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Reform of the Russian Civil Code

A bill that would introduce sweeping changes in the Russian Civil Code—affecting the law of obligations, corporate law, civil rights, inheritance and other areas—had its first reading in the State Duma on 27 April 2012.

One of the fundamental changes under the proposal before the Duma is a provision referring to the liability of the state or territorial governmental unit for lawful exercise of public authority (comparable to Art. 4172 of the Polish Civil Code). This is a completely new concept in the Russian legal system, but there have been calls for its introduction for years. Until recently the dominant view was that the state is not liable for its actions (apart from an unlawful act or omission, as already provided in Art. 16 of the current Civil Code), because as a sovereign determining the legality of the acts of others the state itself is not subject to such review. This notion of sovereign immunity, strongly rooted in the attitudes of the Russian administration, reflects the old English precept, “The King can do no wrong.” The proposed change in this respect represents a major evolution in the principles of liability of public authorities, as well as an important guarantee that the Russian administration will respect the rule of law. The amendment would make it much easier to seek damages by introducing the concept of “anonymous fault,” under which it would be sufficient to prove the fault of any member of a defined group of state officials, without the requirement to identify personally which official is to blame. The treasury would thus effectively assume tort liability, and the existence of claims for damages against the state would no longer be illusory.

The bill also provides for significant expansion of the freedom of contract, enabling the parties to freely shape their own legal relationships (within certain limits imposed by mandatory laws and principles of public policy). While the principle of freedom of contract has existed for some time in the Russian legal system, the bill would significantly reinforce the autonomy of the parties.

There are also plans to establish the mandatory form of a notarial deed for all real estate transactions. This would significantly strengthen the role of notaries as guardians of the legality and security of transactions. By the same token, notaries would also be subject to mandatory liability (civil, penal, tax and disciplinary) for failure to practise with accuracy and due care, particularly for injury to clients.

Much attention has been focused on the protection of civil rights, such as health, reputation, freedom of conscience, liberty, privacy, the sanctity of the home, and confidentiality of correspondence. As in Polish law, protection should be afforded to natural and legal persons not only when their rights are directly violated, but also when they are threatened by the acts of another. An injured party would be entitled to seek damages or require the defendant to contribute money for a specific social purpose. Defences to such liability would also be clarified, such as the consent of the rightful owner, acting pursuant to a requirement of law, exercising a subjective right, or acting in defence of a justified social interest.

There are also major changes proposed in the law of inheritance, specifically Art. 1123 of the Russian Civil Code concerning the confidentiality of wills. A fairly anachronistic inheritance procedure functions in Russia down to the present day under which any person participating in preparation of a will—e.g. a notary, a translator, and the witnesses—is required (under penalty of liability for any loss) to maintain the confidentiality of the testator’s will until the estate is opened for probate. In practice this causes serious problems in locating and identifying wills. Studies show that after the death of the testator, typically only the notary is aware of the existence of the will. In order to address this problem, the bill would establish a Uniform Register of Wills (Единый реестр завещаний), maintained by the Federal Chamber of Notaries (Федеральная Нотариальная Палата). All notaries in the country would then be required to file information with the registry identifying the testator and the date of the will, as well as information concerning any revocation of the will. Such information would continue to be confidential until the estate is opened for probate, but the centralised registration system for collecting and administering information about wills would eliminate the problems associated with the time-consuming search for wills and identification of the beneficiaries.

The proposed amendments would also significantly strengthen the protection of intellectual property rights, including through imposing liability on online operators for infringements on their sites, and on intermediaries of services used by third parties for piracy. The bill also clarifies instances of fair use of published materials without the requirement to obtain the author’s permission.

Some other key changes proposed:

  • Adoption of the rule that a pledge is extinguished if the pledged item is acquired by a good-faith purchaser (analogous to Polish Civil Code Art. 170)
  • Introduction of the right to seek damages for entering into or conducting negotiations in bad faith, particularly where the party had no intention of concluding an agreement (analogous to Polish Civil Code Art. 72(2))
  • A new division among legal persons into “public” and „non-public” companies, accompanied by elimination of the specific types of joint-stock companies—“closed” (Закрытое акционерное общество or “ЗАО”) and “open” (Открытое акционерное общество or “ОАО”)—as well as the “added-liability company” (Общество с дополнительной ответственностью or “ОДО”).

While the bill in question is still making its way through the legislative process, there appears to be a strong political will to complete the process and enact the proposal into law by September 2012. The bill is part of a broader reform of the Russian legal system over recent years, including the new Customs Code of 27 November 2011, the Immigration Law of 17 November 2011, and the Companies Law of 30 December 2008.

Przemysław Szymczyk, Real Estate & Construction Practice, Wardyński & Partners

Russian desk