25.05.2018 — Partial Voluntary Enforcement of Arbitral Award Deprives Debtor of Right to Challenge the Competence of Arbitral Tribunal and Legitimacy of Award

After the dispute was resolved by the arbitral tribunal, the unsuccessful party adduced formal arguments to object to the recognition and enforcement of the award. However, the state court issued the execution writ, pointing out that by its own conduct (including active participation in arbitral proceedings, partial voluntary enforcement of the award, agreeing on the repayment schedule) the company has accepted the competence of the arbitral tribunal, and therefore is deprived of the right to challenge the arbitral award.

In the case recently examined by the courts (case No. A40-204190/17), Belarusian and Russian companies entered into an agreement that included an arbitration clause referring all the disputes to “the ICAC at the CCI of the Republic of Belarus”. When a dispute arose, the Belarusian company filed the claim with the International Arbitration Court (IAC) at the Belarusian Chamber of Commerce and Industry (CCI). At the same time, despite the distortion of the name of the arbitration institution in the contract, the arbitral tribunal did not have any doubts as to whether the parties have chosen the IAC at the Belarusian CCI as the forum for their disputes, and the IAC at the Belarusian CCI recognized its competence to resolve the dispute and issued the award in favor of the Belarusian company.

However, when the Belarusian company filed a claim to the Russian state court requesting for recognition and enforcement of the award of the IAC at the Belarusian CCI, the Russian company objected, arguing there had been irregularity of the arbitral tribunal, and the dispute had been adjudicated by the arbitral tribunal that was not specified in the contract.

Still, the courts of both instances disagreed with the Russian company’s arguments and subsequently decided to enforce the award. The courts drew attention to the fact that both parties had been actively participating in the arbitral proceedings and had not challenged the competence of the arbitral tribunal. Moreover, after the award was issued, the parties agreed on the order of execution of the arbitral award, and the Russian company executed the decision voluntarily in part. Thus, the state courts concluded that the Russian company had consented with the award and therefore shall be deprived of the right to challenge the competence of the IAC at the Belarusian CCI and the legitimacy of the award.

24.05.2018 — Supreme Court: When Transaction with Family Property Is Challenged Because of Lack of Spousal Consent, Purchaser Shall Prove His Innocence

In one of the recent cases the courts were to decide whether the spouse challenging the sale and purchase contract in respect of the family property concluded by the other spouse without spousal consent, shall prove that the purchaser acted in bad faith. The courts of three instances dismissed the spouse’s claim on the invalidation of the transaction, arguing that the spouse was unable to prove that the purchaser acted in bad faith, namely that the purchaser knew or should have known that the seller was married and failed to receive spousal consent for the transaction in respect of the family property. The transaction was notarized and the seller warranted that he was not married. Still, the Supreme Court decided that if the transaction in respect of the property that is subject to state registration is concluded, the purchaser shall bear the burden of proof in respect of the fact that he is innocent.

In the case resolved by the courts (case No. A40-167485/2015), the wife challenged the sale and purchase contract in respect of the share in the company. She argued that the share in the company was family property, owned by the spouses jointly, and her consent was to be obtained to sell the share.

Courts of lower instances dismissed her claim, since at the moment when the transaction was concluded and notarized, the spouse misled the counterparty about his marital status and warranted that he was not married, and the wife as a claimant could not prove that the purchaser knew or should have known that she objected to the transaction.

The claimant disagreed with such decisions and insisted that the courts unreasonably charged her with the burden of proof regarding the fact that the counterparty knew or should have known that the sold share in the company is jointly owned by both spouses, and she objects to the transaction. The Chamber of the Supreme Court for Economic Disputes was convinced by the arguments of the wife, revoked the decisions of the courts of lower instances and remanded the case for a new trial with reference to Art. 35 of the Family Code of the Russian Federation that establishes special rules for transactions with family property, the rights to which are subject to state registration and the conclusion of these transactions requires the receipt of the notarized consent of the other spouse for.

23.05.2018 — Tightening Foreign Exchange Control: Stricter Reporting Requirements, Blocking Transactions and New Fines

On 14 May 2018 amendments to the currency control law and the Code of Administrative Offenses of the Russian Federation entered into force. Amendments affect the rules for filing currency transactions: from now residents will have to inform banks on the exact date when the consideration or goods shall be received, and not on the maximum time limits, as previously. The amendments also expand the list of the grounds for blocking transactions and introduce a fine for officials for violation of currency control laws.

First of all, the amendments affect the rules for filing documents in respect of the currency transactions. From now residents will be to provide information on the exact date, when the parties’ contractual obligations shall be fulfilled, when the money shall be received, or goods shall be transferred, or services shall be rendered, and not on the expected maximum time limits for these actions.

In addition, the amendments extend the right of the banks to block transactions: in practice, the operation may be blocked for almost any violation. At the same time, banks are required to provide information on the refusal to execute transaction not later than on the next business day after such a decision was made.

Furthermore, the amendments introduce administrative liability for officials for the violation of currency control laws. While before 14 May 2018 only companies and individual entrepreneurs could be fined for currency control law violations, now officials can be fined, too. The amount of fine for officials may vary from RUB 20,000 to 30,000 (EUR 270-400). Moreover, if the official commits a violation repeatedly, he may be disqualified for the term up to 3 years.

22.05.2018 — Supreme Court: Bankrupt Company’s Debts Can Be Recovered from Its Former Director

Within the framework of the bankruptcy case the courts decided, whether the former director of the insolvent company, who had been holding this position more than two years ago, shall be brought to subsidiary liability. The Federal Tax Service insisted that in the case at hand there were grounds for prolongation of the two-years period within which the bankrupt company’s controlling persons are determined, since while in office the former director acted in bad faith and took measures aimed at delaying the initiation of the bankruptcy proceedings against the company. The Supreme Court agreed with such arguments and imposed subsidiary liability on the former director of the bankrupt company.

In the case recently adjudicated by the Supreme Court (case No. A32-9992/2014) the Federal Tax Service claimed that the former director of a bankrupt company shall be brought to subsidiary liability in bankruptcy proceedings. The courts found out that the company became bankrupt because of its former directors’ deliberate actions, who executed sham transactions and misrepresented the company’s financial information. Before the bankruptcy case was initiated, several persons had been holding the office of the company’s general director in different periods.

The courts of the first and appellate instances imposed subsidiary liability on all the company’s former directors proportionally to the amount of damages they caused to the company. At the same time, the cassation court found out that the term of office of one of the directors expired more than two years before the commencement of the bankruptcy proceedings, thus this director could not be regarded as the debtor’s controlling person according to the bankruptcy law. Therefore the cassation court released this former director from subsidiary liability.

However, the Supreme Court agreed with the arguments of the Federal Tax Service that since the former director of the bankrupt company prevented the timely initiation of bankruptcy proceedings, there were grounds for suspending the running of the two-year period within which the debtor’s controlling persons are determined. Consequently, the former director was brought to subsidiary liability for the company’s debts.

21.05.2018 — Court Practice: Customer Shall Pay For Works Agreed In Correspondence, Even If They Were Not Specified In Construction Contract

In this case the dispute between the contractor and the state customer arose regarding the payment for additional works. During the construction, the state customer wrote letters to the contractor, instructing him to perform the works not provided for in the contract. The contractor fulfilled the customer’s request and performed the works he was charged with, but subsequently the customer refused to pay for these works. Therefore, the contractor filed a claim to the court. Courts of lower instances ruled for the state customer. However, the court of cassation sided with the contractor, taking into account the fact that the initiative to perform these works was coming from the state customer, and the contractor behaved in good faith.

In the case adjudicated by the courts (case No. A59-723/2017), the state-owned entity and the contractor by tender concluded a construction contract for the repair of the school building. In the course of performance of the construction works it was found out that in order to comply with the building regulations it is necessary to amend the initial design documentation for the repair works. The state customer approached the contractor in writing asking him to introduce amendments in the design of the building. However, after the contractor completed these works, the customer refused to pay for them. Thus, the contractor decided to recover the cost of these works in court.

The courts of the first and appellate instances dismissed the contractor’s claim. According to the courts’ reasoning, the contractor could not have been unaware that the respective additional agreement in respect of these works had not been concluded in accordance with the public procurement law. In addition, the courts argued that the building could still be repaired in accordance the initial design documentation, and the performance of the works provided for by the construction contract was not contingent on the performance of the disputed works.

The cassation court overturned the decisions of lower courts. The court drew attention to the fact that it was the state customer who initiated the performance of these works in his written request to the contractor, moreover, the customer accepted these works unconditionally, and these works have value for the consumer. Thus, all these circumstances in aggregate evidence that the contractor behaved in good faith. In the view of these circumstances, the cassation court remanded the case for a new trial.