Dispute Resolution & Mediation Practice Newsletter (December, 2013)

Civil Code amendments on civil law institutions of private international law now in effect

Articles of the Civil Code (Section VI) were amended, effective 1 November 2013, to clarify the terminology used regarding private international law institutions. These amendments modify the following issues:

• Obligations of the shareholders of a foreign corporations or entities. The amendments affect a foreign entity that conducts its business within the territory of the Russian Federation. For these entities, Russian law applies to stockholders’ liability.
• The law applies to rights in rem. The right of ownership and other rights in rem to immovable and movable properties follow the law of the state in which the properties are located. The law of the state of registration determines rights to aircraft, ships, and space objects.
• Invalidity of legal transaction. A performed overseas transaction cannot be invalidated for non-compliance with the required form of the transaction, so long as the transaction is legal according to Russian Law. This rule applies so long as at least one of the parties is acting under Russian jurisdiction. As well, these amendments specify the rules that apply to the transactions relating to: the forms of agreement establishing legal entities; the execution of rights of the legal entities’ stockholders and management; the transactions that must be registered; and the forms for real estate transactions.

State Duma considers changes to Russian Federation’s judicial system

Draft Law No. 352924-6, “An Amendment to the Russian Constitution and the Supreme Court of the Russian Federation and the Prosecutor’s Office of the Russian Federation,” submitted by the President of Russia, addresses changes to the supreme judicial authorities of the Russian Federation. This bill does not change the lower court system; but it would abolish the Supreme Arbitrazh Court, and would grant to the Supreme Court the final jurisdiction in all disputes, except in cases that fall within the jurisdiction of the Constitutional Court.

In creating the new Supreme Court, amendments also will be introduced to establish procedural codes and to the Code of Administrative Offenses; however, the amendments have not yet been introduced in the Duma. As a result, the court merger may cause practical and procedural problems within the legal community.

On 22 November 2013, the bill passed its third reading without significant amendments and was sent to the Federation Council. At the preliminary consideration on 26 November, the acting committee of the Federation Council recommended approval of the draft law. Currently, the legislation is expected to be approved by the Federation Council and to be signed into law by the President of Russia.

New rules proposed for accreditation of foreign companies’ branches and representative offices

The Government of the Russian Federation has introduced Bill No. 365820-6 “On Amendments to Certain Legislative Acts of the Russian Federation.” This legislation would amend Federal Law No. 160-FZ (9 July 1999) to regulate the procedure of the accreditation of branches and representative offices of foreign entities that operate in Russia. The bill stipulates that foreign companies and representative offices can be registered upon the inclusion of the required information in the unified state register. The head of the branch or representative office must sign the application.

The bill allows business activity to be accomplished through accredited branches and representative offices, not only for legal entities, but also for any other foreign corporate or legally established entities, so long as they comply with the laws of their respective parent states.

The bill also stipulates that the duties on accreditation from the State Registration Chamber of the Ministry of Justice of Russia would be transferred to a federal executive body that will be determined by the Government. It is assumed that this body will be the Federal Tax Service of Russia. Neither the current legislation nor the bill addresses the entities or representative offices that do not hold accreditation.

If the bill is approved, most of its provisions will come into effect on 1 July 2014.

The Supreme Arbitrazh Court confirms its position concerning the problem of impartiality of arbitration courts

The Supreme Arbitrazh Court of the Russian Federation (SAC) has published on its web site the Judgment of the Presidium of Court No. 1567/13 dated 16 July 2013. The judgment does not address opportunities for revision that would be based on new circumstances.

OJSC Sberbank Rossii (a major Russian bank) filed the application with the arbitrazh court regarding the enforcement of its decision concerning debt collection, including foreclosure arising from a contract involving a non-revolving credit line. The Bank was the founder of the autonomous non-profit organization that had established the arbitration forum. The court of first instance approved the Sberbank’s demands, and the court of the cassation instance upheld the position of the inferior court.

Sberbank's opponent filed a supervisory (nadzor) appeal, alleging that the arbitration procedure did not comply with the principle of objective impartiality, because Sberbank is one of the founders of the non-profit organization that established the arbitration forum.

When analyzing the principle of impartiality of the arbitration court, the Supreme Arbitrazh Court found a violation of objective impartially on the grounds that one of the parties to the dispute is the indirect founder of the arbitration court. The Presidium of the Court classified this fact as a violation of the fundamental principles of Russian law and, therefore, refused to issue the writ of execution.

This judgment is another step in SAC’s fight against "pocket" arbitrations, and is especially notable because SAC confirmed its position with respect to a major bank.