Legal alerts / 24.04.2020

Ruling of the Supreme Court of the Russian Federation – court practice in the conditions caused by COVID-19

On 21 April 2020, the Supreme Court of the Russian Federation (the “SC”) issued a ruling [1] that contains explanations with respect to the key issues of performing contractual obligations, as well as to the application of procedural laws and bankruptcy legislation during the period in which restrictive measures are taken to combat COVID-19 (the “Measures”). The SC also clarified the procedure of how to impose liability for violations of the Measures.

  1. Contractual terms and limitation periods

The performance of a contractual obligation which has to be effected during the non-working days announced by the Decrees of the President of the Russian Federation [2] (respectively, the “Non-working days” and the “Decrees”) is not postponed to the closest working day. The SC clarified that the Civil Code of the Russian Federation defines non-working days only as days off and public holidays; for that reason, the Non-working days cannot serve as a ground for the postponement of contractual deadlines.

Meanwhile, the SC noted that the postponement of contractual deadlines can be achieved if the performance of the obligation during Non-working days is not possible owing to force majeure.

The SC gave a similar clarification with regard to limitation periods. The fact that a limitation period ends during the Non-working days cannot be considered a reason to postpone the last day of the limitation period to the closest working day following the Non-working days.

The SC specifically noted that the expiration of a limitation period can be suspended where a party is able to prove that a claim has not been submitted owing to force majeure events that have arisen in the last 6 months of such period.

Based on such clarification of the highest judicial instance, we recommend companies to make sure that all arrangements (if any) for postponing contractual deadlines to the end of the Non-working days are properly formalized. We also advise you to check that the company does not have any claims that may be time-barred after the Non-working days expire.

  1. Procedural timelines

Non-working days are included in procedural timelines and cannot serve as a ground to postpone the end of the procedural deadlines to the closest working day following the Non-working days. However, the SC noted that deadlines that were missed because of compliance with Measures (for example, restrictions on the free movement of citizens, their presence in public places and in state and other institutions, changes in the work of authorities and organizations) must be reinstated.

Depending on the circumstances of a particular case, the court has the right to postpone the trial, to suspend proceedings or to extend the timeframe for the proceedings with regard to the effect of the Measures. The SC noted that these actions should be implemented in compliance with the maximum period for court proceedings in a court of the corresponding instance and with a reasonable time for legal proceedings.

We remind you that the commercial (‘arbitrazhniy’) courts, as a general rule, consider cases in a period not exceeding six months from the date of receipt of the claim. This period may be extended to nine months owing to the complexity of the consideration of the case under the terms of the Measures. At the same time, the period for which the proceedings in the case are suspended or the trial is postponed is not included in the six-month period for the consideration of cases, but is taken into account in determining a reasonable timeframe for the proceedings.

In determining a reasonable timeframe for legal proceedings, issues related to the reasonableness of the postponement of the trial are examined. For example, if the participation of the parties in the consideration of the case is mandatory, but their access to the commercial (‘arbitrazhniy’) court is temporarily limited, then the postponement of the trial owing to these circumstances is justified.

In the event that the last day of the postponement of the trial falls on a Non-working day, the court must extend the postponement to the first working day and must set a new date for the hearing with all parties involved being notified of this.

  1. Amendment and termination of contracts

In relation to this matter, the SC repeated that either COVID-19 or measures taken by government bodies and local authorities to limit its spread cannot in themselves be considered force majeure circumstances. Whether a force majeure exists should be determined with regard to the circumstances of a particular case and upon condition that the party which is the debtor under an obligation is able to prove that the specific circumstance is:

  • Extraordinary, i.e. exceptional;
  • Inevitable, i.e. any person or entity carrying out activities similar to those of the debtor would not be able to avoid the effect of this circumstance or its consequences;
  • The reason why performance of the obligation is impossible or delayed;
  • Not dependent on the will or actions of the party affected by it;
  • Unable to be mitigated by means of reasonably justified and bona fide protective measures undertaken by such party.

During the period when such circumstances are in force, the debtor shall not face liability for any delay in the performance of the obligation and is not responsible for the losses caused to the creditor by such non-performance. The debtor must perform the obligation within a reasonable time after the force majeure circumstances end.

Thus, to be exempted from liability for a delay in performance or for the non-performance of an obligation, it is not enough just to refer to a certificate of force majeure issued by the Russian Chamber of Commerce or to decree No. 12-UM of the Mayor of Moscow dated March 5, 2020, which calls COVID-19 a force majeure circumstance.

In addition, the SC separately indicated that the amendment of a contract requested by a party due to a significant change of circumstances is possible only in exceptional cases when the termination of the contract turns out to be contrary to the public interest or such termination will entail damage to the parties, which significantly exceeds the costs required to perform the contract on terms that have been changed by the court.

  1. Bankruptcy moratorium

The SC confirmed that bankruptcy proceedings cannot be commenced against debtors falling under the moratorium on bankruptcy proceedings [3] (“Debtors”). Claims that have been submitted by creditors to declare Debtors bankrupt must be returned regardless of the circumstances and reasons that give rise to the debt, as well as of the period during which the debt arose.

Mandatory enforcements against Debtors’ assets within enforcement proceedings are also suspended. At the same time, despite the impossibility to collect Debtors’ assets during the moratorium, the SC confirmed that all interim measures imposed on such assets (for example, arrests or freezing orders) remain in full force during the moratorium.

In addition, the SC ruled that the issuance of enforcement orders against Debtors’ assets are not to be suspended during the moratorium. Whereas a creditor that has obtained such an order is not able to collect the Debtor’s assets until the end of the moratorium, it may seek interim measures and restrain the Debtor from freely disposing of its assets until the end of the enforcement proceedings.

  1. Criminal and administrative liability

The SC distinguished between the most “popular” coronavirus articles – article 20.6.1 of the Code of Administrative Offences of the Russian Federation (the “Code”) “Failure to comply with the rules of conduct in an emergency or in a situation where there is a threat of its occurrence” and part 2 of article 6.3 of the Code “Violation of the legislation in the field of ensuring the sanitary and epidemiological welfare of the population”.

Liability under article 20.6.1 of the Code occurs if individuals and legal entities violate the mandatory rules of conduct when a high-alert situation or state of emergency is introduced, which are approved by the Government of the Russian Federation [4], as well as regulatory acts of state authorities of the constituent entities of the Russian Federation that are of a similar nature [5]. For example, citizens who have left their homes to visit a sports or children’s playground, or citizens who have gone outside without an identity document are subject to having liability imposed under article 20.6.1 of the Code. The maximum liability under this article is 30,000 rubles for individuals, 50,000 rubles for officials or individual entrepreneurs, and 300,000 rubles for legal entities.

At the same time, the SC stressed that part 2 of article 6.3 of the Code is an exception to article 20.6.1 of the Code, so a person who has committed a violation of sanitary rules and hygiene standards or the implementation of sanitary-and-hygienic and anti-epidemic activities should face liability under part 2 of article 6.3 of the Code, which provides for more stringent liability in comparison with article 20.6.1 of the Code. Liability under part 2 of article 6.3 of the Code is imposed, for example, on persons who have violated a doctor’s prescription for isolation at home, despite a suspicion of the coronavirus infection, or despite them coming from unfavorable countries. The maximum amount of liability under part 2 of article 6.3 of the Code is 40,000 rubles for individuals, 150,000 rubles for officials, 150,000 rubles or an administrative suspension of activities for individual entrepreneurs, and 500,000 rubles or administrative suspension of activities for legal entities.

The SC also noted that the dissemination of false information about the coronavirus infection under the guise of authentic materials may lead to the imposition on an individual of administrative liability (part 9 of article 10.15 of the Code “Abuse of Freedom of the Media”) or even criminal liability (article 207.1 of the Criminal Code of the Russian Federation “Public dissemination of information that is known to be false about circumstances posing a threat to the life and safety of citizens”). At the same time, the SC did not indicate clear criteria for differentiating between these bodies of an offense; therefore, law enforcement agencies will actually decide under which article to hold a person liable.

Legal entities can also be held liable for disseminating false information about the coronavirus infection. The maximum amount of the liability is 5,000,000 rubles.

 

[1] “Ruling No. 1 on separate issues of court practice related to the application of legislation and measures against the spread of the new coronavirus infection (COVID-19) on the territory of the Russian Federation” (approved by the Presidium of the Supreme Court of the Russian Federation on 21 April 2020).

[2] Decree No. 206 of the President of the Russian Federation dated 25 March 2020 “On declaring non-working days in the Russian Federation”; Decree No. 239 of the President of the Russian Federation dated 2 April 2020 “On measures to ensure sanitary and epidemiological well-being of the population on the territory of the Russian Federation with regard to the spread of the new coronavirus infection (COVID-19)”.

[3] The moratorium covers organizations and individual entrepreneurs operating in sectors that are most affected by COVID-19 (approved by Resolution No. 434of the Government of the Russian Federation dated 3 April 2020 “On approval of the list of sectors of the Russian economy that are most affected in result of spread of the new coronavirus infection”), systemic enterprises (approved by the Letter No. 8952-RM/D18i of the Ministry of Economic Development of the Russian Federation dated 23 March 2020 “On the list of systemic enterprises”), strategic enterprises and strategic joint-stock companies (approved by Decree No. 1009 of the President of the Russian Federation dated 4 August 2004 “On approval of the list of strategic enterprises and strategic joint-stock companies”), strategic organizations (approved by Order No. 1226-p of the Government of the Russian Federation dated 20 August 2009 “On approval of the list of strategic organizations, as well as federal executive bodies ensuring the implementation of a unified state policy in the sectors of the economy in which these organizations operate”).

[4] Resolution No. 417of the Government of the Russian Federation dated 2 April 2020 “On the approval of the Rules of Conduct upon the introduction of a high-alert situation or emergency binding on citizens and organizations”.

[5] For example, Decree No. 12-UM of the Mayor of Moscow dated 5 March 2020 “On the introduction of a high-alert regime” or Resolution No. 121 of the Government of St. Petersburg “On measures to counteract the spread of new coronavirus infection in St. Petersburg (COVID-19)”.

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