Defense of civil rights is of fundamental importance in any jurisdiction. Over the last 10 years, considerable efforts have been undertaken in Russia to raise the efficiency of judicial means of defense, ensure transparency and openness of the Russian justice system. Skillfully applying remedies available for defense of violated rights and knowing specifics of how substantive and procedural law work may significantly increase your chances of their being fully and timely restored.
Trust, but Check You Must
An efficient application of a means of defense is conditioned on availability of relevant legal information, for instance, on institution of a legal entity’s liquidation or insolvency proceedings. Thus, collecting debts differs in some essential aspects depending on whether the debtor is a regular counteragent or a counteragent undergoing insolvency. In the latter case, a debt claim is filed and considered, as a general rule, within an insolvency case, otherwise the claim is left without consideration (Part 4, Article 148 of the Russian Arbitration Procedure Code (the “RAPC”)). Besides, institution of an observation period as part of insolvency proceedings against the debtor significantly limits the rights and powers of its sole executive body which may further result in invalidating a transaction.
This and other information may be accessed using public databases, thanks to which you may perform a background check on your prospective counteragent, and the only thing needed here is having its Primary State Registration Number (OGRN) or Individual Taxpayer’s Number (INN). E.g., websites http://bankrot.fedresurs.ru and http://www.kommersant.ru/bankruptcy contain free information on insolvencies of legal entities and bankrupt individuals, at https://egrul.nalog.ru an electronic excerpt may also be obtained free of charge from the Unified State Register of Legal Entities (the equivalent of a trade register in Germany) comprising information on a company address, its executive bodies, current status (either existing or being liquidated), etc. Information on a legal entity’s restructuring or liquidation is also available at http://www.vestnik-gosreg.ru/search/, and the website http://kad.arbitr.ru/ offers exhaustive data on current, pending and past cases in the area of commercial activities heard in commercial arbitration courts throughout Russia.
Judicial Defense and Court Jurisdiction
Defense of violated or contested civil rights is exercised through a general court, commercial arbitration court or tribunal having jurisdiction. Defense of civil rights in administrative proceedings may only be allowed in cases provided for by law, which flows from the provisions of Article 11 of the Russian Civil Code (the “RCC”). So, in Russia, there are two state justice systems: general courts and commercial arbitration courts which jurisdiction over a case is determined based on whether a dispute relates to business or other economic activity or not.
Alongside with the state regulated legal proceedings, the constitution of the Russian Federation permits a dispute between private parties to be resolved by an arbitration tribunal (Resolution of the Constitutional Court of Russia dated 26.05.2011 No. 10-П). If an arbitration agreement or an arbitration clause is there (Article 7, Federal Law dated 29.12.2015 No. 382-ФЗ «On Arbitration (Arbitration Tribunals) in the Russian Federation» (the “Law on Arbitration”). Effective from September 01, 2016), a court having jurisdiction will be deemed to be the relevant arbitration tribunal to which the parties voluntarily refer their dispute. Technically, the arbitration clause is autonomous in its nature, which means that when replacing parties in obligation (assignment of right, delegation of duty), the arbitration agreement is effective both in relation to the initial and new creditors and debtors (Part 10, Article 7 of the Law on Arbitration, Resolution of the Presidium of the Supreme Court of the Russian Federation dated 29.03.2012 No. 9094/11), and the deeming of a contract to be invalid does not entail the invalidity of the arbitration clause (Part 11, Article 7 of the Law on Arbitration, Paragraph 12 of Newsletter by the Presidium of the Supreme Court of the Russian Federation dated 25.02.2014 No. 16).
Thus, generally, any dispute between private parties may be referred for consideration to an arbitration tribunal having jurisdiction. However, it must be noted that disputes arising from state procurement contracts cannot be subjected to arbitration tribunals, which flows from the position formulated in Resolution of the Presidium of the Supreme Court of the Russian Federation dated 28.01.2014 No. 11535/13. Such position is explained, in particular, by the need to protect suppliers (vendors, contractors) under state procurement contracts from non-transparency surrounding the customer’s selection of an arbitration tribunal and specifying it in a draft supply contract which is a constituent part of tender documentation to be submitted.
General courts primarily hear cases involving individuals, due to which commercial disputes rarely come under their consideration (e.g., in situations where an individual is a guarantor under a contract, and in some other cases).
Commercial arbitration courts of the Russian Federation consider cases related to business and other economic activities and are generally deemed to be having jurisdiction over disputes involving foreign persons in the following cases:
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If a disputed legal relation is closely connected with the territory of Russia (the respondent is located or resides in Russia; a contract is performed in Russia; a foreign entity has a branch office or a representative office in Russia; and in other cases provided for by Article 247 of the RAPC). However, it must be kept in mind that even if a legal entity does not have a representative or branch office in Russia, a commercial arbitration court may recognize having jurisdiction over a dispute involving such legal entity, if it has a permanent establishment in the Russian Federation (Paragraph 9 of Newsletter of the Presidium of the Supreme Court of the Russian Federation dated 09.07.2013 No. 158);
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In case of their exclusive jurisdiction (disputes concerning privatization of state-owned property of the Russian Federation; disputes over rights to real estate located in Russia, and other disputes pursuant to Article 248 of the RAPC);
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In the presence of a signed agreed jurisdiction agreement (agreement on selection of a commercial arbitration court in Russia to consider a dispute which has already arisen or may arise in future (Article 249 of the RAPC).
Jurisdiction and forum is prescribed by imperative norms of law which does not allow parties to change it by entering into an agreement on jurisdiction (prorogation agreement) (Part 4 of Newsletter of the Presidium of the Supreme Court of the Russian Federation dated 09.07.2013 No. 158), i.e., for instance, by specifying the Supreme Court of the Russia as the first instance for considering a dispute. Besides, a court may independently determine proper jurisdiction if law is abused, e.g., when a creditor and guarantor coordinate their actions in order to change it (Paragraph 5 of Resolution of the Plenum of the Supreme Arbitration Court dated 12.07.2012 No. 42).
When entering into an agreement on jurisdiction, attention must be paid so that it does not change the exclusive jurisdiction of a foreign court (Article 249 of the RAPC), otherwise a Russian commercial arbitration court will not declare having jurisdiction to consider a dispute, same as in the presence of a legally valid agreement on considering a dispute exclusively by a foreign court (Paragraph 6 of Newsletter of the Presidium of the Supreme Arbitration Court of the Russian Federation dated 09.07.2013 № 158). In any event, objections as to the jurisdiction of an arbitration court must be raised prior to bringing the first claim on the merits of the case, that is, an assertion that a Russian arbitration court has no jurisdiction constitutes a circumstance preventing dispute resolution and must be made at a preliminary court hearing. If no such assertion is made, a party is estopped, i.e., loses the right to object to the jurisdiction of an arbitration court of the Russian Federation (Paragraph 7 of Newsletter of the Presidium of the Supreme Arbitration Court of the Russian Federation dated 09.07.2013 № 158). A similar rule applies to objections as to forum (Resolution of the Supreme Court of Russia dated 13.04.2016 issued in case No. 306-ЭС15-14024) and jurisdiction (Resolution of the Presidium of the Supreme Arbitration Court dated 23.04.2013 No. 1649/13). Simultaneously, if a dispute is subjected to a Russian court, procedural law does not allow disputes between Russian courts concerning domestic jurisdiction, so, if a general court refuses to consider a case due to lack of jurisdiction, then an arbitration court has to initiate proceedings without investigating into this matter (Ruling of the Supreme Court of the Russian Federation dated 09.06.2016 No. 301-КГ15-20284).
Likewise, entering into a prorogation agreement on selecting a Russian commercial arbitration court as the court having jurisdiction is allowed not only in cases where one party is a foreign resident, but also in a dispute between two foreign entities when they need to select a neutral court to resolve the dispute (Resolution of the Presidium of the Supreme Arbitration Court dated 21.02.2012 No. 13104/11). Apart from this, the issue on whether a prorogation agreement, pursuant to which disputes arising from parties’ legal relations must be heard by a court of the country of the party which in future will act as the claimant or the defendant, is allowed has been finally settled (Paragraph 2 of Newsletter of the Presidium of the Supreme Arbitration Court of the Russian Federation dated 09.07.2013 No. 158), that is, in situations when before a claim is filed by either party the court having jurisdiction has not been determined, but is determinable, based on the terms and conditions of the agreement entered into.
Means of Defending a Violated Right
Means of defending civil rights in Russia are specified by law: it is recognition of the right, recognition of a contested transaction to be invalid, application of the consequences of invalidity of a null transaction, invalidation of a resolution of a meeting, compensation of damages, recovery of a penalty and other means stipulated by Article 12 of the RCC. Other means are allowed if provided for by law. Such imperatively imposed limitation is conditioned by the fact that “the constitutional right to a judicial defense does not presupposes a possibility to arbitrarily select the means and procedure for judicial contest; they are determined based on the Constitution of the Russian Federation, federal laws» (Ruling of the Constitutional Court of the Russian Federation dated 24.11.2005 No. 508-О). From this it flows that parties may not either alter, for example, imperative rules concerning jurisdiction or venue of proceedings, or select a means of judicial defense which is not specified by law. However, court practice has somewhat softened the application of this rule. In particular, if when accepting a claim a court decides that the means of defending a right selected by the claimant cannot guarantee its restoration, in the course of pre-trial preparation the court will raise the issue of a legal qualification of the legal relation to determine what norms are subject to application when resolving a dispute (Paragraph 9 of the Resolution of the Plenum of the Supreme Arbitration Court of Russia dated 23.06.2015 No. 25).
Governing Law
Generally, the law of the country with which a legal relation complicated by a foreign element is most closely related is applied (Paragraph 2, Article 1186 of the RCC).
Pursuant to Paragraph 1, Article 1210 of the RCC, parties to a contract may when entering into the contract or thereafter agree on the law to be applied to their rights and obligations. Moreover, contracting parties may subject to a specific jurisdiction not only the contract as a whole, but its separate parts as well (Paragraph 4, Article 1210 of the RCC). And the formal approach as to how the parties word the provisions on the governing law is now minimized: it is enough to specify that “regulations”, “laws” of a certain state shall be applied (Resolution of the Presidium of the Supreme Arbitration Court of Russia dated 04.10.2011 No. 6417/11).
At the same time, the parties’ selecting a competent court for considering a dispute does not evidence automatically that the law of the forum court will govern. It means that an arbitration court of the Russian Federation selected by the parties as having competence, in the absence of an agreement on governing law, will primarily apply Russian rules of conflict of laws (Article 1211 of the RCC), not Russian substantive laws. However, if the parties refer to the same governing laws despite the fact that, pursuant to Article 1211 of the RCC, laws of another state are applicable, an agreement on governing law is deemed to be entered into. Relevant explanations are contained in Paragraph 13 of Newsletter of the Presidium of the Supreme Arbitration Court of the Russian Federation dated 09.07.2013 No. 158. It means that in the absence of the agreement on governing law, the parties must immediately claim the application of the substantive laws of the state to which laws Russian rules of the conflict of laws refer to.
Regardless of the law selected by the parties to be the governing law of their contract, super-imperative rules will apply (Paragraph 1, Article 1192 of the RCC). They apply to those parts of the contract which, due to the application of foreign laws, will actually violate them (Paragraph 12 of Newsletter of the Presidium of the Supreme Arbitration Court of the Russian Federation dated 09.07.2013 № 158). For instance, by circumventing the prohibition to enter into transactions resulting in establishment of control of foreign states over business entities of strategic importance set out by Federal Law dated 29.04.2008 No. 57-ФЗ «On Procedure for Foreign Investments in Businesses Having Strategic Importance for the National Defense and State Security».