Third Judicial Review of the Supreme Court of the Russian Federation

 

On November 25, the Presidium of the Supreme Court of the Russian Federation adopted the third Judicial Review for 2020. 

 

Along with other issues, the review explains the positions of the Supreme Court in bankruptcy cases, contractual disputes, as well as issues of procedural law. Below are the positions highlighted by the Supreme Court to form a uniform judicial practice on these issues.

 

Bankruptcy cases

 

• The Supreme Court reminded that the list of monetary obligations which might serve as a ground to commence bankruptcy proceeding is not exhaustive. One of the possible grounds is the failure to comply with the court ruling on return to the bankruptcy estate of the property transferred under a preferential transaction¹. 

• If a debtor-affiliated entity acquires a claim against the debtor after the bankruptcy case is initiated, such a claim should not always be considered as compensatory financing. The Supreme Court clarified that after the start of the bankruptcy procedure, it is no longer possible to hide the unfavorable financial status of the debtor and mislead other creditors. In this case, the priority ranking the affiliated creditor’s claim should not be reduced². 

• The Supreme Court clarified the procedure for the sale of the debtor's share in the right of joint property over non-residential premises. In particular, the Court pointed out that the value of the debtor's share should be determined through public bidding, not expert valuation. Further, the co-owner is to be given an opportunity to use the prior purchase right at the price determined at the auction. In case if the co-owner refuses or keeps silence within a certain period, the share should be sold to the winner of the auction³.  

• The owner of real estate that was sold under the seller’s bankruptcy case can file a claim for recognition of the right of ownership. If the owner acquired the property under a valid transaction and retained possession, the acquirer of the property at auction cannot be considered a good faith purchaser⁴.  

 

Contractual disputes 

 

• A party, which is obliged to pay a fine or penalty, is entitled to claim reduction of amount of such sum in accordance with the provisions of Article 333 of the Civil Code of Russian Federation. It can do so not only during the proceedings on the merits of the dispute, but also by filing an independent claim for application of Article 333⁵. 

• The Supreme Court concluded that the terms of a bank guarantee that exempt the guarantor from liability for intentional violation of its own obligations are not valid. In accordance with Article 395 of the Civil Code of the Russian Federation, the beneficiary has the right to claim interests from the guarantor who unjustifiably delayed the performance⁶. 

• While deciding on the qualification of an agreement as a contract in favor of a third party, the court should assess whether there are terms of contract that empower a third party to require the parties to the contract to perform actions. The Supreme Court stressed that it is important to take into account the rights of a third party and to interpret the contract keeping in mind the principle of a good faith⁷.  

• The Supreme Court explained when the limitation period for issuing a claim of a landlord for the return of the item commences, in case the contract does not regulate the period for return. In such case the limitation period starts to run from the moment the tenant refuses to return the item voluntarily⁸.  

 

Procedural issues

 

• When an application for an objection to the recognition of a foreign judicial or arbitral award is submitted to the court, it must appoint a court session to consider the issue of compliance with the deadline for filing the application. The established one-month period runs from the moment when the parties have had the opportunity to familiarize with the full text of the final decision of a foreign court or arbitration. If the court establishes that the deadline was not met, it should dismiss such an application⁹. 

• The Supreme court has dispelled doubts of the lower courts: that is the Commercial court that considers the application for issuance of an execution writ for enforcement of arbitration decision on economic disputes, regardless of composition of the parties in legal disputes. The parties might be legal entities, private entrepreneurs or other organizations, as well as citizens¹⁰.