Dispute Resolution and Mediation Bulletin (Issue 2, 2019)

Among the judicial actions issued in March-April 2019, there are several that are of lasting interest.

1. Article 188 of the Administrative Proceedings Code of the Russian Federation (the APC) permits an appeal from a refusal to revoke a write of execution.

The applicant appealed from a refusal to revoke awrit of execution, the content of which, in the applicant's opinion, did not correspond to the resolution on the merits of the dispute.
The first appellate level dismissed the complaint on the basis that the complaint was filed against a judicial act that was not subject to appeal, citing Article 319 of the APC and clause 4 of the Resolution No. 36 of the Plenum of the Supreme Arbitration Court of the Russian Federation, dated 28 May 2009, On the Application of the Arbitration Procedure Code of the Russian Federation in Consideration of Cases in the Arbitration Court of Appeal.
The court of cassation did not agree with the opinion of the lower court and pointed out that the judicial practice is based on the fact that , in relation to Part 7 of Article 319 of the APC, it is possible to revoke the writ of execution in other cases not specified in this provision. Based on an analysis of Articles 272, 188, and 319 of the APC, in order to ensure the applicant's constitutional rights to judicial protection in the present case, he is entitled to appeal against the judicial act in the appeal and cassation order.

Moreover, to hold otherwise would deprive the applicant of the opportunity to object to a judicial act, both within the framework of the consideration of the case on the merits and when appealing against a judicial decision that ends the case on the merits; because the initial dispute has already been considered by the courts of three instances and the revocation of the writ of execution was of an independent nature.
It should be noted that the court took into account the specific circumstances of the case, namely the fact that the applicant did not have other procedural possibilities for exercising the right to file objections to the judicial act, as well as the fact that the applicant took measures to restore the violated rights, by applying for an explanation of the judgment that he was challenging.
(Decision of the Arbitration Court of the Moscow District, 19 March 2019, Case No. A40-207814/2017)

2. When considering the allocation of court costs in the event of a significant reduction in the amount of the plaintiff’s claim, the court should consider the issue of possible abuse by the plaintiff.

The plaintiff filed a claim to recover compensation under a contract of compulsory vehicle liability insurance contract. During the consideration of the case, a forensic examination was conducted, which resulted in the plaintiff reducing the claim to one-fourth of its original amount.
The court of first instance partially satisfied the claim and applied the provisions of the procedural law on the proportional reimbursement of court costs in the allocation of court expenses.
However, the appellate instance amended the decision, stating that the clarified claims were fully satisfied and that, therefore, the rules on the proportional distribution of court expenses are not applicable.

The Judicial Collegium for Civil Cases of the Supreme Court of the Russian Federation overruled the lower appellate decision. It held that the distribution of court costs should be based on the amount of the claims supported by the plaintiff at the time of the decision in the case. At the same time, the reduction of the claimant's claims, as a result of obtaining evidence of the obvious unreasonableness of this amount originally claimed may be recognized by the court as an abuse of procedural rights and could lead to a refusal to recognize the costs incurred by the claimant as necessary in full or in part (citing Part 1, Article 35 of the Civil Procedure Code of the Russian Federation and Parts 6 and 7, Article 45 of the CAS) or the imposition on the claimant of the legal costs incurred by the defendant (Article 111 of the APC).
In the present case, the plaintiff’s claim for the insurance payment was based on the expert opinion prepared by the claimant. According to the results of the forensic examination, a part of the damage to the car was caused by a non-traffic accident, in connection with which a lawsuit was filed. After the court received the opinion of the forensic expert, the claimant petitioned to reduce the amount of the claim, taking into account the excluded damages. Thus, the court obtained evidence of the apparent groundlessness of the original claims, which indicates a possible abuse of the procedural law on the allocation of costs.
The case was remanded to consider the issue of the existence of abuse in the behavior of the plaintiff.
(Decision of the Judicial Collegium for Civil Cases of the Supreme Court of the Russian Federation, 12 March 2019, Case No. 14-KG18-57)

3. The Constitutional Court has ruled that Paragraph 1 of Part 4 of Article 392 of the Civil Procedure Code of the Russian Federation, does not contradict the Constitution of the Russian Federation, since it does not prevent the revision, due to new circumstances, of a decision of a court of general jurisdiction that has entered into legal force, upon an application by a party in interest.
The Constitutional Court considered the issue of constitutionality of Article 392 of the Code of Civil Procedure in the sense in which this article prevents the appeal of a court decision that has entered into force due to new circumstances in connection with the adoption of another decision during administrative court proceedings by which the court judgment was declared invalid.
The position of the courts with respect to the applicant was that by the decision on the administrative case, the provisions of the regulatory legal act were declared invalid only for the future and, therefore, such a decision, within the meaning of Article 392, cannot affect the legal relations arising while these provisions are valid. It is not therefore a a new circumstance for the purposes of revising the decision.

Nonetheless, the Constitutional Court pointed out that the administrative plaintiff, who was at the same time a participant in the civil case, has a legal interest in the consideration of the merits of his application to challenge the provisions of the normative legal act in this civil case. In addition, by applying for judicial protection in the course of the administrative proceedings, a person makes efforts to defend his position, as well as bears the time and financial costs (e.g., for the payment of state duty when filing an administrative statement of claim and complaint against the decision; and the payment of the services of a representative who meets the requirements of Article 55 of the CAS), and therefore has reasonable grounds to expect that the decision to satisfy his claim will contribute to the further protection of his property and other rights.
Accordingly, the established practice of arbitration courts, by which the recognition, at the request of an interested party during the course of of administrative proceedings, of a normative legal act applied by the arbitration court in a case in which that party participated, and which is inoperative since the entry into force of the decision, is not a basis for review based on new circumstances, and does not prevent the restoration of violated rights of such an interested party, even though the party has already taken other although it has taken comprehensive measures to protect them.
To do otherwise, when the violation of a party's rights by the application of a normative legal act in a civil case that has already taken place, would make it impossible for that party to derive favorable legal consequences from the court decision, which satisfied his administrative statement of the claim (even if held to be invalid only in the future), and would devalue the right to appeal.
(Decision of the Constitutional Court of the Russian Federation, 11 January 2019, upon the complaint of citizen A.M. Andreeva)

4. Courts of higher instances decline to consider alleged legal abuse and refusal to protect the interests of minority shareholders in cases to invalidate the decisions of the general meetings of a public joint-stock company.

The plaintiff (a shareholder and a member of the Board of Directors of the defendant, a joint-stock company) filed a lawsuit against the Company to invalidate the decisions of the General Meetings of shareholders to approve major transactions. The plaintiff alleged that the said transactions were not major, were not subject to approval, and, accordingly, resulted in the decisions that went beyond the legal competence of the General Meeting, and therefore were null and void.
The first instance ruled that the contested transactions were large, as their subject matter exceeded 50 percent of the book value of the company's assets. However, the appellate court disagreed. The appellate court recognized that the transactions did not meet the qualitative criterion of largeness, according to which the transactions were not major ones. The criteria should have a quantitative aspect, i.e., a significant size; but the evaluation should also include qualitative factors such as whether the decision was made in the ordinary course of business, and whether the transaction will lead to the termination of a company's activity, a change in its type, or a significant change in its scale (citing Clause 4 of Article 78 of the Federal Law of No. 208, 26 December 1995, On Joint-Stock Companies).
The Court of Cassation upheld the conclusions of the appeal.

It is interesting that courts at all levels have not studied and have not reflected in their decisions an assessment of the actual circumstances of the dispute, which obviously testifies to the existence of a corporate conflict between a company and its minority shareholders (third parties), who appealed to the company with demands to repurchase shares after making contested decisions. In this case, the Company failed to fulfill this obligation under the legislation, and instead, the Director of the Company petitioned the court to invalidate the decisions, in order to prevent minority shareholders from exercising their right to demand the redemption of shares.
At the same time, as noted by third parties, the plaintiff’s actions confirmed that the transactions were large for the Company. At the meetings of the Board of Directors, he voted for the approval of individual guarantee agreements as major transactions and did not vote against the issue of approval of contracts for the General Meeting of shareholders, chose the option of "abstaining."
However, the courts confined themselves only to the issues of transaction size and the right of the plaintiff to claim as a shareholder who did not take part in the meeting, without taking into account the inconsistency of the plaintiff’s conduct, as well as the fact that the case is of a technical nature, in which the parties create the appearance of a dispute to obtain the necessary judicial decision. The cassation court interpreted the arguments of third parties about the inconsistency of the plaintiff’s actions as circumstances that have no legal significance, since the qualification of the transaction as a major one does not depend on the subjective opinions of individuals.
This case illustrates the unwillingness of the courts to identify bad faith in the actions of the parties to the corporate conflict, and represents a non-application of the estoppel principle. It also illustrates their inflexible approach to protecting the rights and legitimate interests of minority shareholders.
(Decision of the Arbitration Court of the Moscow District, 30 April 2019, Case No. A40-99921/2018)