Get the latest updates as we post them — right on your browser

. Last Updated: 07/27/2016

Code Defines Contracts, Tenders

The second section of Russia's new Civil Code was signed into law by President Yeltsin on Jan. 27, as part of the modernization of a basic legal document which has remained unchanged since 1964.

Publication of the second section of the code is expected in Rossiiskaya Gazeta within the next few days.

Russian law is based upon continental rather than Anglo-Saxon practice. In the continental model, a civil code or equivalent is a fundamental document which underlies many aspects of the legal system.

The majority of the first part of the Civil Code came into effect at the beginning of last year. Corinna Wissels and Robert Wood of the Iris Center's Commercial Law Project, a USAID funded venture which has assisted the drawing up of the code, said that this first part dealt with the fundamentals of civil and commercial law. It has three main sections that deal with the provisions of civil law, property rights and contractual obligations, including pledge and secured transactions.

The second part, said Wissels and Wood, goes into detail on contract arrangements and has sections on obligations or speciality contracts, such as sales and purchases, banking transactions, factoring, leasing, insurance, agencies, franchising and personal injury.

The chapters on banking transactions encompass loans and credits, deposits, accounts, settlements, letters of credit, drafts and checks, and factoring.

Of particular note, says William Butler, a partner at the White & Case law firm in Moscow, the second part of the code introduces rules relating to commercial concessions, that is to say franchises, on financial leasing, and on contracts of reward including the issuing of unilateral contracts.

In addition, he says, there are provisions for public competition, which will have relevance in the oil industry as they lay the ground rules for tenders.

In all there are 655 articles, including 13 on how the code should be implemented.

The second section of the code was passed by the State Duma on Dec. 22, at a combined second and third reading. It was not discussed by the Federation Council, as the Council missed the 15-day deadline for debate, and instead went straight to President Yeltsin for signature.

A third section of the code is still under preparation. It will cover intellectual property, inheritance, and private international law. The last-mentioned sections may be of considerable importance for foreign investment, as they are due to regulate international transactions, including what choice of legal provisions is permissible.

This final section of the code is expected to be submitted to the Duma in the next few weeks.

Leonid Rozhetskin, a Moscow-based lawyer who reviewed sections of the first part of the code on behalf of the Russian government, said that the framing of the code has been a four-year process. He described the first part of the law as more important, but the second a further step in giving the country a proper legal framework.

The prime agent in the code's drafting has been the Research Center for Private Law. The Supreme Arbitration Court and the Ministry of Justice, among other Russian bodies, have also been involved.

Though the Civil Code is considered a major step forward, it may not make the mine field of Russian law that much easier to traverse. The ambition of the code, said William Butler, is to be a paramount legal document, to which subsequent legislation must adhere. Whether this will hold true, he said, may need to be tested in the courts. The general principles of Russian law, he said, are that new legislation takes precedence over previous, and that specialist law derogates from general law.

A Russian lawyer at a Western law firm in Moscow, who asked not to be identified, said there appear to be inconsistencies in the new part of the code, just as there were in the first section. Clarification of these inconsistencies could be problematic, the lawyer said, and could require the Supreme Arbitration Court, and possibly the Supreme Court, to make judgement.

In addition, a section of the first part of the code regarding land was dropped, the lawyer said, pending resolution in parliament of the politically sensitive issue of land ownership.