17.12.2015 — Puppet Arbitral Institutions to Be Eliminated in Russia - State Duma Approves Arbitration Reform Act

A bill introducing major changes to the Russian arbitration system has passed its third reading in the Russian State Duma. According to the bill, which might replace the currently effective Federal Law No.102 “On arbitration courts”, permanent arbitral institutions can be created solely by non-commercial organisations. The bill is aimed at eliminating the so-called “puppet” arbitral institutions created by companies who or whose subsidiaries could then be parties to arbitral proceedings.

According to the bill, non-commercial organisations that wish to establish an arbitral institution should obtain a relevant permission from the Russian Ministry of Justice. The decision within the Ministry will be taken by the Council for the development of arbitration, especially created for this purpose, which will comprise members of non-governmental associations, entrepreneurs, as well as representatives of the legal society and the academia.

The bill also establishes that an arbitrator cannot be included into a proposed list of arbitrators in more than three arbitral institutions. Interestingly, former Russian judges, who for a number of reasons were dismissed as a result of the unification of the Supreme Court and the Supreme Arbitrazh Court in August 2014, can be appointed as arbitrators.

Furthermore, the bill sets forth a list of disputes that can be heard by arbitral tribunals. Thus, the following disputes have been included into their jurisdiction: corporate disputes connected with the appointment, election, suspension of powers of corporate bodies, ownership in shares and other private disputes. Disputes arising from the turnover of state-owned property, save for disputes from state purchase contracts, are also considered to be within the jurisdiction of arbitral tribunals.

The following disputes are non-arbitrable: disputes from the purchase of more than 30% of shares in a public joint-stock company, corporate disputes connected with challenges of non-regulatory acts and decisions of state authorities and officials, disputes from privatisations.

16.12.2015 — Russia Suspends Free Trade Treaty with Ukraine to Stop Flood of EU Goods

Russian President Vladimir Putin signed an executive order suspending the operation of the treaty on free trade with Ukraine from 01 January, 2016. The executive order was published on the President’s official website.

According to the executive order, due to exceptional circumstances affecting the interests and economic  security of the Russian Federation and requiring immediate measures, the President has resolved to suspend from January 1, 2016 the Agreement on Free Trade Zone with Ukraine, signed in St Petersburg on October 18, 2011.

Notably, the Ukraine-EU Association Agreement, which among other things provides for the creation of a free trade agreement,  enters in force on January 01, 2016. Russia had previously voiced concerns that the said agreement might result in the Russian market being flooded with EU goods. The Russian Government had repeatedly stated that Russia could cancel the free trade regime with Ukraine, in order to prevent the import of duty-free EU goods into Russia.

15.12.2015 — Legal Representation Solely by Bar Members - Russian Lawyers Discuss Legal Aid Reform

Radical reform in the sphere of legal representation in non-criminal cases is currently heatedly debated in Russia. Currently, in this sphere, individuals and legal entities can be represented in court by lawyers who are not advocates (i.e. members of the bar). It has been suggested that individuals and legal entities should be deprived of their right to chose a representative from non-bar members. Notably, the right to chose a legal representative has long been considered an essential element of legal capacity, which can only be limited in certain circumstances. Thus, save for legal entities and sole traders who are employers (which can be represented in court by their employees), all other legal entities and individuals might have to be represented solely by advocates.

The arguments of the proponents of the reform are as follows. Absence of state regulation in non-criminal legal representation resulted in the provision of legal services not only by lawyers who were considered forward thinkers, but also by those, whose aim was to avoid professional and ethical control.

It should be noted, however, that absence of the requirement that all lawyers should be members of the bar does not necessarily mean absence of state regulation. Lawyers who are not advocates are to comply with the laws of the Russian Federation. They are liable for services they provide both, under statute and in contract. Moreover, in certain cases stricter rules apply to relations between clients and non-advocates. Thus, such relations are governed by the consumer legislation, as opposed to the client-advocate relations not covered by it.

The other argument made by those, who are in favour of the reform, is that provision of legal aid solely by members of the bar is almost universal practice.

According to the authors of the relevant bill, only 10% of states regulate provision of legal services similarly to Russia, e.g. Albania, Congo, Kazakhstan, Kyrgyzstan, Moldova, Ukraine and Estonia. Notably, however, there are other countries, where non-members of the bar can provide legal representation in courts, e.g. Finland, Sweden, Poland, the Czech Republic. The bill also ignores that in many countries members of the bar are prohibited from representing clients in small claims cases, e.g. in Hong Kong, a number of US states (Michigan, California, Nebraska).

Opponents of the bill further note that its authors do not provide an explanation as to the limitation of legal capacity as discussed above. Moreover, they neither analyse the consequences of the reform, nor calculate the possible expenses to be incurred by the Russian Government should it be implemented.

15.12.2015 — Antimonopoly Compliance to Be Rewarded with Fine Reduction - FAS Discusses Proposal

The Federal Antimonopoly Service (FAS) has developed a project, under which implementation of special measures to prevent and reduce competition law violations is deemed to be a defence used to fully or partly discharge the defendant from liability. FAS is planning to introduce the so-called ‘antimonopoly compliance’, which will entail a reduction in fines, and can be included into the 5th Antimonopoly Package aiming at amending the Federal antimonopoly law.

According to the project, if a company independently implemented an antimonopoly compliance system, it can be fully released from payment of fines. If a competition law violation nevertheless takes place, such implementation can constitute grounds for reducing administrative liability.

Sergey Puzirevsky, FAS Deputy Head, noted that antimonopoly compliance does not mean that the company can engage in unlawful behaviour after having implemented the system. Thus, compliance implementation will not reduce liability if a company has repeatedly violated antimonopoly regulations, or if the breach was committed by the company’s head or owner in case of cartels.

Antimonopoly compliance may be of particular interest to large companies and natural monopoles. So far, only a few companies in Russia have implemented an antimonopoly compliance system.

FAS is currently discussing the percentage of fine reduction in antimonopoly compliance cases (e.g. a possibility of introducing a minimum fine of RUB 100.000, or decreasing the turnover fine by 1/8). It yet remains to be seen, which approach will be taken.

Opponents of the project claim that introduction of the antimonopoly compliance can lead to abuse: companies may try to forge relevant internal documents after having been charged with a competition law offence.

14.12.2015 — Compensation for Land Plot Seizure Payable Not Only to Owners But Also to Tenants - Case Law Digest

The Supreme Court has issued a case law digest on the seizure of land plots for the purpose of transport objects’ construction. However, the conclusions made by the Supreme Court can also be used in cases where land pots are seized for other governmental needs. Among other things, the digest says that not only the owner, but also the lessee is entitled to demand compensation for the seizure of a land plot. A land plot owner is deemed to have notice of the seizure provided that a notification was sent to his or her residential address.

The case law digest was published several weeks after changes to the legislation regulating the seizure of land plots had been made. Russian courts are to use the digest as guidelines in their practice.

The Supreme Court highlighted that rules providing for compensation for compulsory seizure of land plots are universal, and apply not only to land plot owners, but also to persons that have the right of perpetual use of a land plot (i.e. limited proprietary right generally granted to state and municipal institutions), lifetime ownership right with hereditary succession (i.e. limited proprietary right in state or municipal-owned land granted to individuals), as well as the right of gratuitous use of land plots.

The Supreme Court also noted that if a land plot owner avoids or refuses to receive the notification on seizure sent to his or her place of residence, the owner will bear all the negative consequences thereof.

The digest also how to determine the value of the seized land plot. Courts have encountered difficulties when applying para. 4 Article 57 of the Russian Land Code, which sets forth that the land plot value is to be calculated as of the day the state authority issues a decision on seizure. Thus, courts used to refer to the said value even if court proceedings were lengthy and the court decision was made a long time after the proceedings had been initiated. According to the Supreme Court, however, if a land plot owner challenges the price indicated in the decision on seizure, courts shall determine it based on the market value of the land plot at the time of the proceedings.

Moreover, the Supreme Court confirmed the conclusions made by the courts that the repurchase price shall be determined based on the land plot’s designated purpose before the seizure procedure was initiated.