11.05.2018 — Courts Are Forming Practice On Damages For Violation Of Warranties
In this case the company filed a claim against the supplier to recover damages caused by the fact that the supplier’s warranties that he had the rights to the trademark turned out to be false. At the conclusion of the contract, the supplier provided the company with a certificate of the general distributor as a confirmation of his rights to use the trademark. However, in fact, the goods were counterfeit, and the final buyers returned them to the company due to the claims of the right holder of the trademark. The courts declared that the company’s claims to the supplier were reasonable, and the false warranties resulted in the court decision against the supplier on the recovery of 1 mln. Rubles of losses to the company.
In the case No. А40-83049/2017 the company purchased goods from the supplier, and subsequently resold them to third parties. At the conclusion of the contract, the supplier provided a company with a certificate of the general distributor, and the company reasonably believed that the supplier had the right to use the trademark for the supplied goods. However, the goods turned out to be counterfeit, and the final purchasers returned the goods to the company due to the claims of the trademark owner. The company filed a claim for the recovery of damages from the supplier caused by the false warranties. The courts of all three instances granted the company’s claim, explaining that the company had been misled by the supplier as to whether it had the rights to use the trademark.
This case is interesting because in this dispute the warranties were not directly provided in the contract, but were implied and followed from the circumstances of the conclusion of the contract. Namely, at the conclusion of the contract the supplier provided the certificate of the general distributor to the company. This case is an example of that the courts are gradually forming the practice of application of warranties, a legal mechanism that is relatively new for Russian civil law that has been introduced in the Russian Civil Code during the recent large-scale civil law reform.
10.05.2018 — Unlawful Privatization Is Not A Ground For Reclaiming Land Plot From Innocent Purchaser
The Supreme Court adjudicated the case on the municipal authorities’ claim on the invalidation of the sale and purchase contract of the land plot and vindication of the land plot from the ultimate purchaser on the ground that the land plot had been privatized illegally. The dispute was complicated by the fact that by the time the case was adjudicated by the court, the privatized land plot had already been resold to a third party, which claimed to be an innocent purchaser who did not know about any violations in the privatization procedure. The courts of all three instances ruled that the area of the land plot significantly exceeding the area of the building located thereon is a ground for declaring the privatization illegal. Still, the positions of the courts on whether under such circumstances the land plot can be retrieved from its ultimate acquirer, differed. The Supreme Court declared that the violation of the privatization procedure does not in itself evidence that the ultimate acquirer is not an innocent purchaser, and dismissed the municipal authorities’ claim on vindication of the land plot.
In the case at hand (case No. 305-ЭС17-13675) the Supreme Court adjudicated the dispute on the invalidation of the sale and purchase contract of the land plot and vindication of the land plot to the municipal authorities. Several years ago the company that owned the building located on the land plot filed an application for privatization of the land plot on preferential terms as the owner of the property located on this land plot. In the course of the privatization procedure the municipal authorities did not compare the area of the land plot and the building located thereon, as a result the company privatized a land plot of a much larger area than necessary for the operation of the building. Subsequently, the company resold the land plot and the building thereon to a third party. A few years later, the municipal authorities conducted an internal audit and discovered the violation, thus the state body filed a claim to the court on invalidation of the sale and purchase contract of the land plot and vindication of the land plot.
The courts of all three instances granted the municipal authorities’ first claim and declared that the privatization was invalid since the area of the privatized land plot exceeded the area of the building on it 20 times. However, the positions of the courts on whether the illegally privatized land plot could be vindicated from a third party, differed. The court of the first instance dismissed this claim since the ultimate acquirer was an innocent purchaser. At the same time, the appellate and cassation courts, on the contrary, ruled that the land plot shall be retrieved to the municipal authorities, arguing that the standard of a reasonable and prudent purchaser includes, among other things, the examination of the title of the previous owner.
The Supreme Court agreed with the court of the first instance, declaring that the company is an innocent purchaser. Moreover, the Supreme Court explained that the violation of the privatization procedure is a ground for challenging the initial privatization transaction, but cannot be a criterion of innocence of the ultimate acquirer of the land plot. Thus, the municipal authorities’ claim to retrieve the land plot was dismissed.
09.05.2018 — Supreme Court Will Examine Arbitrability Of Disputes Affecting Public Interests
Recent court practice tends to abolish decisions of arbitral tribunals and to refuse to issue execution orders in respect of arbitral awards if the dispute is connected with state funding in one or another way. Courts increasingly declare that disputes involving state corporations and their subsidiaries, as well disputes arising out of the contracts with public funding, are not arbitrable, and if the arbitral tribunal has rendered an award, state courts declare that the enforcement of such an award is contrary to public policy. Thus, the Supreme Court sent an inquiry to the Constitutional Court asking it to formulate a final legal position on this issue, but the Constitutional Court refused to accept the inquiry arguing that it rests with the Supreme Court to decide whether the disputes connected with state funding are arbitrable.
At the moment, there is a tendency in court practice, according to which state courts refuse to recognize and enforce arbitral awards that indirectly affect state interests, on the ground that the enforcement of such an award would violate public policy. This trend is expanding, namely if earlier state courts applied this approach only to disputes involving energy supply companies and town-forming enterprises, now this approach gradually spreads to any disputes involving state financing and state corporations.
In one of the recently adjudicated disputes arising out of a contract between two subsidiaries of the State Corporation “Rosatom”, the court pointed out that “due to the specifics of the subjects and the nature of their relationship” the dispute could not have been referred to arbitration, and the arbitration clause is invalid (No. А40-20968/18-141-150). In another case, the Moscow Arbitration Court came to a similar conclusion regarding the contract concluded on an open tender conducted in accordance with the procurement laws and funded by public funds, allocated by the State Corporation “Rosatom” (No. А40-251851/17-141-2199). All these cases are currently being appealed in courts of higher instances.
Due to the increase of the number of disputes over the arbitrability of contracts with the indirect participation of public funding, the Supreme Court decided to send an inquiry to the Constitutional Court asking it to formulate a final legal position on this issue. Yet, the Constitutional Court refused to accept the inquiry arguing that the Supreme Court shall develop the approach on this matter. Thus, it rests with the Supreme Court to decide whether the disputes connected with state funding are arbitrable.
08.05.2018 — Supreme Court Explained When Guarantee Retention Shall Be Paid To Contractor In Case Of Early Termination Of Contract
In the case at hand the contractor filed a claim to the court for the recovery of the guarantee retention after the early termination of the construction contract. The courts of lower instances granted the claim, arguing that the obligations secured by the guarantee retention terminated from the moment of the customer’s unilateral refusal from the contract. However, the Supreme Court pointed out that in the event of early termination of the contract, courts should separately assess the balance of mutual obligations of the parties and examine whether the grounds for payment of the guarantee retention have arisen. If the payment of the guarantee retention was linked with the expiry of a certain period from the moment of putting the object into operation, it is necessary for the court to assess whether the customer has taken all measures to ensure the commissioning of the facility or the reasonable time for commissioning has expired.
In the case No. A40-67546/2016the parties entered into a construction contract that provided for a guarantee retention of 5% of the price of works, according to which the amount was to be paid to the contractor after the expiration of the warranty period (two years after the commissioning of the facility). The contractor failed to meet the deadline for the completion of the works, what was the ground for the customer’s early termination of the contract. At the contract termination the customer paid for all the works actually performed in full. However, the contractor believed that there were grounds also for early payment of the guarantee retention and filed the claim for its recovery to the court.
The courts of lower instances ruled for the contractor and recovered the guarantee retention from the customer, arguing that the contractor’s obligations secured by the guarantee retention terminated from the moment of the customer’s unilateral refusal from the contract. However, the Supreme Court pointed out that, although the contract terminated, the condition providing that the guarantee retention shall be paid two years after the commissioning of the facility remained in force. Yet, since the onset of this condition began to depend entirely on the will of one of the parties (the customer), the customer is obliged to make all reasonable efforts to put the facility into operation and should not unfairly interfere with the onset of this condition. Otherwise, the contractor is entitled to refer in court to the fact that this condition should be deemed as having come.
In the opinion of the Supreme Court, in case of early termination of the contract, a two-year guarantee period should begin to elapse after the expiration of the reasonable time necessary for the customer to find a new contractor, complete all the works provided by the contract and put the new facility into operation. Since in the case adjudicated by the Supreme Court this term has not expired yet, the Supreme Court ruled that the term of payment of the guarantee retention had not come yet, too and dismissed the contractor’s claim.
07.05.2018 — Court May Bar From Using the Internet
In April 2018 Russian criminal procedure law was amended, and a new type of pretrial restraints that can be imposed on suspects and defendants by a court order was introduced. In particular, the court, at the application of the investigative authorities, may prohibit to do certain actions, to visit certain places, to drive a car or to use mobile communications and the Internet.
On 18 April 2018 the President signed a federal law on amending the criminal procedure legislation, which provides for a new pretrial restraint – prohibition of certain actions. Nowadays the court at the request of the investigating authorities, taking into account the circumstances of the criminal case, may prohibit the suspect to do certain actions, including:
- Leave the place of residence at a certain time of the day;
- Be in certain places, as well as closer than the established distance to certain objects, attend certain events and participate in them;
- Communicate with certain persons;
- Use communication facilities (mail, telephone) and the Internet;
- Operate a vehicle (if the charge is related to traffic rules violation or operation of transport).
In addition, the court may impose other prohibitions if there is apprehension that a person may abscond from investigation and trial. The court decision establishes the terms of application of the pretrial restraints and the authority that will monitor the observance of the prohibition. In case the suspect violates the prohibitions established by the court, the court may replace the pretrial restraint by a stricter one.