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Russia Legal News Blast, May 3, 2011

[Editor’s note:  on hiatus since late January, we are back by popular demand with our daily Russia Legal News Blast, summarizing the latest developments in the Russian and trade press essential for lawyers both in and beyond Russia and the former Soviet states.] Vedomosti has published an article by a Russian lawyer concerning new proposed amendments to Article 10 of the Civil Code. Article 10 concerns so called abuse of rights (as meant originally, a chicanery). During the Yukos legal fiasco, prosecutors from the Russian government regularly relied upon Article 10 as a universal excuse to deprive the defendant and its subsidiaries of basic due process and other normal rights in this type of trial. In short, the concept of “abuse of rights” was given a new meaning, not justified by either the plain wording of the article or its legislative history, to provide a thin veneer of legitimacy for the unlawful handling of the Yukos case by the state. It seems that now the Russian authorities are seriously considering a possibility of amending the article to include the infamous concept of the Soviet “law” – the construct of “acting in circumvention of the law” (as distinguished from “acting in violation of the law”). During the Soviet period, the construct was used in cases where a person acting obviously within the limits set out in the Soviet statutes, ran afoul of the political authorities. If a case received certain notoriety and international scrutiny, and the courts were unable just to ignore whatever law there was, the concept of “acting in circumvention of the law” was used as a justification for an adverse decision. In this way, nobody could be sure that he would escape an adverse judgment merely by acting in full compliance of the law. Now, it seems that the concept has a good chance to get back on the books in Russia.

The lawyer who wrote the article for Vedomosti, Mr. Muranov, speaks against the proposed amendment and it has not attracted the attention it deserves. Interestingly, Mr. Muranov is a part of the Russian government team defending the gross indecencies of the YUKOS case in international adjudications. Of course, the complaint about the proposed amendment is not a substantive one. It is a part of ongoing discussion in the Russian government circles of whether to formally enshrine in law the legal atrocities of the Putin period, or to keep at least some appearances of a rule of law.Substantively, the amendment will not change much – the Russian executive does not need a formal authorization for destroying a company. That is proved by the latest Russian corporate drama – the attack on the Domodedovo airport. The airport, which is one of the largest hubs in Europe to rival Heathrow, has been an object of continuous raiding attempts by siloviki. The latest episode. Described by Kommersant here, the facts seems to be as follows. The airport has been an object of an investigation of General Procuracy (such audits often result in opening of criminal proceedings). As the result of the investigation, the Procuracy imputed to the airport the fact that the company that operates the airport it is ultimately, wholly or partially (the details are as often on GP releases not very clear), owned by a foreign company. The Procuracy has called the ownership by foreigners a threat to strategic interest of Russia. As an immediate result, a tax audit has been initiated (a sadly familiar pattern). Interestingly, Domodedovo is not included in the list of strategic entities and is not covered by the restrictions in the law on strategic enterprises that limit foreign ownership. Procuracy in the same breath proposes adoption of a new law that would limit foreign ownership of operating companies of transportation companies. Interestingly, foreign companies that participate in management of Pulkovo international airport are not mentioned. The lack of any legal pretext such as absence of a concept of “acting in circumvention of the law” in the civil code does not stop the procuracy – it seems to be trying to condemn the company on the basis of a new “strategic companies” law it proposes.Does it mean that a foreign company is necessarily hamstrung in Russia? Not if it is friendly with Kremlin.Recently, Russian authorities have been at pains to remind everyone who cares that bankruptcy of YUKOS was initiated by foreign, not Russian banks. Societe General in particular is mentioned. The last reminder of that fact came from remarks made by Igor Sechin during the recent Davos forum. And Societe General seems to be doing well in the Russian legal system.Observe the case that the French bank brought in Moscow court against a Russian trading company Nastyusha (the case, including recent decisions can be researched at the site www.arbtr.ru).Nastyusha is a major Russian wheat trader, who got loans of something like 60 million US Dollars from Societe General. After the massive fires that occurred in Russia during the last summer, the Russian government has introduced a moratorium on exports of wheat that affected wheat traders. Also, even for those who were trading internally, the fires were ruinous. As the result, Nastyusha wound up in court arguing validity of the loan agreement that were governed by English law.The most interesting feature of the case is how the Russian court ruled on the basic issues of the due process.Societe General was given a full freedom to introduce expert opinion it liked at a very short notice. Thus, an opinion from Norton Rose and an English barrister, a QC from Fountain Court Chambers in London, were allowed by the court and were relied upon by the court it its decision.In contrast, when Nastysha asked the court to appoint an expert on the same issues (it proposed a lawyer from London office of Herbert Smith), the motion was refused. Respondent’s motion to allow some time to prepare rebuttal of the opinions of the experts of other side, or at least to adjourn the hearings for a reasonable time to read the opinions carefully, were also refused. Interestingly, the expert opinions were introduced by Societe General in a Western style – on its own initiative, without previous appointment of experts by the court. In other cases involving banks and loans parties have been invariably refused such leniency on the theory that, in the Russian court, expert opinions paid for by a party cannot be regarded as a neutral evidence. By contrast, when Nastyusha tried to follow the Russian procedure and asked the court to appoint an expert, it was rebuffed. Evidently, Societe General, which is favorably mentioned by Russian leaders as an important helper in the YUKOS bankruptcy process, can now ride roughshod over due process notions in Russian courts.There is a single conclusion to all three stories in this review – in Russia, it does not matter what the law says – what is important is to have friends in high places.