The Supreme Court has declined the possibility of using ‘astreinte’ in tax disputes. ‘Astreinte’ is a new penalty for failure to enforce a court decision, introduced by the Supreme Arbitrazh Court in April 2014. The claimant lodged a non-property complaint against the tax authority, which failed to enforce a court decision, i.e. did not transfer a VAT reimbursement request to the treasury. However the Supreme Court decided that ‘astreinte’ can be substituted by interest payable for an untimely VAT reimbursement under Article 176 of the Russian Tax Code.

A new penalty for failure to enforce a court decision, which is equivalent to the French legal institutionknown as ‘astreinte’, was introduced by the Supreme Arbitrazh Court in April 2014. Considering that the institution was introduced relatively recently, court practice developing its meaning is of great interest.

In the case at hand the claimant lodged a non-property complaint against the tax authority, which failed to enforce a court decision, i.e. failed to transfer a VAT reimbursement request to the treasury. The Supreme Court in its Ruling dated 28.08.2015 No. 307-КG15-7139 dismissed the claim, holding that the so-called ‘astreinte’ shall not be payable in such cases, as it can be substituted by interest payable for an untimely VAT reimbursement under Article 176 of the Russian Tax Code. The Court concluded that interest payable to the taxpayer is sufficient to compensate financial losses incurred as a result of untimely VAT reimbursement.

The taxpayer argued that interest payable under Article 176 and ‘astreinte’ have different functions, and that such interest cannot fully compensate the taxpayer’s losses, especially considering the current economic situation. Nevertheless the Supreme Court disregarded the taxpayer’s arguments.

Notably, the Presidium of the Supreme Arbitrazh Court had previously satisfied a similar taxpayer’s claim, which, contrary to the case at hand, was a property-related claim to reimburse VAT (Ruling of the Presidium of the Supreme Arbitrazh Court dated 11.12.2012 No. 10237/04).

It is unclear why taxpayers’ legal rights differ depending on whether they lodge a non-property or a property-related claim to reimburse VAT.

The Russian Supreme Court confirmed that termination of a fixed-term lease agreement is an exceptional event. Even though early termination renders the fixed-term agreement meaningless, the parties are entitled to agree upon additional specified circumstances upon which early termination can be effected. If this is the case, the agreement has to be clear and unambiguous. Otherwise, courts will construe any opaque provisions in favour of keeping the agreement in force.

On August 21, 2015 the Supreme Court of the Russian Federation issued its full judgment regarding lease agreement termination based on specific circumstances agreed upon by the parties (case No. А08-7981/2013).

VTB Bank (hereinafter – the “Bank”) leased a building from OOO “Proektzhilstroy” (hereinafter – the “Landlord”) for operation of its branch in Belgorod. The lease agreement provided that it can be terminated upon occurrence of a closed list of circumstances provided for in the clauses 10.2 and 10.3. It further provided that termination based on other legal grounds not established in clauses 10.2 and 10.3 shall be carried out upon a 12-month’s notice (clause 10.5). The Bank sent a termination notice under clause 10.5, however the Landlord refused to terminate the agreement.

The first instance court decided in favour of the Bank holding that the lease agreement has been terminated. The Supreme Court, however, upheld the judgments of the appellate and cassation courts. The Supreme Court noted that early termination of the lease agreement can be carried out only if the exact circumstances triggering such termination are specified in the agreement. The provision at issue (clause 10.5) did not establish such circumstances, as it only provided for conditions upon which the right to termination can be availed of (i.e. sending a termination notice within a specified term); therefore it could not be relied upon by the Bank. 

Consequently, the parties had to be more specific and agree upon an exact list of circumstances that could entitle the relevant party to demand early termination under subpara. 2 para.4 Article 620 of the Russian Civil Code.

The Ministry of Communications and Media has decided against blocking Wikipedia. Previously it was reported that the Ministry could have blocked Wikipedia for violating Russian legislation. The Ministry had received a decision issued by the Chernoyarskiy district court of the Astrakhan Oblast prohibiting the dissemination of information on preparation of drug-containing substances published on Wikipedia within the Russian Federation.

The Ministry of Communications and Media of the Russian Federation (hereinafter – the «Ministry of Communications») stated that it had received a decision issued by the Chernoyarskiy district court of the Astrakhan Oblast prohibiting dissemination of information on preparation of drug-containing substances published on Wikipedia within the Russian Federation.

Based on the court decision the Ministry of Communications threatened to include the relevant webpage into the Common register of websites with prohibited information, should Wikipedia refuse to delete the said data. Notably, Wikipedia uses HTTPS protocol, which means that it is not possible to limit access to individual articles, and therefore the whole Wikipedia might have been blocked.

Nevertheless, despite statements of the Wikipedia’s administration to the contrary, it was later reported onthe official website of the Ministry of Communications that the article at issue was amended and the court decision was therefore enforced. Thus, the conflict seems to have been resolved.

In its Resolution No. 2-P dated 17.02.2015 the Constitutional Court of the Russian Federation noted that the Law “On the Prosecution Service of the Russian Federation” does not establish clear time limits of prosecutor’s investigations and therefore some of its provision shall be deemed unconstitutional. At the end of August 2015, further to the said Resolution, the Government introduced a new bill aiming at setting such time limits, both with regard to commercial and noncommercial entities. The proposed changes are paramount for the protection of rights of legal entities that are being investigated by the Prosecutor’s office.

In its Resolution No. 2-P dated 17.02.2015 the Constitutional Court of the Russian Federation noted that the Law “On the Prosecution Service of the Russian Federation” does not establish clear time limits of prosecutor’s investigations and therefore some of its provision shall be deemed unconstitutional. At the end of August 2015 the Government introduced a new bill aiming at setting such time limits, both with regard to commercial and noncommercial entities.

Among other things, the bill provides that the time limit of a prosecutor’s investigation shall not exceed 30 calendar days, which may be prolonged in exceptional cases. In accordance with the bill, in certain cases the prosecution investigation may be suspended for a term of up to 6 months.

The bill also regulates issues connected with the provision of information and documents upon the request of the Prosecutor. Thus, it provides that a legal entity shall provide the relevant information or documents within 10 days, however the term may be reduced in exceptional cases. Moreover, the bill establishes a list of information, which legal entities are not obliged to provide.

The proposed changes are paramount for the protection of rights of legal entities that are being investigated by the Prosecutor’s office. Legal entities and state authorities will have a better understanding regarding their rights and obligations during the prosecutor’s investigations. Hopefully the new bill will be passed into law in due course.

A company has recently won a case and addressed the Bailiff Service in order to proceed with the enforcement of the court decision. Although the company asked the Bailiff Service for information on the enforcement procedure on a number of occasions, it did not receive any comment with this regard and thus sought relief in court. The Supreme Court interpreted the Russian Civil Code literally, stating that legal entities are not entitled to recovery of moral damages. This decision seems to have changed the previous practice of Russian courts and is contrary to the practice of the European Court of Human Rights.

The practice of the Russian Arbitrazh courts on recovery of moral damages by legal entities has been rather ambiguous. Companies used to seek damages as a result of bailiffs’ omissions, i.e. failure to enforce judgments within the specified time limits. Notably, the European Court of Human Rights (hereinafter - “ECtHR”) has satisfied claims of legal entities for recovery of moral damages. Companies doing business in Russia have referred to the practice of the ECtHR when seeking relief from Russian courts, and some courts satisfied their claims. Nevertheless, some Russian courts refused to grant relief in similar cases.

A company has recently won a case and addressed the Bailiff Service in order to proceed with the enforcement of the court decision. Although the company asked the Bailiff Service for information on the enforcement procedure on a number of occasions, it did not receive any comment with this regard and thus sought relief in court. The courts of lower instances decided in favour of the company, claiming that lengthy uncertainty regarding the enforcement procedure could entitle the company to recover moral damages. The Supreme Court, however, disagreed with the said approach and interpreted the Russian Civil Code literally stating that legal entities are not entitled to recovery of moral damages.

The Ministry of Industry and Trade of the Russian Federation has introduced a bill prohibitingfixing rent payments payable by retailers in foreign currency. The bill has been developed due to the well-established practice of landlords to fix rent payments in foreign currency. In accordance with the bill, rent payments, as well as operation and maintenance costs shall be established only in Russian rubles.

The Ministry of Industry and Trade of the Russian Federation (hereinafter – the “Ministry”) has issued a bill prohibiting fixing rent payments payable by retailers in foreign currency. The bill has been developed due to the well-established practice of landlords to fix rent payments in foreign currency. As a result of this practice tenants bear all the risks connected with currency fluctuations.

In accordance with the bill, not only rent payments, but also operational and service costs of the relevant accommodation shall be established only in Russian rubles. Thus, the landlords will not be able to circumvent the prohibition by fixing additional costs in foreign currency.

The Ministry notes that the collapse of the Russian ruble entailed numerous problems for retailers, some of them even went bankrupt. Thus, before the ruble collapse rent payments generally amounted to 15-20% of the average retailer’s cost, whereas nowadays they amount to 20-40%.

Notably, foreign investors may be against the new bill, as it may impede their investment plans in Russia. 

Interestingly, similar regulations have been previously implemented in Ukraine. More than a year ago the Ukrainian Ministry of economics issued clarifications requiring rent payments to be fixed in the local currency. It remains to be seen whether the bill will be enacted into law in Russia.