Oda Russian Commercial Law 2007-1

2GENERAL RULES

The Code sets out the general rule on the applicable law as follows (Art.1186):

Laws, which are applicable to civil law relationships with the participation of foreign individuals, juridical persons, or with foreign law elements, including instances where the object of civil law is located abroad, are determined on the basis of international treaties to which the Russian Federation is a party, the present Code, and other laws and customs recognised by the Russian Federation.

If it is impossible to determine the applicable law in accordance with paragraph 1, the law of the country with which the civil law relationship with foreign elements is most closely connected shall be applied.

In determining the applicable law, legal concepts are to be interpreted in accordance with Russian law (Art.1187, para.1).

The content of the foreign law is determined in accordance with its of cial interpretation, practice of application, and the doctrine of the given foreign state. In order to ascertain the content of foreign law, the court may seek the assistance of the Ministry of Justice of the Russian Federation. If the content of the foreign law cannot be ascertained within a reasonable period, Russian law is applied.

Even in the period of socialism, in international commercial arbitration, foreign law was applied in Russia by the predecessor to the present International Commercial Arbitration Court. Now it is not rare for the Russian commercial court to apply foreign law in transnational cases:

A Russian joint stock company initiated an action in the Russian commercial court against a German company regarding a contract of lease of a ship. Originally, the German company sold the Russian party a ship, which was to be operated by a joint venture of both parties. However, this joint venture failed to materialise, and the Russian party, which intended to pay for the ship out of the pro ts from this operation, defaulted. Both parties eventually concluded a lease agreement, the German company being the lessor and the Russian company, the lessee of the ship. However, this scheme did not work. In the claim submitted to the court, the Russian party argued, inter alia, that the terms of the lease agreement were extremely disadvantageous, and that it was void as a predatory transaction under Russian law.

The court ruled that since the parties had failed to agree on the governing law, the law of the country of the lessor, in this case, German law, was applicable by virtue of the Fundamental Principles of Civil Legislation of 1990, and denied the application of the provision of the Russian Civil Code on predatory transactions as argued by the Russian party.2

2Item 12, Information Letter No.29 of the Presidium of the Supreme Commercial Court, February 16, 1998.

Company Abdeil Limited, registered in the Isle of Mann, brought an action against a limited liability company, Merkurii Plus, in the Moscow Commercial Court for invalidation of the contract of sale of the participatory share of 3.1% in the Merkurii Plus. The ground for the claim was that the contract was signed by a single director instead of two, as required by the Company Act of the Isle of Mann and the plaintiff’s Articles of Incorporation.

The rst instance court rejected the claim of the plaintiff. The court applied Russian law on the ground of Article 1205 of the Russian Civil Code, i.e. because “the property (participatory share) was located in Russia at the time of the transaction”. The appellate court found the contract to be null and void by applying the law of the country of the seller, i.e. the law of the Isle of Mann. After analysing the Company Act of the Isle of Mann, the court concluded that a special decision of the directors was needed for the transaction.

The cassation court ruled as follows on the applicable law. The rst instance court applied Russian law on the ground that the ownership right and other rights in rem are governed by the law of the country where the property is located. The appellate court applied the law of the country of the seller. However, these courts had failed to take into account that this dispute did not emerge from obligational relations emanating from a transaction. What is at issue is the validity of a juristic act in which one of the parties did not have the power to effect (excess of power). They failed to take into consideration Article 1210 which lists the matters to be governed by contract law, namely interpretation of the contract, rights and duties of the parties, performance of the contract and the consequences of non-performance. The consequence of an act of a juridical person effected by a person to do so, or in excess of the power granted to him is a matter to be decided by the personal law of the party, i.e. the Law of the Isle of Mann (Art.1202, para.2, subpara.6).3

The above provision, however, do not affect the mandatory provisions of Russian legislation which, by virtue of the requirement of such a provision itself, or because of its special signi cance, regulate the given relation regardless of the applicable law (Art.1192, para.1).

Two types of mandatory norms are identi ed: mandatory norms of the domestic civil law and super-mandatory norms. The rst category of mandatory norms sets the limit of party autonomy and re ects the interests which are more signi cant to the given country than the party autonomy. The application of this type of mandatory norms can be excluded by rules of con ict of laws which require application of foreign law. “Elimination of the effect of not only optional norms but also mandatory norms of lex fori as a result of the subordination of the given legal relation to foreign law is an established principle of con ict of laws”.

3Decision of the Commercial Court of the Moscow District of August 2, 2006, Case KG-A40/ 6788-06.

Norms which fall within the second category are applicable regardless of what law governs the given relations. The application of the con ict rules does not exclude their application. In other words, the government policy re ected in such a norm is so important that the state cannot allow such relations to be subject to foreign law.

The problem is how to distinguish mandatory norms of the second category from the rst. The decision of the Supreme Commercial Court in the Pressindustria case [see Chapter 2] demonstrates the risk of a broad application of such “super mandatory norms”.Acommentary, referring to an earlier draft of this part of the Code, lists the following as “supermandatory”:4

i)norms of basic principles of civil law

ii)scope of the exercise of civil law rights

iii)invalidity of acts against public policy

iv)freedom of contract

v)requirement of a written form for foreign trade contracts

There are some cases decided by the predecessor to the International Commercial Arbitration Court (MKAS) on this matter. In one case, the provision of the Russian Civil Code which prohibits changes to the length of the limitation period for an action and to the manner of its calculation by mutual consent of the parties was applied, and the agreement was found void.5 This does not mean, however, that Russian law should always be applied to the limitation period. There was a case where a provision on the limitation period of a foreign law, in this case, Japanese law, which was the law of the country of the seller, was applied under the 1990 Fundamental Principle of Civil Legislation.6

In addition to the mandatory provisions of Russian law, the court may consider mandatory norms of another country which has a close connection with the relationship in question (Art.1192, para.2).

Another exception to the general rule of applicability of foreign law is public policy. The applicable law determined in accordance with the Code, “in an exceptional instance”, is not applied, if its application apparently contradicts the basis of the legal order (public order) of the Russian Federation. In such cases, if necessary, Russian law is applied (Art.1193).

4A.L.Makovskii ed., Kommentarii k chasti tret’ei grazhdanskogo kodeksa Rossiiskoi Federat-

sii, Moscow 2002, 346-351. Bogusulavskii, supra, fth edition, Moscow 2006, pp.113-114.

5Cases No.139 and No.180, 1988, cited in Bogusulavskii, supra, p.96.

6International Commercial Arbitration Court ed., Arbitrazhnaia praktika za 1998 g., Moscow 1999, pp.138-140.

a situation at that time was the Decree of the Presidium of the Supreme Soviet of the USSR of June 21, 1988 on the recognition and enforcement of foreign judgments. This decree referred to public order as one of the grounds to block enforcement. The Procurator General referred to a declaration of the Russian government of September 27, 1994 which set out various requirements for repayment of commercial debts by Russian “empowered entities”. Repayment by Soiuzplodimport did not meet these requirements and therefore, was against the public order.

However, the Supreme Court ruled that “empowered entities” in this context meant entities which were acting under the entrustment of the government. In the present case, the defendant was acting as an independent juridical person, and not under any entrustment by the government. The above government declaration does not deprive the plaintiff of the right to receive payment, does not exempt the liability of the defendant, and cannot serve as a ground for rejecting the enforcement of a foreign judgment in Russia.10

3RENVOI

A novelty in the Civil Code is the provision on renvoi. In Russia, there always has been a negative attitude towards renvoi. An example is the case decided in the 1960s by the International Arbitration Commission of the USSR Chamber of Commerce:

An English company Romlus Films ltd initiated an action at the then Foreign Trade Arbitration Commisison against a Soviet foreign trade organisation. The case involved a right in a lm “Sleeping Beauty”. According to Soviet law, since the contract was concluded in London, English law was applicable. However, the English rules of con ict of laws referred to Soviet law, and therefore, the respondent argued that Soviet law was applicable in this case. The arbitration tribunal rejected this argument and ruled that regardless of the English rules, the application of renvoi was a matter of Soviet law, and that Soviet doctrine and practice, as a rule, did not acknowledge renvoi in foreign trade contracts.11

Under the new Civil Code, as a rule, any reference to foreign law is to be regarded as a reference to the substantive law, and not the con ict of law rules of that country, except in cases related to the status of individuals (Art.1190, para.1). The same provision is contained in the Law on International Commercial Arbitration.

10Decision of the Federal Commercial Court of the Moscow District of June 25, 2001, Case KG-A40/3057-01.

11Bogusulavskii, supra, fth edition, p.102.

4PERSONAL LAW

Part Three of the Civil Code has newly introduced the concept of personal law of individuals and juridical persons. The personal law of individuals is determined by their nationality, not by their domicile. However, if a foreign national resides in Russia, his personal law is Russian law. If this person has dual nationality, one of which is Russian, Russian law is the personal law. Concerning juridical persons, the personal law is the law of the country where the given juridical person was established (Art.1195).

Legal capacity and the capacity to effect juristic acts are determined by the personal law of the given individual (arts.1197 and 1198).

On the basis of the personal law, the following matters concerning juridical persons are determined in accordance with the law of the place of the establishment:

i)status of the organisation as a juridical person;

ii)organisational-legal form of the juridical person;

iii)requirements to the name of the juridical person;

iv)establishment, reorganisation and liquidation of juridical persons, including succession;

v)content of the legal capacity of the juridical person;

vi)manner in which the juridical person obtains rights and assumes obligations;

vii)internal relations, including relations with the members;

viii)capability of the juridical person to respond to its obligations.

It should be added that juridical persons are not allowed to refer to the restrictions of power imposed on its bodies or representatives in effecting juristic acts, which are not known in the country where the juristic act is effected. This does not apply when it is proved that the opposite party had known or should have known of such restrictions (Art.1202).

5APPLICABLE LAW ON THE SPECIFIC ISSUES

1)Ownership Rights and other Real Rights

The general rule is that the content of ownership rights and other real rights on immovables and movables, and the manner of exercising and defending these rights are determined by the law of the country where the property is located (Art.1205, para.1). The emergence and termination of ownership rights and other real rights are determined by the law of the country where the given property was located at the time at which the incident which serves as the ground for the

emergence or termination of the rights occurred. Regarding these rights that arise from transactions on properties in transit, the law of the consignor’s country applies (Art.1296, paras.1 and 2). Ships and satellites are regarded as immovables; regarding ships and satellites which are subject to registration, the law of the country where they are registered is applicable (Art.1207).

2)The Form of Juristic Acts

As a general rule, the form of a juristic act is subject to the law of the country where the given juristic act is effected (Art.1209, para.1). On the other hand, the Code provides that insofar as the form required by Russian law is observed, the given juristic act will not be found void for non-compliance with the form.

However, there is an exception. With foreign trade contracts in which one of the parties is a Russian juridical person, the form is determined by Russian law, regardless of the place of the contract. This also applies when one of the parties is an individual entrepreneur registered in Russia (ibid., para.2).

Under socialism, there used to be a requirement that foreign trade contracts must be signed by two designated persons on the Russian side, this requirement being set out in a 1978 edict of the USSR Council of Ministers. Failure to comply with this requirement made the contract void. After the collapse of socialism, it was not clear whether this requirement still existed. There was a serious debate on this issue among the specialists.12 The current view is that this requirement of two signatures no longer exists; the 1978 Edict is no longer in force.13 However, several authors point out that nevertheless, such a requirement is still valid if it is stipulated in the statute of the given Russian organisation. An example of a treasury enterprise which has a statute with such a requirement is cited.14

Thus, the only requirement to the form of foreign trade contracts now is that such contracts must be made in writing. The Civil Code provides that the failure to comply with this requirement makes a foreign trade contract void (Art.162, para.3). It is unusual for foreign trade contracts themselves to be concluded orally, but in the past, what was at issue was not the validity of the contract per se, but the subsequent amendments to the contract which have not been effected in a written form. In the practice of international commercial arbitration in Moscow, such agreements were found void.15

12V.P.Zvekov, Mezhdunarodnoe chastnoe pravo, Moscow 1999, p.281.

13O.N.Sadikov, Kommentarii k Grazhdanskomu Kodeksu Rossiiskoi Federatsii, chasti pervoi, enlarged edition, Moscow 1999, p.351.

14Boguslavskii, supra, p.204; Zvekov, supra, p.282.

15Zvekov, supra, p.283.