provision in the Part Two of the Civil Code to the effect that the transfer of title of the land does not affect the lease (Art.617).

A real right being an absolute right, the holder of the right retains it even when he loses possession of the property. The owner of a property has the right to require the return of the property from the illegitimate possessor of the property in question (Art.301). This action of vindikatsiia (lat. vindicare) is widely utilised:

On the basis of a capital construction contract, a joint stock company sent a crane and ve bulldozers to a kombinat. After the completion of construction work, the company could not retrieve its machinery since the kombinat had refused to return it. In fact, the crane was there, but the bulldozers had disappeared altogether. The company sued the kombinat and demanded the return of the machinery on the basis of Article 301. The Supreme Commercial Court ruled that the object of this action could only be the property in the possession of the defendant. The kombinat was ordered to return the crane, but since the bulldozers were no longer in its possession, the claim was dismissed on this part. It was suggested that the plaintiff sue for compensation or sue the current possessor.5

This action is an action by the owner who lost possession of the property against the illegitimate possessor. “Illegitimate” in this context means that the possession does not have a legal basis, or that the legal basis is defective. The ownerplaintiff is required to prove that he is the lawful owner of the property.6 On the other hand, if a property was transferred to the counter party based upon an invalid juristic act, the property should be claimed from the opposite party not on the basis of this provision, but as a result of the “effect of an invalid juristic act”.7

An owner is entitled to a claim for the elimination of an infringement upon his right to ownership. He may require the removal of any kind of infringement on the possession, use and disposal of the property, even if the infringement does not involve deprivation of possession (Art.304):8

In a dispute concerning an of ce building, the plaintiff, a company with limited liability which owned the building, brought an action against a joint stock company

5Information Letter of the Presidium of the Supreme Commercial Court No.13 of April 28,

1997.

6Sadikov ed., Kommentarii k grazhdanskomu kodekusu Rossiiskoi Federatsii Cahsti Pervoi,

third edition, Moscow 2005, p.776.

7Decision of the Presidium of the Supreme Commercial Court, July 1, 2003, Case 11224/02.

8A.N.Guev eds., Postateinyi kommentarii k chasti pervoi grazhdanskogo kodeksa Rossiskoi Federatsii, second edition, Moscow 1999, p.375.