Dispute Resolution & Mediation Newsletter (Issue 3, 2015)

The State Duma adopted new simplified procedures in civil and arbitration proceedings

On 22 May 2015, on the first reading, the State Duma adopted two bills that introduce simplified procedures into the Code of Civil Procedure of the Russian Federation and to the Arbitrazh Procedure Code.

A simplified procedure is an adjudication conducted without the parties present during the court’s review of the documentary matters they had submitted. This arrangement is possible at the request of one party and with the consent of the other.

Under this new legislation, the courts will be able to apply a simplified procedure to claims of not more than RUB 500,000 related to the recovery of money, the recovery of property, and the recognition of ownership. The plaintiff is to submit documentary evidence of the monetary obligations of the defendant. The defendant must recognize the admissibility of these documents, but this will not constitute an admission of liability. The courts may not use a simplified procedure in matters connected with state secrets, disputes involving the rights of children, or cases arising from separate proceedings.

Since simplified procedures are intended to accelerate the judicial process, the legislation requires tight deadlines. Parties must submit evidence and objections within 15 days from the filing of the claim, and they will have 30 days to provide additional documents.

The court will have 15 days to review the case. Judges will reserve the right not to prepare a rationale for the judgment if the parties do not ask them to do so. Judges must receive requests to prepare a rationale within five days from when the judges sign the operative part of the decision in the case.

The legislation introduces, for the first time, a cap of RUB 500,000 on the scope of an injunction. The State Duma Committee on Civil, Criminal, Arbitration, and Procedural Legislation has staunchly criticized this proposal. The committee members view restriction as incomprehensible and unnecessary. They also claim that it could lead to an increased number of cases that the courts must handle in the conventional manner.

The full text of the legislation is available (in Russian) here.

The Supreme Court introduced uniformity in court challenges to cadastral values

On 30 June 2015, the Supreme Court of the Russian Federation adopted Plenary Resolution No. 28, On Some Issues Arising from the Consideration of Court Cases Challenging the Results of Determination of the Cadastral Value of Real Estate. A large number of lawsuits challenge the cadastral value of property, but until now, there was no uniform legal guidance on how the courts should handle them.

Plenary Resolution 28 covers a many types of challenges to the administrative determination of the cadastral value. It does not apply to cases that simultaneously involve other issues, such as taxes or lease payments that are based on a revision of the cadastral value. Applying to the court to revise the cadastral value is possible within five years from the date a cadastral value appears in the State Real Estate Cadastre. (SREC).

One of the most important clarifications in the Plenary Resolution concerns the revision of historical records in the SREC. If the court determines that the archive cadastral value that an applicant is not useable, the court will terminate the proceedings. This does not prevent the court from considering, on its merits, a new cadastral value submitted during the case.

The text of Plenary Resolution 28 is available (in Russian) here.

The Supreme Court interprets Part I of the Civil Code

On 23 June 2015, the Supreme Court adopted Plenary Resolution No. 25, On Some Issues about Applying the General Provisions of the Civil Code of the Russian Federation. The judges emphasized that the goals of the Plenary Resolution are to eliminate contradictions in practice, reinforce standard approaches, and track the consistency of judicial practices in controversies arising from amendments to the Civil Code. The Plenary Resolution focuses on Part I of the Civil Code.

Good faith

The most anticipated explanation involves the principle of good faith. A court generally operates on the presumption of good faith, until proven otherwise, but a court should not take a passive stance in this regard. On its own initiative or at the suggestion of one of the parties, a court may recognize behavior as unscrupulous. Judges generally have supported this interpretation of the powers of the Supreme Court, but some practitioners believe that it violates the principle of adversarial proceedings, under which parties themselves must bear the risks of acceptance or rejection of allegations of an opponent's misconduct.

Calculation of damages

Clarification of the adjudication of damages is an important part of the Plenary Resolution. Courts should establish the monetary amount with a reasonable degree of certainty. The courts cannot deny a claim only because of the inability to establish precise amounts. Courts already follow this approach in deputes over intellectual property rights.

The Supreme Court allows less precision in the calculation of lost profits. Recovering lost profits has been uncommon in Russian law because of the difficulty of proving exact costs and the speculative nature of the concept. The Plenary Resolution confirms that parties have a right to compensation for the loss of profits. In calculating lost profits, courts must understand that the calculation, “as a rule, is approximate and probabilistic in nature,” and the fact that the claim is approximate cannot serve as grounds for rejecting it.

The Supreme Court emphasized, its statement on compensation for the breach of exclusive intellectual property rights, that a court must consider the plaintiff’s evidence of the total estimated volume of counterfeit goods. If the defendant does not deny the calculation, the court must award the plaintiff the full recovery of the amount. “The real damage includes not only the actual costs incurred but also the costs that this person must make to restore their violated rights.” Damages also may include any resulting loss in the value of the property.

Nonprofit organizations

The Supreme Court affirmed that nonprofit organizations that carry out income-generating activities are subject to the same provisions that apply to persons engaged in entrepreneurial activity.

Corporate actions

The Plenary Resolution adds an interesting perspective to the definition of “decision of assemblies.” The Supreme Court understands the concept to include: the decisions of the civil legal community (e.g., decisions of collegial bodies of the legal entity, meetings of members or shareholders, and meetings of boards of directors); the decisions of the creditors and the creditors’ committees in bankruptcy proceedings; and the decisions of partial owners. According to some experts, such a unification of the conceptions behind these discrete actions could result in the complicated application of an increased number of special rules, as well as controversial practices in the courts attempting to apply the guidance that the Plenary Resolution offers.

Earlier drafts of Plenary Resolution 25 examined how to resolve cases involving intractable corporate conflicts. The final version of Plenary Resolution allows the forced liquidation of an organization in the event of such a deadlock or long-term corporate conflict.

Commercial transactions

A large portion of the Plenary Resolution concerns commercial transactions. Interpreting Paragraph 3 of Article 157 of the Civil Code, the Supreme Court pointed out that the law does not prohibit the conclusion of transactions that have been suspended, pending a specified action on the part of one or more of the parties. One example is a supply contract that a party conditionally executes, based on a bank guarantee of the buyer’s obligation to pay for the goods. Another example is a lease contract for a newly constructed building, under the condition that a landlord will register the property rights. In all situations, the parties must act in good faith.

The Supreme Court maintained its previous positions on the nullification of transactions with illegal conditions. A transaction that violates the requirements of the law or other legal acts is voidable under Section 1, Article 168 of the Civil Code. A transaction that is illegal and “infringes public interests or the rights and legitimate interests of third parties” is invalid, or void ab initio. The Supreme Court interprets the “public interests” to include “the interests of an indefinite number of people, safety of life and health of citizens, as well as defense and security, along with environmental protection.”

According to most experts, the Plenary Resolution incorporates “humane and fair ideas,” reflects a systematic approach to the interpretation of the Civil Code, and does not contradict it. The guidance should also have a positive impact on legal practice and help to stabilize economic relationships, and support the stability of civil legal matters and economic relationships.

The full text of Plenary Resolution 25 is available (in Russian) here.