29.03.2019 — When Purchasing Building, New Owner Is Entitled To Keep Preferential Terms of Land Lease That Seller Had
In the case at hand the Supreme Court confirmed the right of the purchaser of the building to apply preferential terms of the lease of the land plot located under the building, including the reduced rent payments. The Supreme Court ruled that when a property is sold, the purchaser acquires the right to use the land plot on the same terms and conditions as the previous owner of the property, and thereby accepts the rights and obligations of the lessee under the lease contract.
In this case the company sold several buildings to an entrepreneur. However, the parties failed to resolve the issue of assigning the lease rights in respect of the land plot under the buildings. Therefore, the owner of the land plot filed a claim for the recovery of the rent payments from the entrepreneur on the basis of the market rate of rent.
At the same time, the entrepreneur argued that the previous owner of the buildings enjoyed a reduced rate of rent under the lease contract, and he was also entitled to apply it. The courts of three instances disagreed with this approach. However, the Supreme Court overruled the decisions of the lower courts and explained that in accordance with law, the seller’s rights and obligations in respect of the land plot shall be transferred to the purchaser of the real estate. This means that the new owner of the property has the right to enjoy the same conditions of lease that the previous owner had, including the reduced rate of rent (Decision of the Russian Supreme Court dated 26.03.2019 No. 305-ES18-22413).
28.03.2019 — Arbitral Award On Recovery Of Fine Several Times Higher Than Breached Obligation Is Contrary To Public Policy
In this case, the arbitral tribunal recovered from the supplier the contractual compensation for the breach of obligation to supply to Russia exclusively through the buyer. Despite the fact that the amount of compensation was reduced by the arbitral tribunal, the Russian state court held that the reduction was insufficient and cancelled the arbitral award as contrary to public order with reference to the fact that the amount of compensation was ten times higher than the price of the goods supplied contrary to the contract.
The foreign supplier and the Russian buyer (distributor) entered into a contract that imposed on the buyer the obligation to promote in Russia the medicines produced by the supplier. In turn, the supplier undertook to supply to Russia exclusively through the buyer. However, in violation of this term, the supplier delivered a batch of medicines (worth Rubles 11 million) to the Russian market. The buyer filed a lawsuit with the ICAC at the Russian CCI for the recovery of the Euros 5 million fine for violation of the respective contractual term on exclusivity. The ICAC at the Russian CCI granted this claim in part by reducing the amount of the fine to Euros 3.7 million.
However, the supplier filed a claim to the Russian state court on the cancellation of the arbitral award as contrary to public order. The Cassation Arbitrazh Court for the Moscow District agreed with the supplier’s arguments and declared that the recovery of the fine, that is ten times higher than the obligation violated, contradicts the principle of proportionality of civil liability and violates public order (Decision of the Cassation Arbitrazh Court for the Moscow District dated on the case No. А40-172778/17). The Supreme Court, in turn, refused to review this case in the Chamber for Economic Disputes.
27.03.2019 — Supreme Court: Provision Stating That Suretyship Agreement Is Effective Until Underlying Obligation Is Performed Is Not Condition On Term
In a recently adjudicated case, the Supreme Court once again drew the attention of lower courts to the fact that the provision in a suretyship agreement that it is valid until the underlying obligation of the debtor is performed, cannot be regarded as a condition on the term of suretyship. Thus, in such circumstances, the statutory provisions allowing the creditor to file a claim to surety within a 1-year term after the underlying obligation became due shall apply, in case the suretyship does not contain other provisions on its term.
In this case, the debtor did not return the funds borrowed under the loan agreement. Therefore, the lender filed a claim for the recovery of the debt to the surety. The suretyship contract contained a provision that the suretyship contract is effective until the performance of obligations under the loan agreement in full.
The lower courts mistakenly considered that this condition amounted to the condition on the term of the suretyship and ruled that the suretyship is effective despite the surety’s objections. However, the Supreme Court ruled that such a condition is not a condition on term, since in Russian law the term can only be determined by reference to event that must inevitably occur. The performance of the obligation is not such an event. Thus, the Supreme Court remanded the case for a new trial, taking into account the fact that since the term of the suretyship was not established in the contract, the creditor had the right to file the claim for the recovery of debt only within 1-year term from the date when the secured obligation became due (Decision of the Russian Supreme Court dated 19.02.2019 No. 18-KG18-257).
26.03.2019 — Constitutional and Supreme Courts Disagreed Regarding Priority of Information in Public Register for Tax Purposes
In the view of the tax authorities, supported by the Supreme Court, according to the tax legislation the information on the real estate cadastral value applies from the date of entry into force of the act, which approved the results of the respective state cadastral valuation. Thus, the publication of other information in the Unified State Register of Immovable Property does not prevent the collection of tax arrears from the landlords who paid the tax based on the information in the real estate register. However, the Constitutional Court ruled that innocent taxpayer who relied on the information in the real estate register for the purposes of calculation of tax shall be protected from the risk of errors in the real estate register. According to the Constitutional Court, the information in the real estate register is of higher priority, thus innocent taxpayer may rely on it for tax purposes.
The company challenged in the Constitutional Court paragraph 3 of Article 391 of the Russian Tax Code, under which companies shall determine the tax base for their land plots on their own on the basis of information contained in the real estate register. The company owned two land plots, the cadastral value of which was determined by the decree of the local authorities. The company disagreed with the results of the state cadastral valuation and successfully challenged the cadastral value in the appeal commission, thus the cadastral value of the land plots for the following year was reduced. However, at the same time, the local authorities conducted a new state cadastral valuation in the region, as a result of which the cadastral value of the company’s land plot was set at a higher rate again. Still, since the registration authority received the decision on the reduction of the cadastral value issued by the appellate commission later than the decision on the new state cadastral valuation, the reduced cadastral value was entered in the real estate register.
The company paid land tax in accordance with the information in the real estate register, but the Federal Tax Service charged additional taxes and penalties based on a higher cadastral value determined according to the results of the state cadastral valuation. The courts, including the Supreme Court, sided with the tax authorities and argued that the local authorities’ decision on the state cadastral valuation came into force later than the reduced cadastral value established on the basis of the appellate commission’s decision. According to the courts, this meant that the real estate register contained erroneous information.
However, the Constitutional Court disagreed with the courts and took the side of the company (Decision of the Russian Constitutional Court No. 13-P dated 28 February 2019). The Constitutional Court noted that innocent taxpayer could rely on the information in the real estate register and should not be held liable for ambiguous legal provisions, as well state authorities’ errors in maintaining the real estate register. The Constitutional Court concluded that, under such circumstances, paragraph 3 of Article 391 of the Russian Tax Code cannot serve as a basis for tax liability. Thus, the court case of the company is subject to review in light of the position of the Constitutional Court.
25.03.2019 — Creditors May Recover Damages From Director For Deliberate Submission of False Information About Company’s Financial Performance Even After Company’s Bankruptcy and Liquidation
In the case at hand the creditor was unable to impose subsidiary liability on the former company’s directors in the course of the company’s bankruptcy procedure. Therefore the bank filed a claim for the recovery of damages from the company’s former directors referring to the provision of false information about the company’s assets by the directors in order to obtain the loan. The lower courts ruled that the creditor is not entitled to file such a direct claim against the company’s former directors outside of the bankruptcy procedure. However, the Supreme Court declared that the creditor was entitled to file such a claim, provided that he proves that the directors intentionally provided false information, and the creditor was diligent when providing the loan.
The bank filed a claim against the former directors of a bankrupt company to bring them to liability for the company’s debts. It is worth mentioning that the bank had previously tried to impose subsidiary liability on the directors as controlling persons in the course of the company’s bankruptcy procedure, however this claim was refused. Thus, after the company’s bankruptcy and liquidation, the bank filed a direct tort claim against the directors, arguing that the directors provided false information about the company’s financial performance prior to obtaining the loan.
The lower courts dismiss the bank’s claim, explaining that the claim to the directors can be granted only within the framework of subsidiary liability in bankruptcy. However, the Supreme Court reversed the decisions of the lower courts and remanded the case for a new trial (Decision of the Russian Supreme Court of the Russian Federation dated 05.03.2019 on the case No. 305-ES18-15540). According to the Supreme Court, the fact that the bank’s claim was dismissed during the bankruptcy proceedings, does not deprive the bank of the right to file a claim for the recovery of damages to the directors of the bankrupt company on the basis of Article 1064 of the Russian Civil Code (a direct tort claim). To succeed with such a claim the creditor has to prove the wrongfulness and the intentional nature of the directors’ actions, in particular, deliberate submission of false information about the company’s financial performance in order to obtain the loan.
At the same time, the Supreme Court noted that the intentional nature of the directors’ actions can be established not only in criminal proceedings, but also in civil proceedings. The Supreme Court also stated that the degree of the creditor’s care and diligence has to be taken into account.