Russian Legal Forum. On competition of jurisdictions, rule-making SPAM and “force majeure” actions by the Cyprus authorities

The traditional Legal Forum, organized by the Vedomosti newspaper, was successfully held in Moscow. The first day of the event was packed: the experts discussed the problems of the “rule-making SPAM”, the Justice program recently adopted by the Government of Russia, the officials’ non-abidance by the law, the Cyprus crisis and the role of regulators in the creation a business-friendly environment.

The plenary session was moderated by Yury Pilipenko, Managing Partner of the Law Firm "YUST" and First Vice President of the Federal Chamber of Advocates. He started his welcoming speech with addressing the ever topical problem of competition of jurisdictions. According to him, Russian lawyers, even the most active ones, who give no heed to their own time, often become outsiders – Russian business prefers going to courts in London, including on the subject of Russian assets. In his opinion, the insufficient level of the permissiveness of Russian law and “the alleged mistrust towards the Russian legal system” are the causes of such situation. Ruslan Ibragimov, Legal Vice President of MTS, expanded on the idea of the State’s interest in the efficient system of guarantees of the investors’ rights protection, which may bring about the increased attractiveness of the jurisdiction. The expert explained that “the unification of the powers of the State and business will increase the efficiency of realization of [large-scale national] projects, introduce significant liquidity into circulation, and establish additional material preconditions for the success of the [international financial] center”. According to him, one of the main problems is the absence of a basic law on public-private partnerships, as, in his opinion, legal regulation of this sphere is basically reduced to application of the concessions law. Declarative acts, which are often contested by the prosecutor’s offices, are in force at the level of the units of the Russian Federation.

In his turn, Vladimir Pligin, Chairman of the State Duma Committee on constitutional legislation and construction of state, elaborated on the subject by pointing out that “the possibilities to influence the wording of the Civil Code articles are still very ample”. Active discussions delay the adoption of certain parts of the law. However, according to the Chairman, he has never heard any complaints of not having been listened to by anyone. If a foreign jurisdiction is chosen, one should acknowledge and correct his own drawbacks of the judicial system, rule-making and law application. Moreover, according to V.Pligin, “[one has to] once and for all discard the presumption of guilt of the business, the blaming trend of law protection and judicial practice”. The Deputy Minister of Justice of Russia Yury Liubimov supported the position by voicing his concern that many regulators “lock themselves in the internal context” and do not always understand that they are mistaken in believing that “the more they regulate, the more often they regulate, the more the situation improves”. The Secretary of State of the Ministry characterized that type of productive activity as “rule-making SPAM”, which causes actual losses to the economic growth of the country. Among the other problems of forming adequate legislation in the economic sphere, Y.Liubimov mentioned the low linguistic quality of the documents, “spontaneous legal regulation of very frequent changes to documents”, the numerous exceptions to rules, wittingly impractical solutions suggested to business and non-systematical raise of sanctions. Concluding his speech, he stated that the regulators forget: any provision, which imposes any limitations on business, causes additional expenses, including “economy-wide” ones. Therefore, in his opinion, it is essential to resolve the problems of proportionality and reducing the pace of legal regulation.

The following should be pointed out. Arthur Rokhlin, Partner of the Firm, speaking at the session on creation of the business-friendly environment, also shared his view on the current situation of the Russian law making bodies: “Legislation needs to be more complicated in order to decrease the burden over business” The current legislation has to be worked out in more detail, which is especially evident in the matters of proving. Changes should be made to material law as well as to procedural law. For example, pursuant to the law, antitrust authorities in most cases are not obliged to study the market, which means that they actually do not ascertain the economic effect of the business’s actions. Such ignoring is contrary to the very nature of antitrust legislation, which is based exactly on economy. Therefore, the economy subject’s influence over the competition is a priori impossible to ascertain without analyzing the market and the economic effect of his activities.

Igor Artemiev, Head of the Federal Antimonopoly Service, also shared his view on the current situation of the legislation. He informed that nowadays a modern legal organizational structure of competition protection exists, but “we always keep in mind that the situation of the competition in our country is very, very bad”. In his opinion, when a society is unable to influence the state institutions through institutions of its own, including commercial organizations, “limitation of the collective intelligence of the State”, and not limitation of competition, occurs. If a system, which is analogous to a “living mechanism”, loses feedback connections, it is doomed to degradation. I.Artemiev gave several examples of successful cooperation of his Service and business and explained the position of the service on the matter of parallel importation. In his opinion, those, who legalized, in the stead of foreigners, production in Russia without introducing the parallel importation regime, should be protected, and the international principle of exhaustion implemented for all the rest. He voiced a supposition that such position was slowly gaining the support of the majority of ministries and institutions within the Government of the Russian Federation. The Head of the FAS of Russia declared his displeasure at the prohibition to the Russian businessmen to legally purchase foreign products abroad, spend money and bring it to Russia for reselling, and suggested not mixing normal commodity turnover with counterfeit.

Lawyers of leading law firms also discussed tax consequences and legal risks concerning the permanence of funds and execution of transactions in the Cyprus jurisdiction and voiced a number of recommendations on restructurization of suspended transactions, choice of potential new jurisdictions, means of transfer, and perspectives of judicial disputes with counterparts.

Advocate Maxim Rovinskiy, Head of Tax and Customs Law Practice of the Firm, pointed out disruption of payments and loss of assets as the primary negative consequences of the Cyprus crisis. The main question regarding the violation of payment obligations, which concerns the clients, is: are the actions by Cyprus authorities force majeure? According to the expert, the matter will be settled in accordance with the respective wordings of the agreements. Usually, the wording of force majeure conditions exempts the parties from their obligations under the agreement if this was caused by the following, inclusive:

• Suspension of banking operations, which was beyond the party’s control;
• Nationalization, expropriation;
• Imposition of currency and banking limitations;
• Acts by any public authority, institution or official (whether or not acting within their powers).

Another problem, which needs resolution by, for example, the Stockholm Arbitration and the European Court of Human Rights, is about the writing-off of the Cyprus banks’ debts. Are the actions by the Cyprus authorities legal from the viewpoint of the laws of the Republic of Cyprus and the European Union on protection of the property rights? This question has already been asked in the claims and appeals to the Cyprus and international courts.

The experts recalled the famous case of the Kirovsky plant, when they discussed the means to improve the execution of justice in Russian courts. The HCA of Russia, in its final judgment on that case, concluded that the burden of proof was to be redistributed: the respondent, the general director of the plant, had to prove the absence of adverse consequences of the deal he had made. The case “Skakovaya-5” was mentioned as another significant precedent, dealing with the disclosure of information by off-shore companies. The final text of the judgment is not yet made, but the Definition says that “the burden of proof of existence or non-existence of circumstances, which protect the off-shore company as an independent subject of its relations with third persons, should be borne by the off-shore company”.

The problem of compensation of the costs of litigation caused much excitement. According to Sergey Pepeliaev, managing partner of “Pepeliaev Group”, one version says that such compensation is the restoration of violated rights (Article 35 of the Constitution) and is to be fully exacted from the losing party according to the gravity of the offence. And in large amounts, if necessary. Another version states that such compensation is required to safeguard the right to judicial protection and accessible justice (Article 48 of the Constitution), and that there should be limits. Sergey Saveliev, managing partner of “Nektorov, Saveliev and Partners”, remembered in this connection the judgment passed by the Judge Dmitry Dziuba of the Court of Arbitration of the city of Moscow, which could have become a precedent, had the higher instance not revoked it. The amount of the compensation exceeded 28 million roubles. The interesting thing is that the judge, “explaining” the litigation costs, referred to the position of the law firm in the Chambers & Partners international rating. At this point, the experts strayed away to the problem of evaluative materials in the court practice. Yuly Tay, managing partner of “Bartolius” Advocates’ Bureau, said that the arbitration system is working in a more stable manner and issues awards in a more confident way than it used to. However, according to him, one “should not get carried away”, otherwise there is a risk that the wide application of evaluative categories will mutate into arbitrariness of the courts. The issue of the courts’ specialization also became an object of the prominent advocates’ attention. The practice of separation of the judicial system is widely known everywhere in the world. According to Artem Kukin, Partner of the Firm, there are cases of delimitation of courts: from tax courts and “minor cases” courts in the USA and Canada to “women courts” in India. The main task of the specialization is to increase “the literacy of dispute resolution” in the branches of law, where a large volume of special regulation is present. By way of a positive example, the expert indicated the experience of “bankruptcy” courts. In the USA, approximately 90 courts dedicate themselves to the issues of bankruptcy of individuals as well as entrepreneurs.

The discussion on the international commercial arbitration in Russia involved representatives of stably functioning institutions and initiators of creation of new ones. Alexey Kostin, Chairman of the International Court of Commercial Arbitration (the ICCA) under the Chamber of Commerce and Industry of the Russian Federation, pointed out that, during the 20 years of his office, he never hindered the creation of similar structures, but still they do not appear in Russia. He proudly repealed a critical remark by explaining that the current regulations of the ICCA are convenient for the parties, including when the proceedings are done in foreign languages.

Yury Pilipenko, Managing Partner of the Firm and First Vice President of the Federal Chamber of Advocates, commented on the conflict between the Chamber of Advocates of the city of Moscow and the ICCA on whether or not the ICCA should be employed as a venue for disputes resolution (for more details see here and here).

He says that the official position of the FCA of Russia remains neutral. It is simply impossible to impose any arbitration reservation on the advocates, because “the legislation on the advocates’ activity is based on the fact that the advocate is an autonomous figure”, who follows the law in his activity. In his turn, Vladimir Hvaley, Vice President of the International Court of Arbitration of ICC, called the forum participants’ attention to the statistics. Accodring to him, the situation remains deplorable: there are few Russian arbitrators in international arbitrations, and disputes between Russian companies are settled by European courts, including for the reason of mistrust of the clients. This is precisely the reason for the creation of the Russian Arbitration Association (RAA), which is at the stage of registration. The bulwark of its operation is the law firms, which are collectively interested in quality settlement of disputes in Moscow and in stopping the “exodus” of the disputes abroad. The RAA Regulations are available here.

The IX Business Forum held a special guest session in London. The novelties to the Civil Code of the Russian Federation, M&A transactions with Russian assets, legal matters related to the integration of Russia to the WTO were on the agenda. One of the discussions was moderated by Artem Kukin, Partner of the Firm. The most avid discussion was about the adequacy of changes to the CCRF, and whether or not such changes are innovations or rewritten earlier norms. The session participants never reached any common conclusion but agreed that the changes were progressive and, in essence, beneficial to the further development of the Russian legislation. At the conclusion of the work of the guest session, the lawyers thanked the organizers for their daring new format of the business forum and proclaimed the experiment a success.

The release of the VIII Legal Forum of the Vedomosti newspaper is available here.