08.09.2015 — Much Awaited Electronic Enforcement System of Moscow General Courts to Be Introduced by End 2016

Moscow courts will be equipped with an electronic system covering all the stages of the court procedure. The new court enforcement system is based on cooperation between courts and the Moscow Department of the Federal Treasury. Claimants will not have to queue, waiting for an enforcement act and thereafter submit it for enforcement. Under the new enforcement procedure, funds will be transferred from the defendant’s bank account to the claimant’s bank account within several days. It is planned that all Moscow courts will be equipped with the said system by the end of 2016.

The new electronic system has recently been presented in the Tushino Moscow District Court that mostly hears disputes between citizens. Court decisions will be enforced in the following way. After the court decision enters into force, it is electronically sent to the Moscow Department of the Federal Treasury. Having received the decision and notified the court, the Treasury enforces the decision, by transferring the money from the defendant’s account to the claimant’s account. Thus, the claimant will be able to receive the money within several days from the moment the court decision comes into force.

The Tverskoy Moscow District Court (which hears claims against state authorities), as well as the Moscow Arbitrazh Court (in cases where funds are to be recovered from the federal budget) have recently started working with the system as well. It is planned that all Moscow courts will be equipped with the system by the end of 2016.

08.09.2015 — Supreme Court: Clients May Not Unilaterally Terminate Work Contract if Defects in Works Are Correctable

The Supreme Court analyzed whether investment legislation is applicable to lease relations (case No. А68-12304/2013). The claimant leased a building complex from the Federal Agency for State Property Management and reconstructed it in accordance with the provisions of the contract. The claimant asked the court to recognize its ownership right with respect to a share in the building complex, insisting that investment legislation is applicable to lease relations. The Supreme Court refused to satisfy the claim, upholding the ruling of the first instance court.

Limited liability company “Antares” (Tula) leased an old building complex from the Federal Agency for State Property management. The contract provided that the tenant is entitled to tear down and reconstruct the building complex, as well as to improve the site. These works were performed by the tenant upon the landlord’s approval. The tenant constructed a modern sports complex on the site, thereby increasing the market value of the property from 937 thousand RUB up to 35,4 mln RUB.

“Antares” alleged that the funds used for reconstruction purposes were an investment and asked the court to recognize ownership rights with respect to a 99% share in the constructed building. The first instance court refused to satisfy the claim referring to the fact that the tenant is not entitled to receive ownership rights in the building in accordance with the lease relations established between the parties. This rule, according to the first instance court, also applies to the share in ownership rights. The court noted that the claimant should have a relevant right to be entitled to recognition of ownership rights. The court further refused to accept that the contract concluded between the parties was in fact an investment contract.

The appellate and cassation courts set the first instance court’s judgment aside, holding that the parties were in a de-facto investment relationship, which could have resulted in ownership rights recognition. However, the Supreme Court upheld the decision of the first instance court.

07.09.2015 — Supreme Court: Tenant Who Has Invested Money into the Leased Real Property May Claim Only Compensation But Not a Property Share

Often clients, having noticed defects in works during the acceptance procedure, refuse to sign relevant acceptance acts. In its Ruling dated 27.08.2015 the Supreme Court interpreted Article 753 of the Russian Civil Code, thereby clarifying when the client is entitled to refuse acceptance of works. If the result of the works can be used for the indicated purpose despite the defects or the defects can be eliminated, the client is not entitled to refuse acceptance. The Ruling of the Supreme Court is in line with the interpretation previously given by the Supreme Arbitrazh Court (predecessor of the Supreme Court).

In the present case (No. 305-EC15-6882) the dispute arose from a subcontractor agreement, which was concluded for the performance of works for a public authority (client). Limited liability company “TP HONKO” (subcontractor) and limited liability company “NKSPS” (general contractor) concluded a contract, under which the subcontractor undertook to deliver and erect a temporary structure from prefabricated components.

Having performed the works, the subcontractor sent an acceptance certificate (KS-2 form) and a certificate of the value of the work done and the costs incurred (KS-3 form) to the general contractor. The general contractor refused to accept the works, and the subcontractor filed a suit demanding payment for the performed works and payment of penalty (for untimely payment).

The Supreme Court cancelled the rulings of the first instance and appellate courts, and ordered a re-trial. It ruled that under para.6 Article 753 of the Russian Civil Code the client is entitled to refuse acceptance of works only if it discovers defects that make it impossible for the client to use the result of works for the purpose indicated in the construction contract and the defects cannot be eliminated by the contractor or the client.

If the result of works can be used despite the defects or the defects can be eliminated, the client is entitled to seek relief under para. 1 Article 723 of the Russian Civil Code:

  • free elimination of defects within a reasonable time;
  • a commensurate price reduction; or
  • recovery of costs incurred through elimination of defects, if the client is entitled to eliminate them under the work contract.

The said Ruling of the Supreme Court follows the Ruling issued by the Presidium of the SupremeArbitrazh Court that had confirmed that the mere fact that the works are defective is not sufficient to entitle the client to unconditionally refuse from acceptance of and payment for works (Ruling No. 12888/11 dated 27.03.2012).

07.09.2015 — Jail Sentence for Tampering with Evidence in Administrative Cases (Labor, Environmental Etc.)

A bill establishing imposition of a fine of up to 300.000 RUB, compulsory works of up to 480 hours or community service of up to 2 years for tampering with evidence in an administrative case has been recently introduced to the State Duma. The bill is aimed at filling the lacuna in the law, as currently the relevant liability is imposed only for evidence tampering in civil and criminal cases.

Although criminal liability is imposed for evidence tampering in civil and criminal cases, Article 303 ofthe Russian Criminal Code (“Tampering with evidence and results of investigative activities”) does not provide for liability for evidence tampering in administrative cases. This is especially relevant considering that the new Administrative Procedures Code, which will regulate procedural issues in disputes with state authorities, enters into force on September 15, 2015. Thus, a bill establishing imposition of a fine of up to 300.000 RUB, compulsory works of up to 480 hours or community service of up to 2 years for tampering with evidence in an administrative case has been recently introduced to the State Duma.

The said bill is generally approved by the Supreme Court and the Government; however they have different views on certain peculiarities. Thus, the Government proposes to penalize not only the participants in the administrative procedure, but also officers entitled to decide administrative cases and officers entitled to draw up administrative offence reports.

The Supreme Court, however, would like to ensure a differentiated approach to persons charged with evidence tampering in administrative, criminal and civil cases. The Court reminded that a differentiated approach is currently effective as to perjury. Administrative liability is provided for perjury, a willful false explanation by a specialist, a willful false report by an expert or a willful false translation in an administrative case or in a court enforcement procedure (fine of up to 1.500 RUB under Article 17.19 of the Russian Administrative Code). However, similar activities in a criminal or civil case entail criminal liability under Article 307 of the Russian Criminal Code (imprisonment of up to 5 years). It is yet to be seen whether the suggestions of the Government and the Supreme Court will be taken into account.