Anton Rogoza
Partner, Corporate
Goltsblat BLP
The amended code affects the areas of pre-contractual relations, some contingent transactions and some aspects of liability. In particular, a party that, during or after conclusion of an agreement, provides the other party with incorrect warranties significance to an agreement is required to reimburse the other party for any resulting losses. A party that negotiates or terminates negotiations in bad faith is also required to reimburse the other party for any losses it might incur. The draft clarifies the meaning of the concept of "bad faith." Pre-contractual liability will be stipulated as liability for bad faith negotiations or termination of negotiations in respect of an agreement to be executed.
Only a voidable transaction infringing upon the rights of a contesting party may be invalidated. If a party approved a transaction or expressed its intention to uphold it, then it can not later contest it. This means the presumption of voidability will be established in respect of: resolutions passed by meetings; transactions executed in breach of a law; transactions executed without the required consent of a third party, corporate authority, government authority, local authority. It also means that invalidation of resolutions passed by meetings, transactions void from the outset relating to property where disposal is restricted or limited, and invalidity of transactions executed in error will be regulated comprehensively.
Representations and Warranties
If one party provides incorrect information of key importance to a transaction, the other party relying on this is entitled to withdraw from the contract (or, in some cases, to recognize it as invalid) and to claim damages. Even if the seller was unaware that the information was untrue, this does not release it from liability.
Compensation for Losses Not Connected with Breach of Contract
The parties may agree that, for instance, if any claims are lodged under previous obligations after a company is sold, the seller will compensate the buyer for all relevant losses (connected with the transaction subject losing value).
Creditor Agreements and Indemnity
Creditors will be able to enter into agreements regarding demands for their debtors to perform obligations, and the priority of these demands. In business relations, parties will be able to provide for one party to demand indemnification from another party for pecuniary losses incurred in connection with performance, amendment or termination of obligations, including misconduct by third parties. Indemnity will be permitted under Russian law.
New Types of Agreements
New contractual structures introduced include framework agreements (agreements with open terms), option agreements (an agreement with an unconditional right to enter into a specific agreement), subscriber agreements (agreements with performance on demand), and escrow agreements.
The proposed amendments provide an opportunity for the business to get rid of artificial corporate structures created only because of a rigid legal system which does not correspond with the best practices of the modern business world. This opportunity still has to be supplemented with case law, but the ball is already rolling. The amendments may also become a huge step forward in establishing Moscow as a new global or regional financial center as many foreign investors consider undeveloped Russian legislation an impediment on their desire to invest in Russia. It would be however wrong to say that these proposed amendments alone may completely change our lives. To keep up the momentum the government would need to take further steps to make our country attractive for investors, including further development of tax legislation, denationalization of the economy and to combat corruption.
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