Russian business law: the essentials - Evgeny Gubin 2 стр.

10. Business Litigation, Arbitration and Other Remedies

Thus, this book provides a comprehensive overview of the ten core areas of Russian business law; in other words, its essentials.

Alexander Molotnikov,[3] Levon Garslian,[4] Andrei Gabov[5]

Introduction to Business Law in Russia

Before getting too deep into regulatory details, it seems appropriate and necessary to give a concise historical and conceptual background of Russian business and business law, in order to enable our reader to better understand the current developments.

1. Entrepreneurship Revival

For almost 70 years[6] during the existence of the USSR, entrepreneurship was impossible and even illegal. The key feature of the economy in the Soviet period was the "leading role" of the Communist Party. The Soviet economic system had to comply with the principles that the Party proclaimed: one-party leadership, planned economy, state ownership, and high rates of accumulation. To uphold these principals, the use of non-economic coercion could be possible. Thus, the Soviet economy itself was like one large corporation owned by the state and managed by the Communist Party. Only after the fall of the Soviet Union in late 1991 and the transition to the free market economy, one could start thinking about doing business.

The first legal developments towards the revival of entrepreneurship in the Soviet Union took place even earlier, and are related to the passing of such laws of the USSR as "On individual labor activity" (1986), "On cooperation in the USSR" (1988), and "On general fundamentals of citizen entrepreneurship in the USSR" (1991). Entrepreneurship received the most developed legal regulation in legislation of the Russian Federation in laws of the RSFSR "On companies and enterprise" (1990), "On registration fee for natural persons carrying out entrepreneurship and a procedure of their registration" (1991), On property in the RSFSR (1990), the Constitution of 1993, and the Civil Code of the RF.

For a revival of entrepreneurship in the Russian Federation, one had to create corresponding economic-legal prerequisites. They were created stage-by-stage via reformation of the economic system at the legislative level. The core change related to the transformation of property ownership. In conditions of a socialist property domination, where state ownership constituted the basis of the economic system of the USSR. With this form of socialist property,[7] the revival and development of entrepreneurship was simply impossible, due to a lack of proprietary forms variety, lack of private property, a lack of a market and its participants, and competition.

A new approach to a system of forms of ownership that developed in our country was expressed by passing the law of the USSR of March 6, 1990, "On property in the USSR," and by passing respective version of the Constitution of the USSR. The law of the USSR "On property in the USSR," (article 2.1.) for the first time directly permitted all the owners and so, even citizens to use property belonging to them for any economical or other activity not prohibited by a law. Furthermore, in combination with the right to use the labor of other citizens during exercise of property rights (article 1, paragraph 4), this law essentially opened a way to a revival of entrepreneurship.

Therefore, the adoption of the law of the USSR, "On General Fundamentals of Citizen Entrepreneurship in the USSR," seems very appropriate. Enterprises, buildings, equipment, and other means of production, and any other property have become the objects of the private property.

In the Russian Federation, the Law of the RSFSR of December 24, 1990, "On Property in the RSFSR" in art. 2, paragraph 3, the right of private, state, municipal ownership, as well as of ownership of public associations (organizations) were enshrined. This was the fundamental law which regulated ownership in this period.

The Constitution of 1993 RF recognized and protected in an equal way private, state, municipal and other forms of ownership (part 2 of art. 8); in the Russian Federation, land and other natural resources can be in a private, state, municipal and other forms of ownership (part 2 of art. 9).

This provision has been developed in the Civil Code RF, article 18, which is devoted to the legal capacity of citizens, granting them the right "to own the property to carry out business and other activities not prohibited by laws; create legal entities on their own or together with other citizens and legal entities; conduct any transactions not prohibited by laws." Hence, the Civil Code of the RF includes the key condition of entrepreneurship the right to carry out business activity. Freedom of labor is another indispensable condition of entrepreneurship, granted by the Constitution of the RF (art. 37).

Thus, by the beginning of the 1990s, the following fundamental conditions, necessary for the existence and development of entrepreneurship, were provided: (1) variety of proprietary ownership (first of all, private property); (2) right to carry out business activity; and (3) freedom of labor.

2. Economic Environment

One could think that after getting the necessary legal capacity for doing business in the early 1990s, nothing else was required for the development of entrepreneurship. In theory, this might be true, but of course, not in practice. The stability and strength of the national economy are the key drivers for the development of business, especially at a starting point. With regard to this, it is important to keep in mind that, in 1991, Russia was just getting into the complex process of transitioning to the market economy.

In the 1990s, the Russian economy experienced a deep recession, accompanied by extremely high inflation, low level of investment, growth of external debt, increase of barters, and many other negative processes. To improve the situation, a series of economic reforms took place, including the liberalization of prices and foreign trade, mass privatization, and other reforms. Nonetheless, in August 1998, Russia announced a default on its state obligations, and refused to support the ruble; in other words, the macroeconomic policy pursued since 1992 had failed.

During the 2000s, another series of reforms, this time with a positive effect, were made in various spheres, inter alia: (1) tax; (2) pension; (3) banking; (4) electricity; (5) railway. Even foreign experts at that time noticed the effectiveness of the reformation processes initiated by President Putin. For instance, the reform of the taxation system was considered a key factor of the economic growth.[8] All these processes resulted in Russia finishing the year of 2007 as the seventh largest economy in the world, ahead of Italy and France.[9]

In the late 2000s, Russia experienced a situation that affected many other countries the financial crisis of 2008, and the ensuing recovery. In March 2010, the World Bank report noted that the losses of the Russian economy were lower than expected at the beginning of the crisis, due to effective anti-crisis measures taken by the government.[10] However, the period of stability after the recovery from the financial crisis did not last long.

Since the beginning of 2014, the economy has been in stagnation. The outflow of capital from Russia in 2014 amounted to a record $151.5 billion.[11] Moreover, the Russian ruble experienced significant fluctuations and even collapsed against Euro and the US dollar. There were several reasons for this, but the primary reasons were low oil prices, and a political crisis in relations with Ukraine, followed by mass economic sanctions from the US and the EU.

This brief description of the Russian economy development shows that in the last 25 years, the longest period of the economic stability was less than 5 years. Thus, entrepreneurship, being dependent on the overall economic conditions in the country, has always faced challenges during its development.

3. Business Law Evolution

After a brief historical background on the economy and entrepreneurship development in Russia, it is important to become familiarized with the evolution of Russian business law as a science.

The study of the Russian business law originated in the works of the most eminent Russian legal academics of the 1819th centuries, who connected their lives with MSU. For instance, D. Ushinskiy, an MSU graduate, was the first person who argued for the necessity of defining business law as an independent branch of law. This was a crucial statement for the Russian legal tradition, where the division of law into different branches (areas) was important. This branch system continues to this day, and the reasons including the following: first, each legal scholar focuses his/her research on a specific area of law. The structure of law faculties at Russian universities is based on such a division of law. In 1876, professor N. Nersesov established a department of trade law at MSU, for the purposes of research in the area of business regulation.

Since 1925, the economic-legal department was created in the MSU faculty of USSR law. During the 1920s, the Civil and Land codes were adopted; also, drafts of the Economic, Commercial, Industrial, and Cooperative Codes were developed. The creation and tremendous development of business law was explained by the combined nature of the Soviet economy, and the industrialization of civil law. Moreover, the idea of business law significantly correlated with socialist ideology and the idea of common good. However, the MSU faculty of USSR law was reorganized in 1931.

The revival of teaching business law related to a decree of the Communist Party, dated 1964.[12] The first textbook on business law was developed by a group of authors, supervised by a doctor of legal sciences, Professor V. V. Laptev in 1967.

The final concept of business law was developed by a group of authors from MSU and the Sverdlovsk law institute, supervised by V. P. Gribanov and O. A. Krasavchikov. According to that concept, the business legislation could be recognized as an integrated and complex formation, where norms of different branches of socialist law interacted with regulation of different areas of business activity.

The modern period of business law started after the establishment of the business law and foreign trade regulation department of MSU in 1989, and was later renamed into the business law department in 1992, and headed by Professor A. G. Bykov.[13] After the fall of the USSR and at the beginning of new economy system formation, it was vitally necessary to study business law as a separate branch of law that would regulate legal relationship in a new free market environment.

Currently, the development of Russian business law is led by the MSU Business Law Department with Professor Ev. Gubin, one of the authors of this book, as its Chairman.

4. Entrepreneurship as a Legal Concept, and Business Law Principles

Another important thing to understand regarding specific rules of business law, is the legal approach towards entrepreneurship, along with business law principles.

In the Russian legislation, entrepreneurship is defined as an independent activity, aimed at regular receipt of profit from use of property, product sale, implementation of works, or service delivery carried out at their own risk by persons registered according to the laws (article 2.1 of the Civil Code of the RF). Thus, any activity can be declared entrepreneurship if it has the aforementioned features, in other words, (1) independence, 2) risk character; 3) focus on regular receipt of profit. Although it is not directly indicated in a given definition of entrepreneurship, the word «activity» itself indicates it must be a continuous, regular, not a single act, and be carried out for a more or less a certain time period.

The principles of business law form the basis for being a separate area of law, and determine its unity. The principles of the market economy underlie business law principles, as market relations are the subject of business regulation.

The following principles of business law are usually mentioned by legal scholars,[14] inter alia: (1) freedom of entrepreneurship, (2) variety and equality of ownership forms, (3) economic space integrity, (4) competition and limitation of monopolistic activity, and (5) state business regulation. These and other principles of business law are explained further in this book.

The principle of entrepreneurship freedom is enshrined by Article 34 of the Constitution of the RF, establishing that each person has the right to freely use his abilities and property in order to carry out business and other economic activity not prohibited by a law. The same article of the Constitution bans economic activity aimed at monopolization and unfair competition.

Another important principle relates to state regulation of economy and entrepreneurship. For example, article 71 of the Constitution of the RF includes the following spheres into the jurisdiction of the Russian Federation, inter alia:

(1) federal policies and programs in the area of state, economic, ecological, social, cultural and national development of the Russian Federation;

(2) legal framework of a single market; financial, foreign exchange, credit, and customs regulation, monetization, pricing policy; federal economic services, including federal banks;

(3) federal budget; federal taxes duties; federal funds of regional development;

(4) federal property and its management.

The principle of state regulation is enshrined not only in the Constitution of RF, but also in the constitutions or charters of the Russian Federation constituent territories, federal and local laws, and other legal acts.

Finally, the integrity of the economic space is another core principle of market economy and business law. In accordance with articles 8 and 74 of the Constitution of the RF, the integrity of economic space, free movement of goods, services and financial resources, support for competition, and the freedom of economic activity are guaranteed in the Russian Federation.

Now, our reader has the necessary background. Let your journey to the Russian business law begin! We hope you will enjoy it.

Evgeny Arkhipov[15]

Chapter 1 Business Legislation

1. Business Legislation

Russia belongs to the Continental (Roman-German) legal family. Statutes (laws) are the main source of law.

1.1. The Hierarchy of Legal Acts Regulating Entrepreneurial Activities

The system of legislation of the Russian Federation consists of three levels: federal, regional (at the level of subjects of the Federation), and local (at the level of municipal entities). At the top of the pyramid of normative acts is the Constitution of the Russian Federation. Moreover, the Russian Federation is a party to several binding international treaties.