The plenum of the Supreme Court of the Russian Federation issued Resolution No. 25 dated 23 June 2015 “On the application by courts of certain provisions of Part One of the Civil Code of the Russian Federation” (the “Plenum Resolution”).
The Plenum Resolution has provided some clarifications concerning the application of Part One of the Civil Code that could have a significant impact on court practice. It addresses a number of issues including, inter alia, the use of customary norms, registration of real estate objects and notes of objection, validity of transactions, resolutions of general meetings of shareholders/participants, representation and power of attorney.
Increase of role of court in court proceedings
It is clarified that in court proceedings the court may, at its own initiative and even in the absence of the relevant claim from the party to the dispute, acknowledge that the other party acts in bad faith and apply appropriate measures, by, for instance, refusing to grant certain remedies.
If the court establishes that the claimant has chosen an improper remedy it may, at its own initiative, bring up for discussion the question on re-qualification of the lawsuit.
Application of provisions on entrepreneurial activity to non-commercial organizations
As the civil legislation allows non-commercial organizations to be engaged in entrepreneurial activity to the extent that it conforms to the purposes for which such organizations have been established, the Supreme Court has clarified that the provisions of the legislation normally applicable to individuals/companies performing entrepreneurial activity also apply to non-commercial organizations in respect of their conduct of entrepreneurial activity.
Signing authority
Following the provisions of the Civil Code, the Supreme Court has stated that the information on the authorities of a general director (CEO) of a company or distribution of authorities between two general directors set out in the Russian State Register of Legal Entities is sufficient for the purpose of examination of their authorities by counterparties in transactions with the company. The counterparties are not required to review the company’s charter for these purposes. The Supreme Court has also stated that any provisions of constitutional documents of a company which deal with authorities/distribution of authorities between the general directors (in case a company has more than one CEO) may not be grounds for invalidation of a particular transaction, except for the cases where the other party to the transaction knew or should have known about such restrictions with respect to the authorities.
Voluntary liquidation of a legal entity
The Civil Code contains a general provision according to which a legal entity may be liquidated under a claim by its founder (shareholder) in the event it becomes impossible to achieve the goals for which such legal entity was established, including when the business activity of the legal entity is impossible or otherwise impeded. In explaining this provision, the Supreme Court indicated that a company may be liquidated as a last resort in circumstances where there has been a long-term corporate conflict in which all of the shareholders or participants (as applicable) of that company have been involved in abusive practices which have impeded the company’s business activities.
Expulsion of a shareholder
The Supreme Court stated that a court may not enforce the claim of a shareholder seeking the expulsion of another shareholder from the company where there are grounds for the expulsion of the claimant itself.
Legal notices
The Supreme Court indicated that, unless otherwise provided by law, contract, or by customary or legal practice, a legal notice may be sent by email, fax or by any other means of communication where the sender and the recipient of the message can be accurately identified. The burden of proof in respect of the sending and receiving of a notice lies with the sender.
Invalidity of transactions
A significant part of the Plenum Resolution addresses issues related to invalidity of transactions. Amongst other things, the Supreme Court explained that tax authorities may, at their own initiative, re-characterise transactions, the status and type of business of any taxpayer and claim in court for the imposition of additional taxes where the authorities have concluded that the relevant taxpayer has decreased its taxable base due to an improper legal characterisation of a transaction.
Whereas the Civil Code contains a very broad provision under which a transaction concluded for a purpose knowingly contradicting the principles of public order and morality is null and void, the Supreme Court has clarified that tax evasion per se may not lead to the characterisation of a transaction as contradicting the principles of public order and morality.
Also covered by the Plenum Resolution are the consequences of a sham transaction, that is a transaction concluded for the purpose of covering an actual transaction. Furthermore, it is clarified that if a court establishes that the parties to a transaction have concluded that transaction for a lower amount to actually cover the one for a higher amount the court qualifies the transaction as having been concluded for the higher amount.