Keystone principles and differences of Russian law to be considered by foreigners doing business in Russia.

1. www.pwc.com
Russian Legal Seminar
05 March 2014
Helsinki, Finland
Dmitry Zhdanov, PhD
Artem Moyseenko, LL.М.

2. Agenda
• Keystone principles and differences of Russian law to be considered
by foreigners doing business in Russia
• Regulation on joint ventures
• Practical illustrations of Russian legal environment specifics and
litigating in Russia
• Liability of shareholders and directors
• Questions & Answers
Russian Legal Seminar
PwC
Helsinki, 5 March 2014
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3. Keystone principles
and specifics of Russian law
Russian Legal Seminar
PwC
Helsinki, 5 March 2014
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4. Historic background of current Russian legal
system
• Historically based on French and German traditions
• Soviet law adopted to “market-driven economy”
• Strong imperative rudiments
• Adoption of foreign institutions into legal system, sometimes
incoherent
• Economics driven by state – implications for civil laws
• Court system and procedural law is based on Soviet traditions
Russian Legal Seminar
PwC
Helsinki, 5 March 2014
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5. Sources of Russian private law
• Civil code (4 parts) – main source, being reformed
• Other “Codes”
• Special laws (LLC Law, JSC Law etc.)
• Delegated legislation (acts of President and Government)
• Court practice (gains more and more importance, but not really a
source of law)
• Customary business practice
Russian Legal Seminar
PwC
Helsinki, 5 March 2014
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6. Court System
• Ordinary courts and business (arbitration) courts
• Business (arbitration) courts now being merged with the ordinary
courts
• No special courts for administrative, financial, tax disputes
• Judges specialized, but not always (especially in regions)
Russian Legal Seminar
PwC
Helsinki, 5 March 2014
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7. General characteristics of Russian private law
• One law for all civil relationships (no separate “trade law”)
• Special regulations apply to legal entities, entrepreneurs and
financial institutions
• Special laws may apply to specific relations or contracts in addition to
general provisions of the Civil Code (e.g. consumer protection,
mortgage, corporate entities)
• Contracts with state and sometimes with state owned companies are
subject of special regulations (public procurement)
• “Hybrid” system of multiple institutions
Russian Legal Seminar
PwC
Helsinki, 5 March 2014
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8. Negative qualities of Russian private law
• Inconsistency of terms and institutions
• Low quality of legislation drafting
• Pure performance of legislative authorities
• Stable trend of changing the legislation in short terms
• “Mix” of institutions adopted from foreign jurisdictions
• Contradictions between different laws relating to same matters
• Provisions adopted in favor of specific interest groups without
considering the impact on other groups
• Abundance of imperative regulations
• Formal approach for interpretation of law is the most common
Russian Legal Seminar
PwC
Helsinki, 5 March 2014
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9. Contract law
Choice of law
• Russian parties: Russian law
• Russian and foreign party (foreign element): law chosen by the
parties, unless Russian law is mandatory (ex, Russian real property)
• In the absence of a selected law:
• Sale and purchase agreement: seller
• Lease: lessor
• IP license agreement: grantor of license
• Loan: lender
• Real property: location
Russian Legal Seminar
PwC
Helsinki, 5 March 2014
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10. Contract law
Limitations of contractual freedom
Contractual freedom:
• The parties are free to conclude or not conclude a contract
• The content of contracts is determined by the parties
• The parties may chose the type of contracts they conclude
• The parties may conclude a contract not named in the Civil Code
Limitations
• Compliance with mandatory rules
• No abuse of right
• Obligatory conclusion of contracts in case of public contracts and
principle contract on the basis of preliminary contract
Russian Legal Seminar
PwC
Helsinki, 5 March 2014
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11. Contract law
Form of contracts
Oral contracts: unless written form is required and performed at
conclusion
Written contracts:
• Contracts with legal entities
• When required by law
Special forms: notarization and state registration (shall be abolished)
Legal consequences of the defect of form may differ depending on type
of contract
Russian Legal Seminar
PwC
Helsinki, 5 March 2014
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12. Contract law
Remedies for breach of contract
Available remedies
• Compensation of damages (real damage and lost profit)
• Penalty
• Interest
• Specific performance
• Mutual restitution (in some cases)
Unless otherwise provided by law or contract:
• Undue performance: compensation of damages and penalties does
not release from specific performance
• Non-performance: compensation of damages and penalties releases
from specific performance
Russian Legal Seminar
PwC
Helsinki, 5 March 2014
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13. Enforcement issues
• The foreign court’s decision may be enforced if there is an international treaty (very
few in fact).
• Reciprocity.
• The foreign arbitration decisions may be enforced if there is an international treaty
(Russia is a party to NY Convention on the Recognition and Enforcement of Foreign
Arbitral Awards of 1958).
Foreign court’s decision may not be enforced :
- It did not come into force
- Defendant could not participate in proceeding following undue notification
- Case is referred to exclusive competence of Russian courts
- Court decision or case in process in Russia
- It violates public order in Russia
- Expiration of the term for enforcement
Russian Legal Seminar
PwC
Helsinki, 5 March 2014
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14. Company law
Forms of legal entities
Foreign entities:
• Representation offices
• Branches
Legal entities
• Limited liability company
• Open and closed joint stock companies
• Partnerships
• Other forms (including newly established economic partnership,
investment partnership)
• Trusts are not recognized under Russian law.
Russian Legal Seminar
PwC
Helsinki, 5 March 2014
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15. Company law
Corporate governance
Russian companies use continental build up of company’s body
• General meeting
• Board of directors (optional in LLC)
• Sole executive body - general director
• Collective executive body (optional)
Competences established in charter, obligatory requirements of the law
(much more imperative in the JSC)
Limitation of powers of the general director – one of the major issues
Options for piercing the corporate veil is very limited under current law
Russian Legal Seminar
PwC
Helsinki, 5 March 2014
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16. Regulations on Joint Ventures
Russian Legal Seminar
PwC
Helsinki, 5 March 2014
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17. Regulations
• JVs in Russia were traditionally structured as “two-tier” structures
and using shareholders agreements under foreign laws
• Shareholders’ agreements acknowledged by Russian law since 2010
• No specific regulations – possible forms provided in laws related to
specific legal forms (JSC Law, LLC law etc.)
• Lack of regulation on non-incorporated JVs
• Both LLC and JSC law contain only limited regulation on contents of
such agreements
Russian Legal Seminar
PwC
Helsinki, 5 March 2014
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18. Main issues related to Russian law joint ventures
• Lack of developed and essential court practice re. JVs and SHAs
• Some institutions and mechanics used in international practice
contradict mandatory provisions of Russian law
• Unenforceability of some arrangements in case of non-performance
• Unclear list remedies available to non-defaulting party
Russian Legal Seminar
PwC
Helsinki, 5 March 2014
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19. Practical illustrations of Russian
legal environment specifics and
litigating in Russia
Russian Legal Seminar
PwC
Helsinki, 5 March 2014
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20. Pros and cons using Russian and non-Russian law
• Analysis shall be performed on case to case basis
• Russian law may be preferable for one of the parties, not necessarily
the Russian partner
If non-Russian law is used:
• More sophisticated law can be used, which allows cover substantially
more issues than the Russian law
• Fair trial can be achieved
• BUT, enforceability against Russian company may be questionable
Russian Legal Seminar
PwC
Helsinki, 5 March 2014
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21. Deoffshorisation
• “Deoffshorisation” is currently big trend in Russia
• Foreign ownership structures may face risk of additional taxes and
legal implications
• Potential impact to be considered for both offshore and onshore
structures
Russian Legal Seminar
PwC
Helsinki, 5 March 2014
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22. Antimonopoly and anti-bribery regulations
• Russia has its own antimonopoly regulations:
• which are different from the EU antitrust law
• can apply both in case of mergers or
• with respect to commercial contracts limiting competetions
• No developed anti-bribery legislation – problems for compliance of
big multinationals
Russian Legal Seminar
PwC
Helsinki, 5 March 2014
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23. Litigating and enforcement
Litigation in Russia will be necessary if your counterparty is a Russian
entity and it does not perform its obligations
What to expect in Russian court:
• Cover of evidence
• Fake documents
• Delaying of process
What to expect from enforcement authorities:
• “No action without push”
• Delays and stoppages
• Lack of enforcement measures
Russian Legal Seminar
PwC
Helsinki, 5 March 2014
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24. Typical practical solutions
• Using combination of Russian law and non-Russian law documents
• Creating possibility to enforce both in Russia and outside of Russia
• Sufficient security measures
• Detailed pre-deal analysis and structuring
• Adopting Russian business parameters to existing risks
• Reserve plan for worst case scenario
Russian Legal Seminar
PwC
Helsinki, 5 March 2014
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25. Contacts
Dmitry Zhdanov
Elina Kumpulainen
tel.+7 (495) 967 6152
tel. +358 (0)20 787 7907
dmitry.zhdanov@ru.pwc.com
elina.kumpulainen@fi.pwc.com
Artem Moyseenko
Jussi Laurila
tel.+7 (495) 967 6293
tel. +358 (0)20 787 7809
artem.moyseenko@ru.pwc.com
jussi.laurila@fi.pwc.com
Russian Legal Seminar
PwC
Helsinki, 5 March 2014
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26. Dmitry Zhdanov
Director
Corporate law & M&A practice leader of PwC Legal Russia
Dmitry has more than 15 years of experience with general commercial, transactional
and corporate law projects. During his career, he has advised clients on a number of
M&A and joint venture deals. In addition he has handled complex restructuring
projects for major holding companies and represented clients in shareholder disputes
involving multibillion-dollar assets.
He has assisted international clients with establishing and structuring their businesses
in Russia, as well as Russian clients on legal issues related to their international
business activities. Dmitry also has substantial experience advising clients in the
finance, intellectual property, gaming and lottery sectors.
Prior to joining PwC Legal, Dmitry worked in the Moscow offices of a number of
international law firms.
tel.+7 (495) 967 6152
fax +7 (495) 967 6001
dmitry.zhdanov@ru.pwc.com
A graduate of the Faculty of International Law at Moscow State Institute of
International Relations (MGIMO), Dmitry also holds a PhD from the Institute of State
and Law of the Russian Academy of Sciences (IGPAN).
Dmitry is fluent in English and French.
PwC
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27. Artem Moyseenko
Senior Associate of PwC Legal Russia
Corporate law & M&A practice
Artem specialises in corporate law, focusing on mergers and acquisitions. He advises
Russian emerging-growth companies and international corporations on various
aspects of Russian and cross-border acquisitions, international joint-ventures and
corporate reorganisations and has been involved in handling the legal aspects of
complex multinational acquisitions and sales, portfolios and private equity
investments in Russia and CIS.
tel.+7 (495) 967 6293
fax +7 (495) 967 6001
artem.moyseenko@ru.pwc.com
Artem has experience representing clients on diverse Due Diligence, M&A and Joint
Venture projects. His past experience includes advising of: a German multinational
travel and tourism company on matters relating to the acquisition of local tour firms
and following corporate restructuring, a European financial institution over the sale of
shares in major Russian FMCG Company, a major German bank on the acquisition of
the Russian subsidiary bank of an American financial institution, a leading European
sound equipment manufacturer on the acquisition of a 49% interest in a Russian
distribution company, a German blue-chip car maker in connection with the
establishment of manufacturing facilities in Russia, a leading European producer of
transmissions on expanding a joint-venture with a leading Russian truck
manufacturer, a major Russian pharmacy retail chain by acquisition of regional
pharmacy chains, a major American private jet company on a potential joint-venture
in Russia, a German financial institution in relation to investment in Russian energy
companies and related transactions.
Artem graduated from the law faculty of Moscow State University in 2005 and
received an LL.M. degree from the University of Hamburg. Prior to joining PwC Legal,
Artem worked as an associate with the Moscow office of a German law firm. Artem is
fluent in German and English.
PwC
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