Alexander Smirnov
Head of Commercial Practice
Goltsblat BLP
Amongst the changes, one of the most fundamental is the emphasis on bargaining in good faith. The new legislation enshrines the principle of good faith conduct as being a duty of all participants in the civil system, with liabilities now envisaged for bad faith negotiations. Parties acting in bad faith will bear the costs of losses incurred stemming from failed contracts as well as the costs of negotiations.
Indeed loss recovery becomes effectively a liability. Currently, the courts often dismiss claims for losses out of hand where the precise amount involved cannot be proven. The plan is to stipulate directly that lack of reasonable confirmation of an amount lost is not grounds for a court to refuse to recover losses, and that it is a court's responsibility to establish loss amounts proceeding from the principles of fairness and proportionality. The undefined concept of 'circumvention of the law' also becomes an abuse of rights.
It is expected that parties will be more diligent when negotiating, also yet there is no understanding on the amounts that could be recovered based on the bad faith negotiation rule. Pre-execution stage will apparently become more formalized as the amendments allow the parties to mutually alter the discussed rule.
Acting in good faith becomes a self-standing obligation of the parties, breach thereof could entail adverse consequences. Also the failing to act so might become a separate line of defence in civil proceeding.
The new code will strengthen the rights of corporate players and participants, clarifying corporate activities and minimizing potential for corporate disputes. It promotes the recovery of damages as a legal responsibility, imposing property liability on management and related parties where they act improperly in the discharge of their duties. It is also now expressly permitted to stipulate break fees for unilateral withdrawal from an agreement.
The current three-year maximum term for a Power of Attorney has been abolished, as has the notarized form of Powers of Attorney delegated by legal entities, heads of branches and representative offices. A party is now entitled to reject a transaction and claim recompense for losses if the counterparty's representative exceeded his authority.
The amendments should allow more flexible contractual mechanisms to be used and loss recovery to be made an effective sanction. These are positive factors. Much will, of course, depend on how the courts perceive the proposed innovations.
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