10.02.2017 — Supreme Court: Cadastral Error Itself Is Not Reason for Denial to Demolish an Unauthorized Construction

Lower instance courts rejected the landowner’s claim, on whose territory an unauthorized construction was erected, taking 22 square meters. The decision was motivated by a cadastral error – the borders of two land plots overlap at the cadastral plan, that led to the fact that the disputed building was actually located on the neighboring land plot. The Supreme Court, however, noted that in such cases the courts should independently verify compliance with construction rules, including by way of an expertise study, and solve the case on the merits.

The respondent erected a building at its land plot and, by 22 sq. m. at the land plot of its neighbor (the claimant). The claimant filed a lawsuit seeking demolition of this unauthorized construction. The lower instance courts rejected this claim due to a cadastral error making the boundaries between the land plots uncertain, which was not the subject matter of the claim and was not asked to be remedied by the claimant.

However, when the court was referred to the Supreme Court, the lower courts’ position was found to be incorrect. The Supreme Court referred to clause 46 of the Plenary Ruling of the Supreme Commercial (Arbitrazh) Court and the Supreme Court No. 10/22, under which courts should assess compliance with construction rules in cases when the claim concerns violations associated with construction of a building. If the rules had not been complied with, the claim should be satisfied regardless of cadastral error. The case was remanded to the lower courts for reconsideration.

09.02.2017 — Starting from July 1, 2017, Fines for Violation of Personal Data Laws Will Be Raised

The President of Russia has signed into law a bill that raises the fines payable for violations of personal data regulations. For instance, fines for handling personal data without written consent will be punishable by up to 75.000,-- RUR (approx. 1.300,-- USD) for companies, whereas failure to publish a personal data policy when required by law will be punishable by up to 30.000,-- RUR (approx. 500,-- USD) for companies. 

Previously, fines for violations of personal data regulations were not differentiated, and their amount was quite low (for officials up to 1 000 RUR, approx. 17 USD, and for companies up to 10 000 RUR, approx. 178 USD). Such liability, according to the drafters of the bill, did not reflect the consequences of violations in the area, and did not have a sufficient deterrent effect to ensure compliance with the law by personal data operators. As a result, it was decided to raise the fines and to differentiate their amount by the type of violations.

For instance, handling personal data without written consent, when it is required, will be punishable by a fine of up to 20.000,-- RUR (approx. 357 USD) for officials, and up to 75.000,-- RUR (approx. 1.340,-- USD) for companies. If the personal data operator fails to publish a personal data processing policy required by law, it may be subject to fines up to 30.000,-- RUR (approx. 535 USD) for companies. Separate fines are also envisaged for improper storage of personal data, wrongful handling of protected categories of personal data (private information, religious information, etc.), and other types of violations. 

08.02.2017 — Supreme Court: Full Repayment of Company's Debt Before Employees by Another Creditor To Gain More Control over Bankruptcy Proceedings Is Not Abuse of Rights

The Supreme Court has considered one more case concerning Article 313 of the Russian Civil Code, which allows third parties to repay the debt owed by the insolvent company to a creditor to gain more control over the bankruptcy proceedings as a whole. Previously, the Supreme Court in a number of cases considered similar conduct abuse of rights. However, in the newest case the decision was different. The Supreme Court held that the primary interest of creditors in bankruptcy is obtaining the debt in full, rather than participating in bankruptcy proceedings itself. Due to this, when a creditor’s debt is fully (rather than partially, as in previous cases) repaid by another creditor acting to protect its own interests, such conduct cannot be deemed an abuse of rights in the case at hand.

Former employees of a company, petitioned the court to initiate bankruptcy proceedings due to the company’s failure to pay severance wages. However, a third party (another creditor of the company), covered these debts via a notary deposit, and submitted its own bankruptcy petition. As a result, courts of first and appellate instances excluded the employees from bankruptcy proceedings since the debts before them is repaid. However, the cassation court disagreed, referring to the positions of the Supreme Court in a number of previous cases, where repayment of debt before an unrelated creditor on the brink of bankruptcy was deemed an abuse of rights.

As a result, the case was referred to the Supreme Court, which noted that the cassation court did not interpret its previous decisions correctly. Unlike other cases, where a seemingly similar behavior was deemed abusive, in the present case the debt was repaid by another creditor in full, not partially. The primary purpose of bankruptcy proceedings is to obtain a full repayment of debt. Moreover, by repaying the debts before the former employees, the creditor did not intend to harm their interests, but was merely protecting its own rights. Thus, one of the former employees was the insolvent company’s general director, and prior to its insolvency a number of transactions against the creditors’ interests had occurred. Therefore, the creditor needed to ensure that an impartial bankruptcy administrator was appointed, which could be impossible if the general director took part in the proceedings. 

07.02.2017 — Standard of Proof in Corporate Disputes: Absence of Minutes of General Meeting of Shareholders Cannot Preclude Its Challenging in Court

A majority shareholder (a foreign company) challenged a decision of the general meeting of shareholders on appointment of a new general director. The claimant stated that it was not notified of the meeting and therefore could not take part in it. The first-instance and appellate courts, however, rejected the claim, because they could not obtain the minutes of the meeting in question to assess it, and because the general director had already been reinstated by the time the case was considered. The cassation court, however, disagreed with this approach, stating that such considerations cannot form basis of a refusal to challenge the results of the general meeting of shareholders.

A corporate conflict in the case at hand revolved around a joint business of a foreign majority shareholder and its Russian business partners. According to the foreign shareholder, Russian shareholders held a general meeting of shareholders without its participation to change to the general director to one of them. The foreign shareholder challenged the decision in court, but since the case was considered after over half a year, when the previous general director had already been reinstated, and the minutes of the general meeting of shareholders in question could not be obtained, the courts rejected this claim.

The cassation court disagreed with this approach. It upheld the claimant’s contention that it is possible to challenge a decision of the general meeting of shareholders even after the general director is reinstated, since otherwise it would be impossible to challenge the actions of such general director. Moreover, the court noted that the absence of the minutes could not form basis for a refusal, since the court should have assessed all circumstances of the case. In particular, the court should have proposed that the respondent provide alternative evidence to prove the legality of the general director appointment. As a result, the case was remanded for reconsideration to the first instance court.

06.02.2017 — Supreme Court: Bank Guarantee Can Be Demanded from Debtor in Court

The Supreme Court reversed decisions of lower courts, which refused to force the debtor to provide a bank guarantee to the creditor in accordance with the contract and award liquidated damages for delay. The decisions of lower courts were motivated by the fact that the debtor could not force the banks to issue a bank guarantee in its favor, and the fact that the parties did not specify the precise issuing bank in the contract, thus making the guarantee clause unenforceable. The Supreme Court disagreed with these arguments, stating that bank guarantee provision is common in business practice, and should be enforceable.

The parties concluded a supply agreement, under which the supplier undertook to provide either a bank guarantee or surety in favor of the customer. Having supplied the goods in question, the supplier nonetheless failed to provide the security as required. As a result, the customer filed a law suit demanding a bank guarantee and liquidated damages for delay. The first-instance court in Moscow fully satisfied these claims. However, the appellate and cassation courts reversed, stating that the parties failed to agree upon a precise issuing bank, and that the supplier could not force a third party (a bank) to issue the guarantee, making the respective contractual provisions unenforceable.

However, the Supreme Court disagreed with this approach and upheld the decision of the first-instance court. According to the Supreme Court, issuance of bank guarantees is a routine activity in the business sphere. Due to this, the parties did not have to specify a concrete bank in order for the clause to be enforceable. Furthermore, the possibility of banks’ rejecting the supplier’s request for a bank guarantee does not render the obligation itself impossible to perform or unenforceable. The supplier is obliged to attempt to obtain the bank guarantee as required from any bank it sees fit, and the customer is entitled to demand enforcement of this obligation.