Class Actions and Corporate Disputes
September 2009
On July 19, 2009, President Medvedev signed a law substantially amending the Russian Arbitration Procedure Code (the “APC”). The APC governs the procedures used in the Russian state commercial courts (known as “arbitration courts”). The amendments will come into force on October 21, 2009.
The key amendment is the introduction of “class actions,” although this concept is currently unfamiliar to the Russian courts and legal community. Key features of the amendments are summarized below:
Class Actions
According to the new class action rules, a plaintiff may file a claim to protect the rights and interests of other parties, as long as the claim arises out of a legal relationship in which the plaintiff also participates. Such claim would qualify as a class action under Chapter 282 of the APC, as long as five or more persons join the claim by the day of filing. For example, it appears that certain corporate governance disputes may be heard under Chapter 282, if multiple shareholders join the same claim.
The period for consideration of such claims by the “courts of first instance” (i.e., trial courts where the case begins) will be five months, rather than the three-month period provided for other claims.
Once a class action is filed, it will not be possible for a separate plaintiff to file an individual claim relating to the same matter, and he or she must join the class action. Court decisions with respect to such class action claims will be binding on all members of the same group in whose interests the claim was filed, with the same defendant.
Joinder of Claims
The amended APC contains new rules related to the joinder of claims. Prior to the amendments, the rules on joinder have been unclear.
Now, the amendments to the APC envisage that several claimants may file a joint claim where (i) the subject of the dispute is the joint rights of such claimants, (ii) the claims are based on the same grounds, or (iii) the subject matter of the dispute involves similar rights of the claimants.
Further, starting from October 21, 2009, the courts of first instance will be required to join cases connected by common ground or evidence, as well as in other cases where there is a risk of rendering inconsistent decisions if the cases are considered separately. In addition, the courts will no longer be allowed to dismiss cases involving two or more separate subject matters without examining the merits.
Corporate Disputes
The amendments to the APC introduce new Chapter 28, which is devoted to corporate disputes. The goal is to address frequent problems experienced in Russia with corporate “raiders,” who commence bad-faith litigation against companies as part of takeover strategies.
The APC now provides a detailed description of disputes which should be treated as “corporate” matters, and accordingly must be heard by the arbitration courts (as opposed to the courts of general jurisdiction, which primarily try cases involving individuals, and are generally less sophisticated about corporate law). Such matters include disputes related to the creation and reorganization of legal entities, title to shares or equity interests, claims for compensation of damages inflicted upon legal entities, challenges to transactions conducted by such entities, and the appointment or election of management bodies.
Specific attention is given to “interim measures” in such disputes, such as injunctive relief. Chapter 28 lists specific examples of such measures (such as court orders prohibiting the sale of shares until the dispute is resolved), and states that such measures may be imposed only if they do not block the normal business activities of the company in question or create serious difficulty for its activities.
Chapter 28 also contains specific procedures for the compulsory convening of shareholders meetings, as well as claims for compensation of damages suffered by a company (i.e., shareholder derivative claims).
Other Amendments
The amended APC also provides new options for defendants. Where a court awarded interim measures (such as an injunction) against a defendant but the claim was ultimately denied, the defendant (or other interested parties) may choose between filing a claim for compensation of resulting damages under the Civil Code or claiming so-called “compensation” of up to 1 million rubles under the APC. Such compensation may be recovered from the plaintiff who sought interim measures with no need to prove damages.
Finally, another important amendment obliges defendants in arbitration courts to present a statement of defense, which must address all of the arguments presented by the plaintiffs. If a defendant fails to present a statement of defense and this causes delay, the defendant may be held liable for the litigation costs and expenses incurred by the plaintiff and the court (save for outside counsel legal fees, in practice).
This article is intended only as a general discussion of these issues. It is not considered to be legal advice.
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