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24 08 / 17

SPEAR'S RUSSIA # 7, LAW RUBRIC.”GENTLEMEN'S RIGHT”

Author's article of the PARADIGMA manager partner N. Kolodezhnaya and the lawyer E. Koroleva

The vast majority of large international financial and corporate transactions with the participation of the Russian businessmen are committed using English law. What is the reason for such choice and what are the advantages will be explained by Ekaterina Koroleva and Natalia Kolodezhnaya.

GENTLEMEN'S RIGHT

Typically, the following transactions are structured with the application of the English law: M & A transactions, foreign trade and investment activities, license contracts, as well as shareholder agreements and other corporate transactions. The existing popularity of English law is due to a number of reasons, among which the central place is its stability and universality. The basic principles and institutions of English law have been developed over many centuries and were honed by time in the process of law enforcement practice, which ultimately ensured their detailed elaboration, simplicity and clarity. In other words, when the contract is concluded in English law, the parties clearly understand what they undersign, know their rights and that in the future their rights will be easy to defend in court.

The choice of English law is also related to the fact that it includes generally accepted and frequently used in international transactions law new instruments like guarantee and indemnity, optional contracts, estoppel and others. Up until recently, Russian law did not provide such legal structures and the Russian businessmen who wanted to enter into a contract that fully took into account their interests, were forced to turn to English law.

In Russia these instruments were fixed at the legislative level quite recently - since the introduction of the corresponding amendments to the Civil Code in 2015. At the same time it is necessary to understand that the practice of applying these institutions in Russia is just beginning to form and  the parties concluding the contract cannot be fully confident that the rules of law will be applied in the way they expect.

Therefore, it is assumed that in this area English law will retain an advantage over the Russian one for a long time, at least for the reason that in England these institutions have been operating for a long time and there is a certain stability and predictability of their application.

The sustainability of English law is also expressed in ensuring effective legal protection of violated rights. It is common knowledge that one of the main sources of English law, along with directly legislation, are judicial precedents. This ensures on the one hand continuity and uniformity of judicial practice, and on the other - flexibility and the ability to adapt to modern economic realities.

As for the domestic judicial practice, in Russia "how many judges, so many opinions". The main feature of local judicial practice remains its instability and heterogeneity. For example, on the same issue there can be a diametrically opposite litigation practice. In addition, one of the reasons for choosing English law is the universality of the English language.

With regard to the domestic judicial practice, in Russia there is a principle "how many judges, so many opinions". The main feature of local jurisprudence is its instability and heterogeneity. For example, there could be diametrically opposed judicial practice to the one and the same issue.  In addition, one of the reasons of the choice of English law – the universality of the English language.

FREEDOM OF CONTRACT AND THE LAW OF JUSTICE

It should be kept in mind that English legislation minimizes restrictions on mutual agreements of the parties. By submitting a contract to English law, the parties can include practically any conditions and stipulate almost any rights and obligations, which allows achieving greater opportunities for contract performance than Russian law offers. This is the most important principle of freedom of contract.

However, when concluding a contract, lawyers who are not immersed in the specifics of the Anglo-Saxon legal tradition find it difficult to understand the nuances and general principles of the organization of English law. Thus, sometimes it is necessary to observe how in the text of a contract concluded under English law are included such uncharacteristic legal constructions as  a penalty or exclusion of the responsibility of one of the parties, which in the future can be recognized by the court as null and void.

The principle of freedom of contract is closely related to another principle - the so-called "law of equity", or the right of equity, which gives judges a certain degree of freedom in applying the law, in order to achieve an equitable result.

The thing is that the distinctive feature of English courts is that in the event of a controversial situation and the existence of doubts in the interpretation of any terms of the contract, the English courts first of all look at what the parties really wanted to agree on. In other words, the court makes decisions on the basis of the whole set of circumstances, based on the true intentions of the parties.

In Russia, judges use a different approach - the controversial provisions of the treaty, as a rule, are interpreted literally, without taking into account the actual will of the parties. As an example of the application of the law of equity in action, we would like to quote a case from the practice of our company when the British state court denied the claimant for the satisfaction of his demands to the defendant (whose interests were represented by the company "Paradigma") because of the existence of unlawful elements in contract. The court learnt about unlawful elements not from the text of the contract but only in the process of reviewing the merits of the case, taking into account the complex of all the circumstances of the case and the real intention of the claimant.

JUDICIAL SYSTEM OF THE GREAT BRITAIN

Separately, we would like to dwell on the judicial system of Great Britain, which has shown itself in the whole world as the most fair and impartial. English judges have vast experience and very often specialize in a certain category of cases, which ensures their professional consideration. Referring to the English court, the parties can be assured of the quality of the final decision and detailed motivation of the court's decision. In addition, the English legal system is not characterized by bureaucracy, the virtual document exchange is widely used (by fax or e-mail) especially in the signing of contracts, while originals may not be required at all.

Signing a contract in English law and solving the issues of the place of jurisdiction for potential disputes, the parties most often prefer English courts  if the decision in the future will come to pass in England or the arbitration (typically LCIA – London Court of international Arbitration) if the decision would be enforced in Russia. English procedural law provides significant opportunities for the promotion and protection of the parties in the judicial process. In particular, English law provides a number of interim measures: orders taking appropriate measures to avoid the loss of any rights, orders of arbitrators prohibiting the filing of similar lawsuits in other jurisdictions, the seizure of assets and other measures to preserve assets within the jurisdiction, where it will be executed the decision.

Knowledge of the intricacies of English procedural law even allows, at first glance, the weak position of one of the parties to the dispute to protect their rights most effectively and force the opponent to change tactics and enter into negotiations.

It also allows us to implement successful management in complex cases, when the judicial proceedings are carried out in several countries simultaneously. A recent example from the practice of our company is the situation where the claimant filed lawsuits with similar claims against the respondent in several jurisdictions (UK, Cyprus, Russia). The respondent, whose interests were represented by the legal company "Paradigma", using one of the mechanisms provided by the English law filed a statement in the London arbitration court prohibiting the claimant from filing similar lawsuits in other jurisdictions. The court having considered the request of the respondent fair and justified granted this petition. Thus, the respondent narrowed the jurisdiction of disputes to one country thereby greatly simplifying the management of all litigations and significantly reducing the costs of the client.

Summing up, we would like to emphasize once again that at the stage of the conclusion of the international contracts the choice of law should be treated very seriously, because in the future this issue will influence not only on the enforceability of the contract in principle but also to ensure the proper protection of rights and interests in the case of a conflict. At the conclusion of transactions in mergers and acquisitions (M&A), foreign trade and investment activities, our company strongly recommends to give preference to English law, since it will fully allow to take into account and ensure the interests of all participants of the transaction.