17.03.2017 — Supreme Court: During Privatization of Land Plots By Building Owners Ratio Between Area of Building and Land Plot Shall Be Considered

The Supreme Court declared that privatization of the land plot by the owner of the building, located on that land plot, via a simplified procedure violates antimonopoly laws. The reason behind this judgment was that the difference between the area of the land plot, where the building was situated, and the total area of the land plot was significant (more than 10 times). In the view of the Supreme Court, the purchase of the whole land plot by the owner of a small building via a simplified procedure provided by the Land Code is an evasion of mandatory tender procedure. 

In the dispute, adjudicated by the Supreme Court, the company leased the land plot from the municipal authorities for the purpose of construction of business center. After the construction was completed, the company as the owner the building purchased the land plot from the municipal authorities via a simplified procedure, provided by the Land Code, without tender.

But since the area of the land plot was more than 10 times bigger than the area of the business center, situated on that land plot, the Federal Antimonopoly Service considered that both the municipal authorities and the developer violated the antimonopoly legislation. The developer contested the decision of the Federal Antimonopoly Service in court. The courts of the lower instances followed a formalistic approach when interpreting the Land Code and stated that the law does not stipulate the requirements for the ratio between the area of the purchased land plot and the building situated on it, and declared the decision of the Federal Antimonopoly Service illegal.  

Still, the Supreme Court ruled that the lower courts’ logic was wrong. Among other things the Supreme Court draw the lower courts’ attention to the recent changes to the Land Code, which limited the area of the privatized land plots, what brings to the conclusion that certain restrictions shall be observed in the course of privatization. Such approach of the Supreme Court makes it impossible to evade law by interpreting exceptions in a broad way. In practice it means that the public authorities now will have to justify the area of the land plot, which is privatized without tender procedures in each particular case. 

16.03.2017 — S&P Improved Russia’s Rating Outlook

Standard & Poor's Global Ratings (S&P) improved Russia’s sovereign credit rating and the ratings of the largest Russian companies from “stable” to” positive”.The review of Russia’s rating outlook reflects the expectations that GDP growth will return to positive trend and the economy will continue to adapt to the relatively low oil price environment, while maintaining its strong net external asset position and comparatively low net general government debt in 2017-2020.

Subsequent to the review of the credit rating on 17 March, later – on 22 March the improvement of the forecasts for the largest Russian companies in international and national currencies followed. The positive changes affected Gazprom, Rosneft, Russian Railways, MTS, Megafon, Transneft, Rosseti and other large Russian companies. 

15.03.2017 — Supreme Court: Mandatory Pre-Trial Dispute Settlement is Not Applicable for Enforcement of Arbitral Award

Recent amendments to the commercial procedure legislation, which introduced the requirement on mandatory pre-trial dispute settlement procedure in the majority of disputes, caused doubts on whether this requirement is applicable to the claims of enforcement of arbitral awards. The Supreme Court’s position is that mandatory pre-trial procedure is unnecessary in such cases.

Please be reminded that on 1 June 2016 the amendments to the Code of Arbitrazh Procedure entered into effect. The amendments introduced the requirement on mandatory pre-trial dispute settlement in the majority of disputes with very few exceptions. The claims for enforcement of arbitral awards were not expressly provided in the exceptions list, what gave rise to difficulties in the practical application of this provision in the above-mentioned cases.

In a case, adjudicated by the Supreme Court, Sberbank claimed that the state court issued an execution writ for the decision of an arbitral tribunal, but the claim was dismissed because the claimant had not observed the mandatory pre-trial procedure (cases No. А60-33490/2016, № А60-30619/2016). However, the Supreme Court overruled the decision of the lower courts and indicated that in relation to the claims concerning enforcement of arbitral awards special rules should be applied (Chapter 30 of the Code of Arbitrazh Procedure), and therefore, the provisions of Article 129 of the Code of Arbitrazh Procedure are not relevant.

The main argument of the Supreme Court was that by having initiated the arbitration proceedings the parties have abandoned the opportunity to solve the dispute in out of court procedure. Moreover, when the dispute has been adjudicated already by the arbitration tribunal, the claimant does not initiate a new dispute, but merely asks that the state court issues an execution writ for the final and binding decision of an arbitration court.

14.03.2017 — Government Has Prepared a Bill On Syndicated Lending

In the context of preservation of the international sanctions against Russia the Russian Government implements measures to develop new means to attract long-term financing to Russian economy. One of such measures is the preparation of the bill on syndicated lending. It is expected that the legal regulation of this matter will increase the amount and promote availability of syndicated credits on the Russian market, and will also mitigate the respective risks of banks and other parties to such transactions, that will lead to more extensive use of syndicated lending in Russia.

At the present moment there is no uniform regulation of syndicated lending in the Russian law. Therefore, each of these projects called for preparation of agreements on a case-by-case basis under Russian or English law – when western banks were involved in the project. However, after the sanctions were implemented resorting to effective remedies under foreign law may be troublesome. Bearing this idea in mind, the Russian Government decided to develop a number of measures aimed at creation of effective system regulating syndicated lending under the Russian law.

In particular, the bill suggests that a new special article is introduced into the Law “On banks and banking”, and that a number of laws are amended in connection with the registration of the pledge holders’ rights. Most significant changes include implementation of special regulation of the “credit agent” status (this is one of the creditors or a third party, who will make all the calculations in respect of allocation and repayment of credit), and the “pledge administrator” (who will administer the pledged property). The bill also regulates in detail the procedure of pledge enforcement, including the situation when the debtor becomes bankrupt. In the latter case the payments from the bankruptcy estate will be first made to the insolvency officer, who will later distribute the funds received in accordance with the terms and conditions of the syndicated credit agreement.

According to the experts’ estimates, the suggested amendments are among the most sought-after in the banking sector and shall promote the development of syndicated lending in Russia. 

13.03.2017 — Supreme Court: Illegal Cancellation of Asset Freeze Does Not Guarantee Compensation of Damages By Federal Bailiff Service

The Supreme Court dismissed the claim to the Federal Bailiff Service on recovery of $ 6,2 mln. of damages for illegal cancellation of asset freeze on the respondent’s land plots, as a result of which the land plots were sold to a third party. Although the land plots were the main asset of the respondent and after their sale the repayment of debt became practically impossible, the Supreme Court ruled that the claimant is not entitled to compensation from the budget for the bailiff’s illegal actions, because the claimant himself had not been active enough in claiming for the recovery of debt. Moreover, according to the Supreme Court’s view, not all the remedies to invalidate the sale and purchase agreements in respect of the land plots have been exhausted, because the claimant did not appeal against the decision of the court of first instance.

In this dispute the creditor claimed for the recovery of debt arising out of lease contract from one of the guarantors (case No. А40-119490/2015). The court imposed asset freeze in respect of the guarantor’s land plots, however the officer of the Federal Bailiff Service illegally cancelled the asset freeze, and the guarantor managed to sell the land plots, making them unavailable for enforcement. The bailiff’s guilt was proven by the criminal sentence of the court, which has come into legal effect.

The claimant tried to challenge the transactions under which the land plots were sold. However the court refused to declare the sale and purchase agreements void, because at the moment of execution of these transactions there were no limitations and restrictions in respect of the property. Thus, the claimant filed a claim for the recovery of damages from the budget in the amount equal to the full amount of the debt arising out of the lease agreement – approx. $ 6,2mln. The courts of the first and cassation instance found for the claimant, but the Supreme Court disagreed with their views.

The main argument of the Supreme Court was that the claimant was not active enough in his claims and not all of the legal remedies available to him had been exhausted. The claimant just relied on guaranteed repayment of compensation from the federal budget. In particular, the Supreme Court took into account that the claimant has not contested the Rosreestr’s actions in respect of the registration of third parties as the owners of the property (while the transfer of ownership was registered a month after the note on asset freeze had been eliminated), and did not appeal against the decision of the court of the first instance when trying to invalidate the transaction. Moreover, the claimant acquired the receivables through assignment, and by the moment of the assignment he knew about all the problems in connection with the enforcement of the debt.

In light of this position of the Supreme Court claimants should consider that to be awarded compensation for the illegal actions of the Federal Bailiff Service they will have to prove that all the available steps to protect their rights have been taken.