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Newsletter. Law Update. January – February 2014

11.03.2014
Newsletter

Law Update
January-February 2014

Courts

Federal Law on the RF Supreme Court and Prosecutor’s Office as Amendment of the RF Constitution, dated February 5, 2014, No. 2-FCZ (the "Law on Amendment of the Constitution"), Federal Constitutional Law on the RF Supreme Court, dated February 5, 2014, No. 3-FCZ (the “Supreme Court Law”) and a number of other laws amending the laws on the RF court system (No. 4-FCZ of February 5, 2014, No. 1-FCZ of February 3, 2014 and No. 16-FZ of February 5, 2014) were adopted.

The changes were dictated by the abolition of the RF Supreme Arbitration Court (the “SAC”) and the former RF Supreme Court (the “SC”), and a creation of their successor – a “new” Supreme Court as a single body of judicial power authorized to consider civil (including economic), criminal, administrative and other cases irrespective of the parties thereto. The new Supreme Court will exercise judicial supervision over the activity of courts and form court practice. It is empowered to consider cases as the first instance, appeal instance, cassation instance and upon newly discovered circumstances. We note that the appeal courts and arbitration courts of federal circuits will continue to exist and will be renamed as circuit arbitration courts (arbitration cassation courts). The SAC and the former SC will continue to function until the new SC begins to act.

The initial composition of the SC comprising 170 judges will be formed by the Special Qualification Board for selection of candidates to the office of a Supreme Court judge, thereafter the SC judges will be appointed by the Council of the Federation on the presentation of the RF President. The new SC will be located in St. Petersburg and have a representative office in Moscow.

According to the authors of the said laws, the consolidation of two supreme courts is called to unify the law application practice and work out a single systematic approach to the consideration of cases involving individuals, legal entities and individual entrepreneurs.

The Law on the SC will come into force on August 6, 2014, i.e., upon expiration of 180 days following the effective date of the Constitution amendment, except for the provisions on the SC composition and procedure for its formation, and payment of a compensation to the judges of the SAC and the SC in connection with their early retirement, which provisions will come into force earlier. We note that the Law on the Constitution Amendment came into force on February 6, 2014.

Antitrust Laws

Federal Law on the Amendment of the Federal Law on Protection of Competition (the “Competition Law”), dated December 28, 2013, No. 423-FZ, came into force on January 30, 2014.

Article 30 of the Competition Law is recognized as lapsed, i.e., the obligatory notification of anti-monopoly authorities about performance of certain actions is excluded, which can be regarded as a rather notable easing of conditions for business. Now, it is not necessary to notify anti-monopoly authorities about a merger of commercial and financial organizations, and performance of certain transactions with assets (shares or property). Consequently, excluded are the negative consequences of a failure to notify anti-monopoly authorities, such as forced liquidation or reorganization, or invalidation of transactions with assets.

The Skolkovo Innovative Center

Federal Law on the Amendment of Article 21 of the Federal Law on the Skolkovo Innovative Center, dated December 28, 2013, No. 440-FZ, came into force on December 30, 2013.

The effective date of one of the requirements to the participants of the project for creation of the Skolkovo Innovative Center, namely permanent presence in the Skolkovo Center of a legal entity’s permanent executive body and other bodies or persons entitled to act in the name of the legal entity without power of attorney, is postponed for two years. The said requirement will only come into force on January 1, 2016.

Counteraction to money laundering

The Informative Letter of the Federal Service for Financial Monitoring, dated January 16, 2014 and entitled The Typical Issues of Application of Certain Rules of the Federal Law on the Counteraction to Money Laundering and Financing of Terrorism, dated August 7, 2001, No. 115-FZ, was published.
The Federal Service for Financial Monitoring (the “Rosfinmonitoring”) gave explanations concerning certain issues of application of the Anti-Money Laundering Law. Organizations carrying out operations with money or property must take justified and available measures to identify beneficial owners, using all available means. That rule extends to incorporated beneficiaries and individual beneficiaries capable of controlling the actions of the client (legal entity or individual). The ability to control the client’s actions means not so much the juridical possibility to influence the client’s decisions as the psychological and physical forcing of the client to enter into a transaction, as well as material and other dependence of the client on the beneficiary. It is noted that a person gaining a once-only profit, i.e., from the client’s concrete transaction, rather than from the client’s business as it is, may also be regarded as the beneficiary. If it is not possible to detect the beneficiary before the client is taken for servicing, Rosfinmonitoring recommends to record the corresponding financial operations and deliver the information to competent authorities, provided there is the risk of being involved in money laundering. Where no such risk exists, such information should be reflected in order to establish the beneficiary afterwards. Rosfinmonitoring keeps the List of organizations involved in the extremist or terrorist activity. Organizations (individual entrepreneurs) carrying out operations with money may block the clients’ money (other property) on the basis of the List. Persons such as head of a legal entity, ultimate beneficiary of the incorporated founder of a legal entity, or head of the managing company may be recognized as beneficiaries.

The Governmental Decree on the Approval of the Regulations on Registration of Organizations Dealing with Money or Other Property and Individual Entrepreneurs Whose Activity is not Supervised with the Federal Service for Financial Monitoring, dated January 27, 2014, No. 58.

The Decree approves the Procedure for registration by Rosfinmonitoring of organizations carrying out operations with money or other property and individual entrepreneurs whose activity is not supervised. Subject to registration are leasing companies, pawnshops, payment receipt operators, organizations and individual entrepreneurs acting as intermediaries in the sale of real estate, commercial organizations entering into financing agreements against assignment of a monetary claim as financial agents. Registration is to be conducted by a territorial organ of Rosfinmonitoring within 30 calendar days from the date of state registration of the legal entity or individual entrepreneur or from the date of the corresponding amendment of its constitutive documents. Upon the registration, the organization/individual entrepreneur is assigned a registration number.

Court practice

Ruling of the RF Supreme Arbitration Court Plenum, dated December 25, 2013, No. 98, on the Amendment of the Ruling of the RF Supreme Arbitration Court Plenum on Certain Issues of the Practice of Application of the Civil Code Rules on a Lease Contract, dated November 17, 2011, No. 73.

The SAC Plenum gave explanations concerning contracts for lease of real estate that were entered into on March 2 and March 3, 2013 for a term of at least one year and did not undergo state registration . Such contracts are valid and give rise to the obligations for the parties thereto, i.e., may not be arbitrarily changed by one of the parties, if the parties agreed on all material terms and conditions of the contract (including the amount of rental for use of the property), the property was delivered to the user and was accepted by it without any comment, and the contract is actually being performed by the parties. However, such lease contracts are not subject to the provisions on lease stipulating the right of first offer to enter into a lease contract for a new term, and on the survival of the lease contract in the event of a transfer of the property right to the leased property.

The SAC Presidium published Informative Letter, dated December 10, 2013, No. 162, and entitled The Overview of the Practice of Application of Articles 178 and 179 of the RF Civil Code by Arbitration Courts.

The SAC Presidium considered the issues of practice concerning disputes over validity of transactions made under the influence of a material delusion (Article 178 of the Civil Code), deceit, violence, threat or unfavorable circumstances (Article 179 of the Civil Code), and drew attention of the courts to the following. The list of circumstances in Article 178 under which a delusion is regarded as material is not exhaustive. The person entering into a transaction must exercise prudence common to the business practices of making such transactions. Delusion concerning only the legal circumstances of the transaction is not regarded as material and may not serve as a ground for invalidation of the transaction. Other remedies for assertion of the infringed right available to the plaintiff do not exclude the possibility of contesting the transaction on the grounds stipulated by Articles 178 and 179 of the Civil Code. The SAC Presidium also draws attention to the fact that Article 179 contains several independent grounds for regarding the transaction as invalid and that to prove the fact of having made the transactions on extremely unfavorable conditions is only required where the transaction is contested as a one-sided agreement and not in all cases stipulated thereby. The one-sided nature of the transaction can be revealed by an excessively high price as compared to similar transactions. Non-disclosure of the circumstances affecting the making of a transaction may be regarded as deceit exclusively where non-disclosure was willful, i.e., the person was obligated to disclose the circumstances with good faith required from him by the conditions of the business turnover. The necessary condition for contestation of a transaction as made as the result of deceit is the establishment of a causative link between the circumstance under which the transaction was made and the decision of the person to make the transaction. In other words, it is necessary to prove that in the absence of deceit in respect of the given circumstances the transaction would not have been made. Violence or a threat of violence as the ground for invalidation of a transaction may be proved even in the event of refusal to open a criminal case, e.g., by witness testimonies. Threat may manifest itself in the possibility to perform lawful actions that were undesirable for the aggrieved party. For example, a transaction may be regarded as invalid where under the threat of exercise of a certain right by the other party, the party made that transaction which later appeared to be unconnected with the exercise of the said right.
Ruling of the SAC Plenum on the Accrual and Payment of Interest on Claims of Creditors in the Event of Bankruptcy, dated December 6, 2013, No. 88.

The Plenum confirmed that the main claim of a creditor and the associated interest and penalties that originated before the bankruptcy should be treated equally. For the purpose of recording in the register, interest on the main claim amount is to be calculated as of the date of filing of a bankruptcy lawsuit, if a court judgment confirming the main claim orders recovery of the interest up to the date of the actual execution of the judgment. If a court judgment orders recovery of interest in a definite amount as of a certain date, only that amount is subject to recording in the register. The SAC’s opinion that the amount of the main claim which is not yet due (but acceptable under the bankruptcy law) should be decreased by the amount of interest accruing from the date of commencement of a supervision procedure until the due date (depending on the circumstances, on the basis of a bank interest discount rate or a middle rate of interest on short-term loans for replenishing current assets established at the place of the debtor’s location) seems doubtful. Besides, the SAC Plenum came to the conclusion that interest, penalty and other sanctions should not be charged during the supervision procedure. Instead, the so-called default interest should be charged at the Central Bank’s discount rate effective on the supervision commencement date, by analogy with the rules set for financial recovery, outside management and receivership procedures. We believe that the application of such analogy of law is not justified enough, because there does not seem to be a gap in the law, and also taking into account the specifics of the supervision and other bankruptcy procedures.