Comparative Law and Business in Russia

Legal Tradition

Russia is governed by civil law and its constitution is largely regarded as the supreme law of the land. The judicial system of Russia is highly structured with the existence of a constitutional court, a supreme court and a supreme court of arbitration. Legislative and executive related matters are handled by the former court while the Supreme Court is in charge of civil, criminal or administrative cases. Economic cases normally end up at the supreme arbitration court. Although local laws and federal laws do exist, precedence normally goes to constitutional law. This implies that these last two laws act as guides in court based decisions and are supreme over any other domestic sources. In Russia, the law is created through legislative processes which are then codified. This means that statutes are synonymous with the arm of the law. Most of the time, these codes will cater for various scenarios; however, if it happens that no specific code exists for a particular matter, then judges will base their decisions on principles written at the commencement of a particular Article (Partlett, 2008). This country is also characterised by Constitutional Courts that are designed to reverse unconstitutional laws. In certain circumstances, a lower court may have made an interpretation that contravenes judicial review and this implies that the decision was unconstitutional. Such scenarios normally occur when lower courts fail to fully evaluate the laws applicable to particular acts.

There are number of reason why Russian law is classified as civil law. First, the dependence on written laws is one of them. Secondly, judges have limited abilities to make independent decisions. Even in cases where gaps in written law exist, judges must abide by guides written down in law. Civil law legal traditions are required to engage in inquisitorial procedures where they identify facts in existent laws concerning their specific cases. Russian systems place minimal powers in the hands of judges because they cannot change the way the law is applied. Another important element that makes Russia a civil law jurisdiction is the manner in which the entire legal system and their laws are developed. Rationality of reason is a distinct part of such jurisdictions. In Russia, law makers assumed that legal problems needed to be solved using very rigorous or logical methods. In fact, civil law around the law commences from abstract concepts that are then applied to cases. This is in direct opposition to common law which stems from practical cases and then draws abstract concepts from them. The language employed in Russian law actually reflects this kind of concept (rationality) because it favours legal practitioners rather than the layman (Apple & Deyling, 1995). Any country that is characterised by written laws will be likely to have very elaborate laws that are engrained within specific structures as is the case with Russia.

Additionally, the limited powers of courts are also testimony to this kind of jurisdiction. The Supreme Court or the Arbitration court cannot give explanations on laws and procedures. Judges and legal stakeholders may only provide their insights through publications that can assist in interpretations of the laws. This limited power of Courts is very typical of civil law traditions. Another factor that makes Russia a civil law tradition is the codification of its laws. This was something that originated during the enlightenment period in other countries of the world. It was believed that certain concepts like property rights, democracy and human rights were critical. In order to maintain certainty, the laws had to be written down and eventually led to the codification of civil laws. The Russian legal system seriously needed to engrain the concepts of unity and methodology within its systems. It was the reason why the country felt that it needed to embrace codification. In the former soviet, civil law still held a lot of importance. However, the addition of Marxist ideas converted the civil law into socialist law (Doraine, 1989). Russia is classified as a civil law jurisdiction owing to the fact that it prefers to utilise inquisitorial systems over the adversarial system. The system has particularly been brought on by the importance placed on acquisition of evidence. Since most of the parties deciding on a case in Russian courts are legal professionals then chances are that they will not misuse their evidence and this will prevent them from being unfair.

Extent to which regionalisation is evident in my chosen jurisdiction

Regionalism or regionalisation in Eastern European nations is distinct from the regionalisation in other parts of Europe owing to the fact that in the latter area, regionalisation has been manifested in the form of strong legal systems and political movements as well. However, in Russia and its environs, regionalisation is evident in other spheres of life other than in the legal arena. These nations are more culturally than politically and legally affiliated. Social cleavages also play an important part in determining what went wrong with the latter group (Pule, 1998). More of them are very distinct from one another as they possess different ethnicities, economic backgrounds and other characteristics. Another factor that could explain the state of affairs in this region surrounding Russia is the size of the nation. The latter country is one of the biggest geographical areas of the world. Consequently, its inhabitants may possess a high degree of self sufficiency and may not feel that they need other nations in order to govern themselves. The historical events that took place in the region also have a crucial role to play as to the extent of regionalisation in this part of the continent. They needed to respond to their own needs and curve out their own legal path. Since the existence of this nation is short lived then it is likely that the circumstances revolving around their legal traditions may have been affected by this fact.

Russian law is quite distinct from its former nations which were in the Soviet Union. In this regard, it can be said that there is minimal regionalisation in their system. Prior to formation of the Russian federation in 1993, the Soviet had a socialist system. The system adversely changed when Russia became an independent state and needed to forge it’s identity. It should be noted that regionalisation was brought on by the dramatic historic events following the formation of Russia in 1992. In that year, the then President Yeltsin implemented economic policies that became highly ineffective. This caused a lot of uproar between this individual and its legislative arm. In the end, a war broke out in 1993 in Moscow when a national crisis had occurred. At that time, it became necessary for the country to rewrite its constitution and all other structures that were instrumental in governance of the latter state. The country therefore decided that administrative arms such as the judiciary should comply with legislations made on state levels or with the constitution. The crisis that occurred one year after the formation of Russia contributed to non-regionalisation of civil law because the country seriously needed to overhaul the mistakes inherent in their legal system between 1992-1993.

Minimal regionalisation of the civil law also came about from the history of Russia prior to its formation. During the communist era, rights and freedoms of the people had taken the back seat in the legal system. In fact, most citizens were oppressed by the laws of the time. After the failure of communism and the creation of the Russian state, free market economics replaced the latter principle. Consequently, the country found that it needed to make laws that were in tune with a free market economy. This explains why their constitution became so elaborate with regard to basic rights as freedom of expression, suffrage, land ownership and common objectives were included. The ability to alter the laws of the land was placed in the hands of a neutral body which was parliament; Russians wanted to avoid the mistakes of the past. Leaders such as Stalin and Lenin caused their citizens a lot of trouble because they could alter these laws as easily as they wanted. This is what led to a written codified system that classifies it as a typical civil jurisdiction.

Several civil law legislations in the world consider academic commentaries as critical sources of law. This is not the case with Russia which does not allow its judges to cite the latter when making their Court rulings.

On the other hand, it can also be said that there is some little evidence of regionalisation. The very existence of a civil law system testifies to this because many countries in the Eurasian region also adopted such a system. However because no formal entity exists to bind such nations then one can assert that the degree is rather small. When the latter region is compared to member states of the European Union, it can be seen that regionalisation is much greater in the EU than it is in Eurasian countries like Russia. There is no international legal system that redefines their identities as the case is with the European Union.

Extent to which Diasporas are evident in the Russian jurisdiction

Russia much like other countries of the world has participated in a series of international treaties. These are normally domesticated by inculcating them in the law of the land. This matter is covered under Article 15 of their constitution which stated that local laws need to be adjusted so as to include international laws. As such, diasporas are prevalent within Russian jurisdiction.

Civil law jurisdictions often allow for varying court systems depending on the federal environment. The same can be said of Russia. This country allows for different legal systems in their federations. However, cases can reach the Supreme Court once individuals find that their concerns are not being addressed adequately in the legal systems. In this regard, it can be said that Diasporas are indeed evident in the Russian legal system.

Russian law acknowledges the fact that there are traditions and customs that may affect written law. However, this is classified as a separate system and does not take precedence of the supreme law of the land. In many parts of the world, customs are acknowledged but overridden by civil codes so this means that diasporas are indeed prevalent in the legal system of this country.

Diasporas are also evident in the very fact that there exist certain entities designed in order to offer support to the court. One such agency is the Justice Ministry. In Russia, this body performs the same functions that the Federal Judicial Centre does so that justice administration can be made more efficient within the country. Nonetheless, it is not concerned with the enforcement of justice the way other Justice ministries in other countries are. The latter body is also given the responsibility of education for judges and other stakeholders in the court system. The separation of the courts from the latter body makes them a little similar to other civil law systems of the world. However, the extent to which this separation has been achieved is quite debatable in Russia.

Ajani (1995) explains that the Russian state has been undergoing dramatic alterations in its constitution and more often than not, these changes may be borrowed from existing western states. One such country is the United States. In fact, a number of post Soviet nations other than Russia have been doing the same thing. They take models from these nations and apply them within their own jurisdictions. Russia, however, has its own jurisdictional needs. This puts into question the suitability of borrowed models to solve the problems of this nation. Legal transplants as the term is popularly called caused a high number of post socialist nations a big dilemma because their legal environment is quite distinct from those sources of Diasporas. Furthermore, the legal scholars in Russia may not necessarily be in a position to adjust to these new models.

Jury court systems have also been allowed within the Russian judicial system. This nation has been able to do so owing to the existence of civil law jurisdictions that have been doing the same. The United States is one such country; its legal system is known for jury systems. To this effect, Russia is demonstrating a Diasporas effect because these systems were not traditional in the latter country. The country’s legal system had been criticized for a lack of transparency thus implying that they needed an overhaul. They acted on those criticisms within criminal cases by removing the concentration of power in the hands of specific persons (Pipes, 1995).

Issues that need to be considered in deciding to what extent the IT corporation can expect to negotiate water tight pro-forma binding contracts that largely favour the IT corporation.

The Russian based corporation will be taking its business to the international arena. There will be disagreements and misunderstandings that arise in the course of doing business and there are a range of factors that need to be considered during the contract drafting process. The first and perhaps most important one is the choice of jurisdiction. The laws of the two countries doing business together may differ substantially and there may be a need to clarify this matter from the onset by including it in the contract. The IT Corporation will be better off if it selected the jurisdiction of its parent company because those laws are likely to favour it. Failure to include this expressly in the contract will most likely lead to a scenario where the laws of the target market will preside over the matter. It will also be necessary to include an agreement on how to solve those disputes as they arise. Some clashes between parties can get confrontational if no specifications are included in the contract on handling them.

One critical issue that needs to be considered during the contract negotiation process is the licensing agreement. Utmost consideration will have to be given to the patent related rights, trademarks, license transference; copyright issues especially where software is involved and protection of trading secrets. These issues will be included in the contractual agreement with utmost precedence given to the concerns of the IT Corporation (Exiang, 2002).

The board will be rest assured to know that the contract favours the IT Corporation if the issue of risk is also covered in the contract. The target market may possess certain inherent risks that are not present in the chosen jurisdiction which is Russia. Consequently, the contract must accommodate these risks by first identifying them and then establishing some specific mechanisms for dealing with them. They may include client protection, paying indemnity and offering reasonable expatriate payments for members from the foreign nation.

A successful contract negotiating process will also be one that clearly stipulates member’s expectations. If all business partners are aware of their duties and responsibilities then chances are that the entire venture will be more productive. The contract should therefore include some information on expectations that members have concerning the results that will come from the corporation. This area might be especially tricky because the difference between the parent country and target market might be quite substantial. When drafting the agreement, it is essential to accept that negotiating styles are different. The best way to guard against undue infringement of the IT Corporation’s favour is by translating goals in negotiation to tangible actions. This may require a certain level of assertiveness from the IT firm.

Matters surrounding the operations and reward schemes need to be included as well in the contract. This means that elements of fiduciary duty, taxation and other regulatory issues will have to be stipulated therein. Management related issues and profit or loss entitlements will have to be included. The parent organisation will be defended here as it was the brainchild behind the whole idea. Corporate governance issues will have to be discussed as well and the contract will specify that control of the business will go to the IT based firm rather than stakeholders in the target firm.

Lastly, the pro-forma contract will also include information of confidentiality. Although disclosures are mostly specified by the country that is chosen by members of the contract, it is still critical to include some of these concerns in the contract making process. One way of achieving that is by providing for two way disclosures between the concerned parties. A letter of intent would be a good way to go because it will ensure that due concern is given to all the matters that will affect operations. Furthermore, it may be critical to outline some of the issues that will be disclosed, when the disclosures will take place and other matters concerning confidentiality. Once all these matters are covered, then the contract will be watertight and will therefore protect the IT Corporation’s interests.

It should be noted here that Russia is a signatory of the New York convention on foreign arbitral awards. However, because it is not a signatory to the recognition and enforcement of foreign judgements in commercial and civil matters then the latter country only gives precedence to a few selected socialist countries when enforcing their treaties. Furthermore, Russia courts do not have the obligation to reinforce any decisions made by foreign courts (Pistor, 1999). It implies that companies doing businesses internationally would be better off having a Russian court deal with their matters rather than a foreign one. This is the reason why it is probably be a good idea to restrict jurisdictions to the Russian system. Nonetheless, arbitration would be a better way to go in this arrangement rather than the court system because court systems may be slow or may be corrupt in Russia. On the other hand, it will be assumed that since the IT Corporation was formed in this country then it already knows how to deal with these matters.

Selection of a target market

The country chosen as the target market is Hong Kong. This administrative area is part of the people’s Republic of China but it is actually governed by common law; a fact that makes it unique from other parts of the country. Furthermore, it is governed by the need for rules of equity. Hong Kong, much like other common law jurisdictions, depends on case precedent. In this country, decisions are not just based on common law cases made in Hong Kong but from all other common law countries of the world. In Hong Kong law, it has also been asserted that other common law judges from the world may be included in a decision making process within these respective courts. According to the Hong Kong basic law, whenever companies are being formed in Hong Kong, they are either supposed to be incorporated if they are Hong Kong based. If they are non Hong Kong based as is the case with the IT Corporation, then they need to be registered under this particular area. Furthermore, the relevant documentation needs to be provided in the target market. This includes the companies’ ordinance and other related ordinances for incorporation. The latter information will then be provided to the public so that they are aware of those firms that have already registered within the corporation (Department of Justice, 2010).

How to ensure that these contracts will be governed by the contract law of Russia

The most effective way of ensuring that the parties will be governed by the contract law of Russia is by expressly stating this at the commencement of the negotiating process. In other words, the Russian counterparts will have to convince the Hong Kong partners that Russian courts will preside over their cases because the provision can only be guaranteed if the said parties both agree to this matter. There will be two ways of showing that the contract will be governed by Russian law. One way is through the terms of the agreements which must state that they are governed by Russian law. On the other hand, it may also be necessary to put a provision within the contract that the said parties have submitted to the jurisdiction of Russian courts in the event that a dispute arises while they carry out the contract (Johnson, 1970).

How one can ensure that legal disputes arising under the contract will (to the extent that it possible) be dealt with only the courts of your chosen jurisdiction

By expressly stating in the contract that the laws of Russia will apply then chances are that the said individuals will be governed by laws of this country. However, if the Hong Kong party rejects this offer and refuses not to include it in the contract then disputes will have to be decided by the said courts. There will be a number of factors that the courts will use in order to decide which laws apply. For instance if the contract was drafted in Russian rather than Chinese then chances are that the court will infer Russian law to be applied. To this effect, if the party from Hong Kong completely rejects the offer to expressly state that they will be governed by Russian law, then another way of pushing for this would be by drafting the legal jargon and terms in the contract using Russian.

It is unlikely that the latter party will reject this offer because the contract is not a paper devoid of any legal backing. There will be several legal terminologies that will need to be used and if those legal terms refer to Russian law then the contract will be assumed to be governed by it. Glenn (2010) explains that contracts can never be seen as pieces of papers devoid of some solid jurisdictions. This is because obligations are reinforced by remedies which are enforceable in courts of law. Those rules are never the same around the world so a decision (either consciously or sub consciously) will have to be made on these remedies. This explanation is what the negotiating party for the IT Corporation will rely on. Even though they may not be in a position to convince the Hong Kong partners to include their chosen jurisdiction in the contract, they can base the contractual terms on Russian law and this is what will take place in order to secure the interests of the IT Corporation.

Another way in which the contract can secure the interests of the IT Corporation is by ensuring that the terms do not appear to be evading one type of law over the other. Most common law jurisdictions including Hong Kong can actually override the decisions made by members of a contract once it has been shown that there were ill intentions that parties had when drafting a contract. One way of ensuring that such decisions do not occur is by stating their intention for preference of Russian law over Hong Kong law. Their reason should not be marred with ill intent. No biases towards Hong Kong law should be illustrated by the latter party (Mac Queen, 2000).

Another way in which the IT Corporation can protect its interests and ensure application of Russian law in the case of a dispute is by watching out for the place of performance because the latter matter is usually given precedence when no express jurisdiction has been selected. One way of ensuring that this occurs is by focusing most of their business in Russia. Hong Kong could simply be a place for supplying the material while the manufacture and other parts of the business could remain in Russia. For other economic reasons, it may be necessary to carry out these functions in the target market. The company will have to seriously consider the pros and cons of taking other parts of their businesses to Hong Kong. Nonetheless, the law would favour Russian law as the chosen law of jurisdiction if it finds that most elements of performance are in the latter mentioned country.

Alternatively, the courts may also decide to use Russian law if it has been shown that the places of residence of the said parties are in Russia. This is particularly important because the goods under consideration are tangible commodities and not services. This factor will matter mostly because there are no other conditionalities that must be met in order to ascertain that all the said work is handled adequately.

Sometimes a dispute may occur between various parties and there could be more than two countries affected by the dispute. An injury can also occur and affect three or more jurisdictions. In this regard, the courts allowed to preside over the matter will be those ones which are most related to the issue or the dispute (Shenjuan, 2000).

Incorporation of an organisation also plays an important role in determining the courts that will be in charge of a certain case. The IT Corporation was already incorporated in Russia. This implies that its disputes will be settled by the country of its incorporation. Therefore one effective way of protecting the interests of the IT Corporation is by simply establishing a branch in Hong Kong rather than by creating a whole new corporation in the latter territory.

Whether the chosen jurisdiction recognises corporations that have separate legal personality to its owners

In Russia, the country fully recognises separate legal personality of its owners. However, in order to qualify, one must belong to a firm recognised as a legal person, the concerned owner must go to registration bodies which checks whether the activities to be carried out by the legal person are legal and whether the order of formation has been implemented. However, sometimes, there could be a need to introduce a third person. These registration bodies are usually found in major Russian cities such as Moscow or St. Petersburg. In certain scenarios, separate legal persons may have to be dissolved if the latter reorganises its activities.

The separate legal entity of owners in Russia is only accredited to those persons who fall in three categories of business and these are limited liability companies, partnerships or joint stock firms. Other types of business arrangements may not allow their owners to enjoy these sorts of privileges especially with regard to their formations. IT should be noted here that sometimes it can be possible to form a limited liability company as a single individual. Here, the owner is not accountable to a board of directors neither is he expected to answer to management bodies. The solely owned company owner who formed a limited liability company is considered to be separate from the assets of the organisation. On the other hand, business owners may choose to come together in the form of partnerships to form limited liability companies or joint stock companies. In either of these arrangements, the owners may not exceed fifty and in the event that their organisation enters into debt, its creditors cannot demand for payment of the debt using the personal assets of these owners. Besides, the owners are not expected to be personally liable for company engagements (Sukhanov, 1999).

In order to enjoy the privileges of being a separate legal personality as an owner, one must comply with a series of procedures. First, the firm needs to be registered at a tax authority within a period of one week. Furthermore, the company which the owner will be separate from should also be found at the state committee for statistics within a period of two to five working days. These organisations need to possess as a seal. Non budgetary funds are required to be registered by the concerned bodies and lastly, the share issues need to be carried out by financial markets within a period of twenty four to thirty months.

Whether the chosen jurisdiction recognises limited liability for the owners of corporations

Russia recognises the limited liability corporations. In fact, firms that are formed using this method are governed by civil law systems. Here, participants of the corporation are held minimally liable for debts incurred by the company as long as they covered their share of the interests. Management are immune from prosecution by the firm’s creditors and so are the shareholders when it has been ascertained that the latter cannot pay up their respective debts.

In this arrangement, the firm is considered to be slightly more private and little interference is made by the Russian government or other representative parties. Furthermore, in order to form a limited liability company, a company must have the equivalent of three hundred and fifteen US dollars as starting capital. Many corporations prefer this mode of business because it provides them with greater flexibility than other alternatives. This is because the country looks at limited liability companies both as corporations or partnerships. Limited liability corporations are often allowed a simple level of management in Russia especially with regard to structural issues. Furthermore, all the stakeholders involved in the limited liability company such as the shareholders are expected to possess limited abilities. Nonetheless, Russia outlines the fact that their participating interests are not part of securities so they should not be governed by securities laws. Also, in limited liability companies, the rights of majority participants are given more precedence than the minority participants. Other types of businesses may be more appropriate when concern for rights of minority stakeholders will be a problem. The government also participates in this process through the influence of its Ministry of justice which stipulates that companies need to get accreditation through the registration chamber.

In comparison, a common law country may have a different approach compared to a civil law jurisdiction like Russia. First of all, these countries make a distinct difference between the roles played by shareholders, directors and managers and these are usually stated expressly in those laws (Cappalli, 1998). However, the same cannot be said of a civil law jurisdiction like Russia because in the latter country the issue of limited liability is extended to participants of the company rather than its shareholders of the firms. Nonetheless, minority participants are entitled to much less protection especially of their securities. On the other hand if one’s company was not a limited liability one but a joint stock company, Russian law is more favourable to such individuals because it allows for the protection of interests of the minority shareholders since their interests are classified as part of securities.

Conclusion

Russia is a civil law jurisdiction that was created through a series of constitutional changes that occurred right after separation of the country from the Soviet Union. In this regard, the country’s legal system is characterised by immense levels of structures. Conversely, the administrative region of Hong Kong possesses a common law system that is separate and distinct from other legal systems in the People’s Republic of China. The IT Corporation in this regard will greatly benefit from the structure and rules set up in Russia as a chosen jurisdiction and the best way to protect its interests would be to be governed by the laws of the country in which the firm was incorporated. This can be best ensured by stating the latter matter in the contract or through statement of legal jargon in the Russian language. Alternatively, this can be achieved by basing the terms and agreements in the contract on Civil law in Russia.

References

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Pipes. R. (1995). Russia under the Bolshevik Regime. London: Vintage.

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Pistor, K. (1999). Supply and demand for law in Russia. East European Constitutional review, 105(8), 56.

Ajani, G. (1995). By chance and prestige: legal transplants in Russia and Eastern Europe. Am. Comp. L. J. 93(43), 271.

Sukhanov, E. (1999). The right of ownership in the contemporary civil law of Russia. Mc Gill law journal, 44(4), 301.

Cappalli, R. (1998). Open forum – At the point of decision: the common law’s advantage over the civil law. Temp, Intl and Comp. L., 12(5), 87.

Mac Queen, H. (2000). Comparative law. Athens; Sakkoulas.

Johnson, B. (1970). The efficacy of choice of jurisdiction clauses in international contracts in common law. Cambridge: Cambridge press.

Pule, H. (1998). Regions, regionalisation and regionalism in 20th C Europe. West European Studies, 4(5), 63.

Exiang, W. (2002). Rules on issues relating to jurisdiction over proceedings of foreign related commercial and civil cases. Civil trail instruction, 1(5), 135.

Shenjuan, P. (2000). Interpretations on theory of applicable law of contract. Beijing: law press.

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