The reform of the Civil Code of Russia imbued the good-faith principle with a new life

Anna Kotova-Smolenskaya, Associated Partner of the Law Firm "YUST", Advocate, Doctor at Law.

The new edition of the Civil Code of the Russian Federation expanded the list of civil law principles to include good faith. Despite a certain declarative nature of the principles (which is, in general, may refer to any branch of law), they are indeed applied in concrete practice. What consequences – positive or negative – will cause the unconditional presumption of good faith?

Since the moment of adoption of the current Civil Code of Russia until the moment of enactment of amendments thereto on March 1^st of 2013, the good-faith matters in the general provisions section were only governed by two provisions: clause 2 of Article 6 of the CCRF, which determined the application of the civil legislation by analogy, and clause 3 of Article 10 of the CCRF, laying the boundaries of exercise of civil rights.

Amendments to the CCRF will make the good faith more popular

The previous legal provisions endowed good faith with the role of a redundant mechanism of fixing rights and obligations of participants of civil relations. That is, previously, the issue of good faith was to be referred to, when the respective rights and duties were not directly stipulated by law.

It has to be acknowledged that the good-faith principle, in this context, was hardly ever applied in practice.

The then current norm of clause 3 of Article 10 of the CCRF linked the good faith of civil relations participants only to the cases, when the law directly fixed the dependency of the possibility of protection of civil rights on the measure of good faith those were exercised with. Such cases are not than numerous.

In this context, the principle of good faith, for example, was applied in the evaluation of legality of actions of the persons acting on behalf of a legal entity (Article 53 of the CCRF) as a basis for purchase of an ownership title for the reason of usucapion (Article 234 of the CCRF) as well as a condition of protection of the owner’s rights in a vindication claim (Article 302 of the CCRF).

So it happens that good faith in both norms was regarded as a subsidiary category, not as a rule, which is universal for all parties to civil relationships.

And good faith has always been doctrinally considered as a basic principle of civil law, but, as it was not indicated as such in laws, the courts did not employ it accordingly in settling specific disputes.

Moreover, such approach to the wording of the good-faith principle stimulated the consideration of many disputes by the courts, where the actions of the parties were contested from the viewpoint of the formal non-conformity to certain legislative requirements, while the issues of good faith were completely ignored.

That is exactly why we have any number of examples of court disputes to rule transactions not executed or invalid for formal (one may even say - for convenience - invented) motives, the interest to which was lost by one party for some reason. This, in its turn, due to its generality, destabilizes the civil turnover as a whole.

The Concept of development of civil legislation correctly mentions this circumstance; the respective corrections of the legislation were suggested in the draft amendments to the CCRF, and are already adopted as a law (the Federal Law No. 302-FZ dated 30.12.2012) in the part of general provisions.

One may also state that the good-faith principle has been lately arising in court disputes with increased frequency, due to the trend of the two or three last years that the resolution of a specific dispute ever more depends on the answer to that question.

The new edition of the CCRF fixes good faith as a rule of conduct

The first package of amendments to the CCRF entered into force on March 1st of this year (except several norms). According to it, the good-faith principle is established as one of the basics of civil legislation – in clauses 3 and 4 of Article 1 of the CCRF (new edition).

The above-mentioned amendments impose the duty to act in good faith on all parties to civil relations in establishing, in exercising and in protecting civil rights, and prohibit extracting benefits from their illegal of ill-faith conduct. Due to the changes made the good-faith principle was fixed as a norm – the good faith conduct became a rule.

The next novelty is the following: Article 10 of the CCRF, which was amended in an especially significant way, now stipulates that the good faith of parties to civil relations is presumed in all cases. This means that the evaluation of the good faith of the parties’ actions is no longer conditioned by the cases fixed in the law. Also, this provision is important from another point of view: as the parties’ good faith is presumed, neither party is required to prove its good faith in the case of a dispute. The other party bears the burden of proving the ill faith of its opponent. The willingly ill-faith exercise of civil rights is classified under the new edition of Article 10 of the CCRF as abuse of right. Refusal of protection of rights or other measures fixed by law are the legal consequences of that.

Amendments to the law did not eliminate the vagueness of the “good faith” term

The amendments enacted to the law in the part of regulation of the good-faith issues obviously must expand the application of this basic principle in practice.

However, we believe that the absence of any criteria of good faith in the law opens wide possibilities for the discretion of the judges when interpreting the term.

The analysis of the current court practice shows that the good faith of the parties to each case was evaluated along with an entire set of other circumstances, which had existed in the framework of their relationship.

And so it happens that every executed court act, which evaluated the parties’ good faith, as a rule, has a unique set of studied circumstances. Therefore, it likely cannot be applied as an example in other situations, including for preventive purposes.

The inclusion of the criteria of good faith in the law would help the parties to civil relations as well as the courts to orientate themselves when settling certain disputes.

For example, the person’s awareness of violations another person’s rights or legal interests as a result of certain actions (inaction) may be considered a criterion. On the basis of this criterion, such actions (inaction) by the person are suggested to be considered good-faith, if such person, conducting such actions, did not know and had no reasonable motive to believe that such actions would violate other persons’ rights or legal interests. In particular, this criterion appears universal if applied to the executed court acts.

The full version of the publication is available in the “Economy and Life” newspaper, No. 11/2013. –