30.12.2013 Alina Kozmina, junior associate at Maxima Legal

Further amendments to Civil Code: international private law

A federal law which introduces another “batch” of amendments to the Civil Code of the Russian Federation (hereinafter referred to as the Civil Code) has been adopted recently. The Part III of the Civil Code regulating relations under international private law has now been amended.

Significant changes have been made to the provisions which define liability of members (founders) of a legal entity under their obligations. The above liability is now also determined according to the legal entity's personal law, which means the law of the country where the legal entity was established. Thus, creditors of a foreign company which primarily operates in the Russian Federation can now choose the applicable law to determine the liability of the company's members under the company's obligations. In this case, Russian law can be applied to liability-related claims, otherwise creditors may at their own discretion choose the legal entity's personal law. Therefore, since company's creditors can now choose the applicable law, it means that they can choose better tools to protect their rights fully.

A major change has been made to Article 1209 of the Civil Code, which regulates form of transactions. Previously, the rule lex loci (the law of the country in which the transaction is performed) applied to all transactions. From now on, the rule lex fori (the law of the country, which governs the transaction itself) applies. Therefore, the law which determines form of a transaction is now the same as the law which governs the transaction itself. However, at the same time, the transaction may not be declared null and void due to the choice of a wrong form, if the form complies with the law of the country in which the transaction is performed.

A new rule has been added, which regulates registrable transactions and rights. Thus, if a transaction or the occurrence, transition, restriction or termination of rights in connection with a transaction is subject to mandatory state registration in the Russian Federation, then the choice of form of such transaction shall be governed by Russian law.

Article 1214 of the Civil Code, which determines the law to be applied to agreements for the formation of a legal entity and to agreements which define the exercising of rights for its members, has also been amended. Previously, agreements for the formation of a legal entity with foreign participation were governed by the law of the country in which a legal entity would be formed under the agreement. After the changes to the Civil Code has been made, the parties can now choose the applicable law. In fact, the parties can now choose not only the law to be applied to the agreement for the formation of a legal entity, but also the law which will govern the exercising of rights for its members. The above changes make legal regulation of legal entities with foreign participation more flexible and expand the range options for company founders as to the choice of applicable law, however, all mandatory rules of the law of the country in which a legal entity will be formed shall be observed (see the Ruling of 31.03.2006 issued by the Federal Arbitration Court of the West Siberian District for Case No. A75-3725-Г/04-860/2005). The existing regulation principles will be applied, unless the parties have reached an agreement as to what law will be applied to the agreement for the formation of the legal entity, and to agreements which define the exercising of rights for the members. In this case, the agreement will be governed by the law of the country, in which the legal entity has been or will be formed.

Within the designated "batch" of amendments to the Civil Code some other changes were introduced,  affecting regulation of conflict of property rights; guarantee of consumers' rights in international private law; the law applicable to the relations of representation; the law applicable to the obligations arising as consequence of causing harm; termination of obligations by offset; the law applicable to liability for harm caused by resulting from defects of the goods, works or services; unfair competition; the law applicable to the obligations arising from unfair bargaining on contract, etc.

The above mentioned amendments entered into force on 1 November 2013.