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23.10.23

Peculiarities of terminating a power transmission agreement

How can a power company reimburse the costs?

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I would like to discuss the situation when a power supply company terminates a power transmission agreement and has to reimburse the expenses caused by its execution.

A typical dispute looks like this: the owner of a facility receiving power wants to connect it to the power grid. He sends an application to a power supply company requesting a technological connection. The power supply company enters into a power transmission agreement with this person (hereinafter referred to as the Agreement) and issues technical specifications (hereinafter referred to as TS). Then the power supply company fulfills its obligations under the technical specifications such as building a substation, laying cables, and reconstructing networks with its own money. At the same time, the customer either fails to pay for technological connection or does not fulfill its obligations under the technical specifications, or both.

In such cases, a power supply company would rather terminate an agreement with such a customer and reimburse the expenses for

implementation of the technical specifications, which in some cases can be enormous.1 In this regard, power supply companies meet several obstacles: how to terminate the agreement with the customer and reimburse the expenses incurred by fulfilling the obligations under technical specifications?

Grounds for agreement termination

Grounds for agreement termination

Legally a power transmission agreement is an agreement to provide a paid service of technological connection to an electrical grid,2. Meaning it s a public agreement and, therefore, a power supply company cannot refuse to enter into it using provisions of Article 782 of the Civil Code of the Russian Federation. In real life, power supply companies have three options to part with their customer, depending on the latter. s behavior.

Option 1: before the agreement expires or the deadline for executing obligations under the technical specification, the customer in all manners informs a power supply company in advance that he/she will not pay for technological connection or fulfill the technical specification for some reason. In this case, a power supply company terminates the agreement, as stipulated in cl. 2, Art. 328 of Russia s Civil Code (the so-called "foreseeable violation"), and recovers incurred expenses as losses under the model of the negative interest agreement.3 At the same time, the court may refuse to terminate the agreement if it finds that the technical specifications are impossible to fulfill in the way the parties agreed upon.4

Option 2: the customer did not make the full payment for the technological connection on time or did not fulfill all obligations under the technical specification. In this case, a power supply company terminates the contract, as stipulated in sub-cl. 1, cl. 2, Art. 450 of Russia s Civil Code due to a sufficient violation of its terms and recovers expenses as losses.5 However, the courts do not tend to distinguish different grounds for agreement termination, referring without any justification to Articles 328 and 450 of the Civil Code6 simultaneously or to Articles 450, 779, and 781 of the Code7 simultaneously. Nevertheless, the outcome will be in favor of a power supply company no matter the grounds.

Option 3: the customer cannot fulfill the obligations under the agreement and their obligations under the technical specifications for reasons beyond his/her control. For example, after entering the agreement, the customer lost the power receiving devices or the right to the land where they are located. In real life, this option is common for cases when the customer is the state or a municipal institution, which lost its financial support for the agreement due to the decision of higher-ups. In this case, the customer does not terminate the agreement under art. 782 of the Civil Code, but refers to force major circumstances preventing fulfillment of the liabilities to a power supply company and, as the outcome, agreement termination under Article 416 of the Civil Code. In this case, a power supply company may terminate the agreement, as stipulated in Article 451 of Russia s Civil Code, as the circumstances have changed substantially. In case of agreement termination, this rule requires the court to distribute fairly the expenses incurred during the execution of the said agreement between the parties. In judicial practice, it is known as "reimbursing costs for works performed and all expenses caused by it to a power supply company.8

I would like to emphasize that the lack of state financing for a power transmission agreement, as well as the failure of a federal state institution to meet the limits of budget obligations, are recognized in judicial practice as grounds to terminate an agreement precisely because the circumstances have changed substantially,9. It also includes cases when the court believes that the cancellation of financial support is the grounds to terminate obligations under the agreement following Art. 416 of Russia s Civil Code. In this case, the contract is to be terminated because the circumstances have changed substantially.10

Reasons for agreement termination and expense recovery

The reasoning of the courts for termination of the power transmission agreement recovery of the costs incurred by power supply companies for execution of the said agreement is as follows:

  • since a power supply company incurs expenses in the customer s favor while responding to his/her application on technological connection, and since these expenses are inevitable for a power supply company due to the public and legal nature of these legal relations, the agreement termination does not exempt the applicant from reimbursing all the expenses incurred by a power supply company;11
  • a power supply company may initiate a power transmission agreement because a customer violates its terms. The termination is possible either through judicial procedures (sub-cl. 1, cl. 2, Art. 450 of the Civil Code) or through extrajudicial procedures by a power supply company issuing a unilateral statement on agreement termination (Art. 450.1 of the Civil Code), if it is stipulated in the said agreement. In this situation, according to cl. 5, Art. 453 of the Civil Code, a power supply company has the right to compensate its losses in the amount of actual expenses incurred due to performing under the agreement at the expense of the customer, who has caused the agreement termination due to his/her improper performance of liabilities;12
  • if a power transmission agreement is terminated, a power supply company can recover the actual expenses incurred from the customer, according to Articles 15 and 393 of the Civil Code in the amount not more than the connection tariff (see the Ruling of the Supreme Court of the Russian Federation dd. March 24, 2017, No. 304-ES16-16246 in case No. A45-12261/2015). This approach is also applicable to the expenses incurred by the power supply company.13

What a power supply company can recover from the customer

A power supply company can recover the following amounts from the customer:

Firstly, the expenses on preparing and issuing technical specifications, getting the approval from a system operator, preparing estimate documentation, making design, survey, construction, and installation works within the tariff, i.e., within the payment limits on technological connection approved by a regional tariff authority.

While objecting to the recovery claims of power supply companies, customers often refer to the fact that a power supply company can use energy facilities built at the customer s expense to connect other customers equipment to the electrical grid.

This argument is deemed to be erroneous for the following reasons.

Connection of other customers to these facilities will be carried out under the tariff set by a tariff authority. Tariffs on technological connection for new customers will not consider the expenses of a power supply company on connecting the existing customer, since these expenses have already been incurred and considered in the tariff on technological connection for the previous customer. In other words, these expenses will not be economically justified when forming a tariff for new customers. Their inclusion in the tariff on technological connection or power transmission service will contradict cl. 2, art. 23.2 of the Federal Law "On Power Industry" and cl.87 of the Pricing Principles of Regulated Prices (Tariffs) in the Power Industry (approved by Decree of the Government of the Russian Federation dd. December 29, 2011, No. 1178) and cl.17 of Regulations on Technological Connection of Power Receiving Devices owned by Power Consumers, Power Production Facilities, as well as Electrical Grid Facilities Owned by a Power Supply Company and Other Persons to Electrical Grids (approved by Decree of the Government of the Russian Federation No. 861 dd. December 27, 2004, hereinafter referred to as Regulations No. 861).

Thus, the power released on the electrical grid facilities under the power transmission agreement can be used to connect new customers. At the same time, the latter will pay the expense for technological connection only for newly built electrical grid facilities from the existing electrical grid to the facilities of new customers and will not compensate for the expenses previously incurred by the power supply company at previously created electrical grid facilities. Thus, in case the claim is declined, the power supply company will not be able to reimburse the expenses on the technological connection under the agreement with the former customer by including these expenses in the tariff on the technological connection of other customers. It also will not be able to include these expenses in the tariff on power transmission services.

Moreover, in 2020-2022, judicial practice was formed in cases on termination of power transmission agreements and claims of power supply companies, according to which leaving electrical grid facilities built for technological connection in the ownership of a power supply company is not an obstacle to recover the expenses on their construction within the tariff on the technological connection from the customer.14

Secondly, the VAT rate is 20% regardless of the agreement s date, including if it was concluded before September 1, 2019, when the VAT rate was 18%.

According to sub-cl.1, cl. 1, Art. 146 of the Tax Code, the sale of goods (works, services) within the territory of the Russian Federation is recognized as an object of VAT taxation. Following cl.1, Art. 39 of the Tax Code, the paid services rendered by one party to another are recognized as a sale of goods (works, services). The payment for technological connection is stipulated in clause 10 of the agreement, VAT included. The institution has made the advance payment under the agreement, VAT included. Since the company recovers the expenses incurred due to the execution of the power transmission agreement (actual expenses) from the institution, the company is entitled to recover them with VAT included. If the lawsuit is satisfied, the company remains in the same position as if the agreement is still in effect. The same situation happens during recovery of damages (see cl.1 of the Resolution of the Supreme Court Plenum dd. March 24, 2016, No. 7 "On applying the certain provisions of the Civil Code of the Russian Federation on liability for breaching obligations by courts"). If the agreement was still in effect, the company would receive a payment for technological connection, VAT included. Therefore, in case of recovering the same payment through judicial procedures, the company must also recover payment with VAT. The company s accounting report will recognize this money as the vatable turnover under the deal.

Starting January 1, 2019, the VAT rate is 20% (cl. 3 of Article 164 of the Tax Code as amended by Federal Law No. 303-FZ dd. August 3, 2018, "On Amendments to Certain Legislative Acts of the Russian Federation on Taxes and Fees", hereinafter referred to as Law No. 303–FZ). It is an imperative norm that the parties under the agreement cannot change. At the same time, there are no exceptions for agreements with a long-term nature and transition to the year 2019 and subsequent years, concluded before Law No. 303-FZ has entered into force, including state contracts (Letter of the Ministry of Finance of the Russian Federation dd. March 28, 2019, No. 03-07-11/21542). Therefore, regardless of the rate specified in the agreement, while providing services from 2019, the contractor is obliged to charge VAT and pay it into the budget at 20% rate (Letter of the Federal Tax Service of Russia dd. September 10, 2018, No. SD-4-3/17537@). The possible recovery of expenses, VAT included, for technological connection in case of an agreement termination is recognized in judicial practice.15

Thirdly, the penalty for failure to fulfill the obligations under the technical specification can be charged to the customer only within the terms of the agreement or the technical specification.

What the power supply company needs to prove in court

In particular, the power supply company must prove the amount of expenses, their relevance to the execution of the agreement, and the technical specifications. As evidence, it can submit agreements on the construction or reconstruction of substations, overhead lines, laying cable lines, performing engineering surveys, purchasing transformers, fuses, and other materials, as well as forms KC-2 and KC-3, invoices, payment orders, and reconciliation acts.

In practice, there are situations when, due to the abundance of documents, it is difficult to show to the court the calculation made by the power supply company. In this case, it is advisable to request the court to appoint an expert examination. We know about only five cases under consideration in which the courts have appointed an expert examination to calculate the expenses of the power supply company.

What the power supply company needs to prove in court

In particular, the power supply company must prove the amount of expenses, their relevance to the execution of the agreement, and the technical specifications. As evidence, it can submit agreements on the construction or reconstruction of substations, overhead lines, laying cable lines, performing engineering surveys, purchasing transformers, fuses, and other materials, as well as forms KC-2 and KC-3, invoices, payment orders, and reconciliation acts.

In practice, there are situations when, due to the abundance of documents, it is difficult to show to the court the calculation made by the power supply company. In this case, it is advisable to request the court to appoint an expert examination. We know about only five cases under consideration in which the courts have appointed an expert examination to calculate the expenses of the power supply company.

The experts faced the following questions:

  • The decision of the Moscow District Commercial Court dd. October 23, 2019, in case no. A41-93223/2018

    1. Does the scope and cost of the work specified in the form KC-3 dd. March 25, 2014, correspond to the works performed under the agreement dd. December 24, 2010?

    2. Do the works performed in the form KC-3 on laying cases of polyethylene pipes correspond to technical specifications dd. December 3, 2013, to the agreement dd. December 24, 2010, as well as designs, permits, and requirements of building codes and regulations? If not, what are the inconsistencies, defects, and violations?

  • The Ruling of the Moscow Commercial Court dd. October 16, 2019, in case No. A40-117907/19–10–732

    1. What are the actual expenses incurred by PJSC "..." while carrying out the activities stipulated by the power transmission agreement dd. December 26, 2008?

    2. Does the project documentation developed by request of PJSC "..." comply with the terms of the agreement dd. July 20, 2010?

  • The Decision of the Smolensk Region Commercial Court dd. April 11, 2017, on Case No. A62-22862/2016

    1. Do the works carried out by PJSC "..." on the reconstruction of TP-729 L1001, 1002 PS 110/6/10kv Central correspond to the works acceptance acts dd. February 24 and April 21, 2015?

    2. Have PJSC "..." carried out design and survey, and if so, what are the results and costs at the moment of execution?

    3. How much do the reconstruction works of P-729 L1001, 1002 PS 110/6/10 kV Central performed by PJSC "..." cost at the moment of execution?

    4. How much does the equipment installed in TP-729 L1001, 1002 PS 110/6/10kv 16 cost under the power transmission agreement dd. April 24, 2013?

    5. How much does the equipment removed from TP-729 L1001, 1002 PS 110/6/10 kV cost under the power transmission agreement?

    6. Do third-party organizations currently use the equipment installed in TP-729 L1001, 1002 PS 110/6/10 kV?

    7. Is there an objective possibility for third-party organizations to use the specified equipment in order to connect to electrical grid facilities?

  • The Decision of the Moscow District Commercial Court dd. August 21, 2018, in case No. A41-15449/2018

    How many actual expenses did JSC "..." suffer by carrying out the actions stipulated in clause 10.1 of the technical specification and annex to the power transmission agreement?

  • The Resolution of the Fifteenth Appeal Commercial Court dd. October 28, 2019, No. 15AP-14034/2018 (upheld by the Resolution of the North Caucasus District Commercial Court dd. February 20, 2020, No. F08-12999/2019 in case No. A53-33393/2017)

    1. To determine the volume and cost of the works performed by the public joint stock company "..." under the project: "Reconstruction of the indoor switchgear 6-10 kV to connect to a commercial entertainment center and an aqua park" from July 4, 2006, to October 12, 2017, and to implement technical specifications dd. June 26, 2015, on connection to the electrical grids of a commercial entertainment center and an aqua park at the address: under the power transmission agreement dd. July 4, 2006.

    2. Are the works performed by PJSC "..." from July 4, 2006, to October 12, 2017, necessary for technological connection, providing the capacity declared by the applicant (3,956 MW), reliable and stable power supply of the commercial entertainment center and the aqua park under the connection characteristics of the object under the agreement dd. July 4, 2006?

  • Among these five cases, only the last one has the court raising the right questions for experts since they accurately cover all legally significant facts included in the subject of proof. At the same time, the court did not raise unnecessary, purely construction questions that would increase the time and cost of the examination.

    Peculiarities expenses recovery regarding budget institutions

    In cases when power supply companies file claims against state or municipal budget institutions, the latter often refers to the termination of financing support and, hence, their failure to fulfill obligations under the agreement (Art. 416 of the Civil Code). Meanwhile, even if the state stops the financing support, the customer s obligations before a power supply company cannot be over due to his/her failure to fulfill the said obligations. This conclusion of the Ruling of the Judicial Board for Economic Disputes of the Supreme Court dd. February 24, 2022, No. 308-ES21-20570 in case No. A63-8366/2020, explains as follows.

    If a chief administrator (manager) reduces the previous budget financing limits for a state institution, as the recipient of budgetary resources, and it leads to the state institution s failure to fulfill budget obligations arising from the concluded state (municipal) agreements, per the legislation on the contract system, the state institution must ensure new terms of such contracts and agreements, including prices and (or) terms of performance and (or) quantity (volume) of goods (work, services) (cl. 6, Art. 161 of the Budget Code of the Russian Federation).

    By cl. 6.1, Art. 161 of the Budget Code, if the provisions of the law (decision) on the budget for the current financial year and the planning period related to the planning period are recognized as invalid under the Budget Code, the state institution has the right to not terminate previously concluded contracts and agreements payable in the planning period, on conditions of new additional agreements to the specified contracts and agreements defining the terms for their execution in the planned period.

    According to the provisions of Art. 767 of the Civil Code, when the relevant state bodies or local self–government bodies reduce the funds of the relevant budget allocated to finance contractual works in the prescribed manner, the parties must agree on new deadlines and other conditions for the performance of the works, if any. The contractor has the right to demand from the state or municipal customer compensation for losses caused by a change in the terms of work. These regulations on agreeing on new terms and conditions for the performance of work regarding the obligations of the parties under the contract correspond to the provisions of cl.6, p. 1, Art. 95 of the Law on the Contract System, and Art. 161 of the Budget Code.

    In civil cases, when parties could not reasonably foresee or prevent these circumstances (which is an exceptional case for an ordinary participant engaged in entrepreneurial (economic) activity), it is considered possible to apply Art. 451 of the Civil Code.

    In another case, the Supreme Court clarified that the termination of budget financing of a state-owned institution can become grounds to impose subsidiary liability for debts of the institution on the chief administrator of budgetary funds rather than to terminate the obligations, according to cl. 7, Art. 63 and cl. 4, Art. 123.22 of the Civil Code, as well as cl.7, Art. 161 of the Budget Code.16

    The practice of district commercial courts develops similarly. In particular, the termination of budget financial support is recognized as the grounds to terminate an

    agreement following Art. 450 of the Civil Code and recover incurred expenses rather than the grounds to terminate the obligations under Art.416 of the Civil Code.17

    If the applicant cannot fulfill the technical conditions (for example, due to the termination of his/her rights to a land plot where energy facilities are located), it is recognized as the grounds to terminate the agreement under Art. 450 of the Code and recover incurred expenses18 rather than the grounds to terminate the obligations under Article 416 of the Civil Code.

    The failure to carry out technological connection measures due to the prohibition of construction works on the territory of a natural monument is recognized as the grounds to terminate an agreement under the claim of a power supply company following Art. 451 of the Civil Code19 rather than the grounds to terminate the obligations under Art. 416 of the Civil Code.

    The failure to provide technological connection due to the actions of third parties is recognized as the grounds to terminate the power transmission agreement through judicial procedure under Art. 450, 450.1, cl.1, Art. 782, cl.4, Art. 453 and Art. 1102 of the Civil Code.20

    Despite failing to fulfill the power supply agreement due to objective circumstances, the plaintiff [power supply company] cannot bear negative consequences by continuing the agreement indefinitely. Failing to ensure the technological connection of the object to the plaintiff s electrical grids is a significant violation of the disputed agreement by the defendant. Since the department [applicant] committed a significant violation of obligations under the agreement, which is the grounds to terminate the agreement under cl. 2, art. 450 of the Civil Code, the claim of [the power supply company] regarding the agreement termination was lawfully satisfied by the courts.

    Regarding the satisfaction of claims on the recovery of incurred expenses, the cassation court noted that the department s failure to comply with the measures prescribed by the technical conditions, required to connect the facility s power-receiving devices to the electrical grids, does not exempt the customer from paying the contractor for the incurred expenses related to fulfilling terms of the agreement. At the same time, technological connection, as the obligation to achieve a certain result, terminates at the moment of the actual connection of the consumer s object to the electrical grid and the signing of the documents listed in cl. 19 of Rules No. 861. The public nature of the power transmission agreement does not mean that it cannot be terminated at the initiative of the power supply company in case the applicant significantly violates its terms, resulting in the power supply company losing everything it is entitled to have under the concluded agreement (cl.2, Art. 450 of the Civil Code, sub-cl. "C", cl. 16, p. 16 (5) of Regulation No. 861).21

    In the judicial practice of 2021-2022, the customer s organizational and legal form of a state-owned budgetary institution is not considered as the grounds to refuse a claim on termination of the power transmission agreement and recovery of expenses incurred by the power supply company. Thus, the courts satisfied the claims of power supply companies against the following state-owned and other budgetary institutions on termination of the power transmission agreement and recovery of expenses: State-owned Federal State Institution (SOFSI) "Directorate for Construction, Reconstruction and Restoration"22, SOFSI "9th Center of the customer-builder of the Troops of the National Guard of the Russian Federation"23, SOFSI industrial complex "Vzmorye"24, SOFSI "Department of Federal Highways North-West"25, Municipal Public Institution (MPI) of the town Shakhty "Shakhtystroyzakazchik"26, Municipal Administration "Selinginsky district"27, Department of Coordination of Construction and Long-term Development of Rostov-on-Don28, Ministry of Transport and Road Management of Krasnodar region29, Ministry of Defense of Russia.30

    In conclusion, I would like to note that one of the most important features in power industry disputes manifests itself in disputes on termination of power transmission agreements. It is a combination of civil law and special technical standards that demonstrates the peculiarities of the electrical grids functioning. Taking into account this feature allows you to develop a proper position in a dispute and assess the prospects of its resolution in court.

    1 For example, over 3.8 billion rubles (see case No. A40-92322/2021).

    2 See the Rulings of the Judicial Board for Economic Disputes of the Supreme Court of the Russian Federation No. 304-ES16-16246 dated March 24, 2017; No. 305-ES17-11195 dated December 25, 2017, and No. 305-ES19-1106 dated June 24, 2019; cl. 23 of the Review of Judicial Practice of the Supreme Court No. 1 (2018) (approved by the Presidium of the Supreme Court on March 28, 2018); resolutions of the Moscow District Commercial Court dated February 11, 2019, in case No. A41-15449/2018; Commercial Court of the North-Western District dated April 6, 2017, in case No. A56-74579/2015; dated June 20, 2018, in case No. A05-12217/2017; Volga District Commercial Court dated May 29, 2017, in case No. A72-12955/2016; dated November 28, 2019, in case No. A55-F06-54412/2019; Ural District Commercial Court dated March 5, 2019, in case No. A60-21668/2017; the Volga-Vyatka District of October 23, 2019, in case No. A82-4271/2019.

    3 See the Resolution of the Commercial Court of the West Siberian District dated May 20, 2021, No. F04-2337/2021; dated May 20, 2021, in case No. A45-43785/2019, and dated July 12, 2021, in case No. A46-14308/2020.

    4 See Ruling of the Supreme Commercial Court of the Russian Federation dated April 28, 2014, No. SCC-4782/14.

    5 See Resolutions of the Moscow District Commercial Court dated October 18, 2018, in case No. A40-136541/2017; dated June 6, 2019, in case No. A41-53450/2018; dated May 23, 2019, in case No. A40-191122/2017 and dated July 1, 2021, in case No. A41-47160/2020; of the Central District Commercial Court dated 16 July 2019 in case No. A36-6554/2017; Commercial Court of the Volga-Vyatka District dated October 23, 2019, in case No. A82-4271/2019; Commercial Court of the Ural District dated July 6, 2020, in case No. A50-29660/2019; Commercial Court of the West Siberian District dated June 5, 2020, in case No. A03-11178/2019 and dated February 1, 2022, in case No. A46-21014/2022; Commercial Court of the North Caucasus District dated May 21, 2021, in case No. A63-7215/2020; Commercial Court of the North-Western District dated July 7, 2021, in case No. A56-68980/2020; Commercial Court of the East Siberian District dated November 18, 2021, in case No. A19-25712/2019; Commercial Court of the Far Eastern District dated March 18, 2022, No. F03-630/2022 and dated March 22, 2022, No. F03-522/2022.

    6 See Decisions of the Commercial Court of the West Siberian District dated July 13, 2021, in case No. A46-8647/2020 and dated July 13, 2021, in case No. A46-6454/2020.

    7 Decisions of the Moscow District Commercial Court of dated September 1, 2021, in case No. A41-6558/21; Commercial Court of the East Siberian District dated September 28, 2021, in case No. A10-3987/2020.

    8 See Resolutions of the Commercial Court of the North-Western District dated February 27, 2020, in case No. A66-1310/2019; dated October 14, 2020, in case No. A56-92347/2019 and dated May 13, 2021, in case No. A56-124518/2019); Commercial Court of the Ural District dated December 25, 2020, in case No. A50-30911/2019; Commercial Court of Volga-Vyatsky dated July 12, 2017, in case No. A29-630/2016.

    9 See Resolutions of the Commercial Court of the Volga-Vyatka District dated July 12, 2017, in case No. A29-630/2016; the Far Eastern District Commercial Court dated September 18, 2018, in case No. A59-2621/2017; the North-Western District Commercial Court dated November 6, 2019, in case No. A26-4228/2018; dated June 23, 2020, in case No. A56-92372/2019 and dated October 14, 2020, in case No. A56-92374/2019; Commercial Court of the North Caucasus District dated May 21, 2019, in case No. A53-16869/2018 and dated July 6, 2021, in case No. A53-29006/2020.

    10 See the resolution of the Moscow District Commercial Court dated June 18, 2020, on case No. A41-93223/2018.

    11 See Resolutions of the Moscow District Commercial Court dated June 28, 2021, in case No. A41-32003/2020; the Commercial Court of the West Siberian District dated August 10, 2021, in case No. A46-5528/2020.

    12 See Resolutions of the Commercial Court of the West Siberian District dated August 23, 2021, in case No. A46-6296/2020 and dated February 1, 2022, in case No. A46-21014/2019; Commercial Court of the Volga-Vyatka District dated October 13, 2021, in case No. A43-12014/2020; Commercial Court of the Far Eastern District dated March 22, 2022, No. F03-522/2022.

    13 See Resolutions of the Commercial Court of the West Siberian District dated January 21, 2021, in case No. A27-2024/2020; dated July 12, 2021, in case No. A46-14308/2020; dated July 13, 2021, in cases No. A46-8647/2020 and no. A46-6454/2020; dated July 22, 2021, in case No. A45-14349/2020; dated September 2, 2021, in case No. A45-13281/2020; Commercial Court of the Far Eastern District dated June 9, 2022, No. F03-1746/2022.

    14 See Resolutions of the Commercial Court of the Ural District dated December 25, 2020, No. F09-8264/2020; dated July 6, 2020 in case No. A50-299660/2019 and dated June 30, 2021 No. F09-2861/21; Commercial Court of the North-Western District dated August 23, 2021, in case No. A46-6296/2020; Commercial Court of the West Siberian Districts dated January 1, 2022, in case No. A46-21014/2019; dated September 7, 2021, in case No. A46-7424/2020; dated November 22, 2021, in case No. A75-10218/2020 and dated July 12, 2021, in case No. A46-14308/2020; Commercial Court of the Far Eastern District of June 9, 2022, No. F03-1746/2022; dated March 22, 2022, No. F03-522/2022 and dated March 18, 2022, No. F03-630/2022; Commercial Court of the North Caucasus District dated February 3, 2022, in case No. A53-3284/2021; Commercial Court of the Volga District dated October 3, 2022, No. F06-2284/2022.

    15 See Decisions of the Commercial Court of the North-Western District dated February 27, 2020, in case No. A66-1310/2019 and dated May 13, 2021 No. F07-2377/2021; Commercial Court of the North Caucasus District dated July 6, 2021, No. F08-6131/2021.

    16 See the Ruling of the Judicial Board for Economic Disputes of the Supreme Court dated June 15, 2022, No. 305-ES22-1225.

    17 See the Resolution of the Commercial Court of the North Caucasus District dated July 6, 2021, in case No. A53-29006/2020.

    18 See the Resolution of the Commercial Court of the West Siberian District dated July 22, 2021, in case No. A45-14349/2020.

    19 See the Resolution No. F09-5024/21 of the Commercial Court of the Ural District dated August 23, 2021.

    20 See the Resolution of the Commercial Court of the East Siberian District dated September 3, 2021, in case No. A78-8667/2020.

    21 The Resolution of the AC of the North Caucasian District dated November 11, 2021, No. F08-10940/2021.

    22 The Resolution of the Commercial Court of the North Caucasus District dated July 6, 2021, on case No. A53-29006/2020.

    23 The Decision of the Commercial Court of the West Siberian District dated September 2, 2021, in case No. A45-13281/2020.

    24 The Resolution of the Commercial Court of the Far Eastern District dated July 5, 2022, No. F03-2230/2022 in case No. A45-889/2021.

    25 The Resolution of the Commercial Court of the North-Western District dated November 16, 2022, No. F07-16904/2022 in case No. A56-19652/2021.

    26 The Resolution of the Commercial Court of the North Caucasus District dated February 3, 2022, on case No. A53-3284/2021.

    27 The Resolution of the Commercial Court of the East Siberian District dated September 28, 2021, in case No. A10-3987/2020.

    28 The Resolution of the Commercial Court of the North Caucasus District dated November 11, 2021, in case No. A53-13617/2020.

    29 Decisions of the Commercial Court of the North Caucasus District dated December 3, 2021, in case No. A32-40955/2020 and dated April 13, 2022, in case No. A32-16815/2021.

    30 Decisions of the Moscow District Commercial Court dated July 1, 2021, in case No. A41-47160/2020 and dated July 22, 2021.


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01.03.23

Yuri Pustovit, Advocate of the Krasnodar Bar Association, Managing Partner of Advocates Bureau Yug

The right to be forgotten: how to win a case in court?

The practical guidelines on court cases that oblige search engines to remove website links from search engines.

Taking his company as an example, the author explains the peculiarities of the pre-trial procedure on court cases that oblige search engines to remove website links, defining jurisdiction, drafting a statement of claim, proving your reasons during the proceedings.

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In 2016, Federal Law No. 264-FZ dated July 13, 2015, entered into force, providing for amendments to Federal Law No. 149-FZ dated July 27, 2006, "On Information, Information Technologies and Information Protection" (hereinafter referred to as the "Information Law") and to the Civil Procedure Code of the Russian Federation. Therefore, today Russia has a new legal instrument that allows limiting the dissemination of information about citizens on the Internet. These changes were the first to establish the concept of "search engine", the responsibilities of their operators, and the procedure for removing website links from search results. These changes are the evolution of the right to be forgotten in its modern sense (the definition is used in the legislation and judicial practice of the European Union, the United States, and countries of Latin America).

When is it possible and appropriate to use this right? The Information Law distinguishes four categories of cases:

  • - information disseminated in violation of Russian Law (for example,

    insults, personal photos, illegal processing of personal data);

  • - false information;
  • - irrelevant information;
  • - information that has become irrelevant to the applicant due to subsequent events or the applicant s actions.

According to the statistics of the Yandex search engine, the largest number of requirements is connected to the removal of links to reliable but outdated information by search engines (for example, about a repaid criminal record, unconfirmed assumptions on being involved in law violation, data on the repaid debts, alimony).

The "right to be forgotten" applies only to individuals and is suitable for legal entities. However, before adopting the Information Law, there were discussions about including legal entities and commercial companies as subjects of the "right to be forgotten". But search engine operators gave very negative feedback. According to them, including legal entities would significantly expand the responsibilities of search engines and change the scope and essence of possible claims in future.

Let us consider in more detail the peculiarities of the pre-trial procedure for this category of cases, preparation of a statement of claim and proof establishment during the court proceedings.

Pre-trial

According to Part 1, Art. 10.3 of the Information Law, a search engine operator who advertises on the Internet and aims to attract consumers is obliged at the request of an applicant to remove website links from search results, as it allows access to applicant s personal data which is distributed against the law, unreliable, irrelevant or lost its significance for the applicant due to their subsequent events or actions.

The exception is the data containing signs of criminal offences in which the statute of limitations has not expired, or criminal conviction has not been removed or repaid.

The application must contain:

- applicant s full name and passport data;

- contact information;

- applicant s data the links to which are to be removed;

- grounds stating the website links are to be removed by the search engine;

- applicant s consent to process their personal data.

If the applicant s request submits incomplete, inaccurate or incorrect information, the search engine operator is entitled to send a notification requesting the applicant to clarify the submitted information within ten working days upon receiving the said notification. He is also entitled to request the applicant to provide ID documents.

According to Part 7 of Article 10.3 of the Law on Information, if the search engine operator refuses the applicant s request and the latter considers this action to be unjustified, the applicant is entitled to file a statement of claim on removal website links to their data from search results as the request primarily states.

The claim on the removal of website links from search results is to be sent directly to the search engine operator. You can send it via a digital form available at the operators support page, such as:

Yandex: https://yandex.ru/support/abuse/troubleshooting/oblivion.html,

Google: https://support.google.com/legal/contact/lr_rudpa?&product=websearch.

Search engine operators prefer receiving digital requests as it allows them to process claims faster without transforming their content into digital format and copying by hand hundreds of links, minimizing a chance of technical errors.

However, you should note that it takes some effort to provide digitally all documents confirming the unreliability or non-relevance of information. For example, the Yandex support page offers a digital form for sending "an application on removing website links to the distributed data violating the Russian Law from the search results. Meanwhile, this form allows a sender to attach additional documents of solely limited number and size. Thus, it may be difficult for the applicant. On the other hand, you can also send a written request by postal mail.

In practice, search engine operators in court disputes refer primarily to non-compliance with the pre-trial procedure . It is the core ground for refusing the statement of claim in consideration (Sec. 2, Art. 222 of the Civil Procedure Code of the Russian Federation). Referring to the plaintiff s non-compliance with the pre-trial procedure, the defendants can prove their reasoning with the absence of a formal refusal written by the operator to the claim, the insufficient volume of confirming documents submitted during the pre-trial, failure to provide evidence of information being unreliable and irrelevant, failure to provide additional documents by applicants in response to a search engine operator s request to provide them. Thus, when considering compliance with the pre-trial procedure, the plaintiff must prove many circumstances.

We should remember that search engine operators are not qualified to establish significant legal facts. The Information Law does not explicitly define the grounds for data removal from the Internet. Therefore, if the search engine to which the applicant sent a request has doubts about the validity of the claim, it will likely refuse the latter. The unconditional grounds for the search engine are the decisions of a court or a competent state authority. Without it, the applicant will have to provide evidence and confirmation of information being unreliable or irrelevant. Thus, the operator will have no doubts and grounds for refusal (for example documents proving the repayment of the debt or copyrights, photographic materials or expert opinions confirming circumstances).

The obligation to remove website links to the data on the Internet does not apply to information about events containing signs of criminal offences in which the statute of limitations has not expired, or criminal conviction has not been removed or repaid. By establishing such exceptions, in our opinion, the legislators tried to find an equilibrium between the rights of citizens and the public interest. We may also assume that such removal of information may violate users rights to access the information.

Jurisdiction and claim preparation

According to Art. 28 of the Civil Procedure Code (CPC) of the Russian Federation, a claim against an organization is to be filed at the location of the organization. Part 6.2, Art. 29 of the CPC provides that the plaintiff may file a claim to remove website links to distributed personal data from search results at the place where he resides.

Thus, the cases under consideration are subject to an alternative territorial jurisdiction. A claim to remove website links to distributed personal data from search results can be filed at the location of either the defendant or the plaintiff.

The jurisdiction issue is related to the problem of choosing a defendant. The most popular search engines are Yandex, Google, Mail.ru.

These operators have Russian respective legal entities — OOO Yandex, OOO Google and OOO VK. While the article was in process the authorities initiated bankruptcy proceedings against OOO Google. When choosing a defendant, it is necessary to be guided by the user agreements (terms of use) for search engines. These documents indicate both the exact name of the legal entity and its legal address. It is not difficult to find them on the Internet. In relation to the Google search engine, the courts recognize a legal entity Google LLC registered in the state of California in the USA as the initial defendant. Therefore, a lawsuit should be filed against this company. The courts consider OOO Google LLC, OOO Mail.ru Group and other legal entities not included in user agreements as improper defendants (see: Ruling of the Second Cassation Court of General Jurisdiction dated November 30, 2021, in case No. 88-27775/2021).

Meanwhile, according to Par. 11, Part 3, Art. 402 of the CPC, the Russian courts have the right to consider cases involving foreign persons if the plaintiff who files the claim to remove website links to distributed personal data from search results resides in the Russian Federation.

The law does not limit the applicant in the number of references used to make a pre-trial claim and a statement of claim subsequently. In these cases, plaintiffs usually request to remove hundreds or thousands of website links to distributed personal data in one claim. Obviously, a court will struggle while considering such voluminous statements. As a rule, the defendants point it out and use it to prove to the court that concepts of "irrelevant" and "unreliable" information are all mixed up in the claim or that its motivational and pleading parts contradict each other.

If there are many references in the pleading part of the claim we recommend preparing a justification for the claim in tabular form naming the columns as follows: 1) a link address; 2) a reason for its removal (illegal, irrelevant, unreliable); 3) evidence confirming the information is illegal, irrelevant, unreliable.

During consideration, there may be a situation when a search engine no longer shows some links because pages with the information have been deleted. If the defendant can confirm this, then a court may demand the plaintiff to clarify the claim. There may be a situation when access to the website (information resource) is blocked (restricted). Such a circumstance rarely excludes illegal actions of a search engine which shows website links to unreliable or irrelevant personal data (Ruling of the Seventh Cassation Court of General Jurisdiction of February 8, 2022, No. 88-2144/2022 in case No. 2-3/2021).

Proving evidence in a court


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21.05.19

Advocates Bureau Yug Successfully Defended Major Energy Company Against a Lawsuit of Guaranteeing Supplier

The suit’s subject was to recover the cost of electric energy during its transmission in the sum of more than 17M RUB. Lawyers of Advocates Bureau Yug proved that the guaranteeing supplier could not unilaterally terminate the energy supply agreement because it had not performed all relevant obligations. Thus, there were no grounds to consider the energy provided as energy consumed non-contractually, and no grounds to recover its cost as real losses.

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The judge decided that possible restriction of energy intake regime of socially important user must be imposed only on case-by-case basis and upon considering consequences of such restrictions. The suit against the energy company was dismissed by the decision of the Krasnodar Region Commercial Court.

The case may have influence on consideration of other similar cases, where recovery sum exceeds 500M RUB.

Yuri Pustovit, Managing partner of ABY, and its lawyer Alexey Demekhin represented the client’s interest on the case.


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10.01.18

The buyer did not have time to register the rights to the purchased property. What will happen if the seller goes bankrupt?

Let us consider the following situation. The seller and the buyer entered into a sale contract of immovable property. The seller is declared bankrupt, his bankruptcy trustee refuses to apply to Rosreestr with a joint application to register ownership transfer to the buyer. He refers to the fact that the object of immovable property is included in the bankruptcy estate and will be sold at auction, and the proceeds will be used to repay creditors claims. What should the buyer do?

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Let us consider the following situation. The seller and the buyer entered into a sale contract of immovable property. The seller is declared bankrupt, his bankruptcy trustee refuses to apply to Rosreestr with a joint application to register ownership transfer to the buyer. He refers to the fact that the object of immovable property is included in the bankruptcy estate and will be sold at auction, and the proceeds will be used to repay creditors claims. What should the buyer do

If the buyer wants to return the money paid, he shall apply to a commercial court that considers this bankruptcy case with an application to be include in the register of creditors.

If the buyer wants to obtain ownership on the object, he shall apply to a court at the object s location with claims on the state registration of ownership transfer on the object (part 7, art. 15 of the Federal Law "On state registration of immovable property" and part 3, art. 551 of the Russia s Civil Code). If the seller is declared bankrupt by the court, such a claim will be satisfied if the object at the time of the claim has been transferred to the buyer. Otherwise, the object will be included into the bankruptcy estate by a bankruptcy trustee. In this case the buyer can claim only a refund.

The buyer may face the following difficulties. The Chamber for Commercial Disputes of the Supreme Court of Russian Federation recently released two decisions (dd.17.10.2017 № 305-ЭС17-12927 and dd.17.11.2017 № 305-ЭС17-12136), which deny the possibility to satisfy claims urging the bankrupt to register of the right s transfer if the object is included in the bankruptcy estate. Here the buyer bears possible risk as the Supreme Court does not explain the meaning of "included in the bankruptcy estate"; is the object still considered to be included in the bankruptcy estate, if the seller has transferred ownership to the buyer? The Supreme court makes arguments in both decisions that may suggest that the issue of the object s owner has no legal significance anymore, and that the courts shall refuse to file a claim against the bankrupt to register the right s transfer anyway. The Supreme Court refers in both decisions to cl. 1, art. 131 of the Bankruptcy Law. According to it, all property of the debtor, available on the day of bankruptcy proceedings and identified in its the course, shall be included in the bankruptcy estate, that will be used to satisfy claims of the debtor s bankruptcy creditors. The Supreme court also refers to cl. 2, art. 551 of the Russia s Civil Code. According to it, even though the parties have executed the sale contract before registering the ownership transfer, it cannot serve as grounds for changing their relations with third parties. The seller remains the owner of the property for third parties until the ownership transfer to the buyer is registered.

Meanwhile, it is impossible to refuse such claim if the object is in the buyer s ownership. Can a bankruptcy trustee by its own decision include the object into the bankruptcy estate, if the object is not owned by the seller (in case № 305-ЭС17-12927 the bankruptcy trustee made it by drawing up an inventory list, although the ownership was transferred to the buyer)? In my opinion, he cannot do it. Indirectly, we can concluded it from §61 of the Resolution of the Plenum of the Supreme Court and the Supreme Commercial Court of the Russian Federation dd.29.04.2010 № 10/22. According to it, if one of the parties under the sale contract of immovable property avoids taking actions on the state registration of the ownership transfer of the property, the other party shall have the right to appeal to this side with the claim to register the transfer of the property s ownership (cl. 3, art. 551 of the Russia s Civil Code). The buyer s claim for the state registration of the ownership transfer shall be satisfied provided that the seller fulfills the obligation on the property s transfer. According to §2, cl. 1, art. 556 the Russia s Civil Code, unless otherwise provided by law or contract, the seller fulfills his obligation on the property transfer upon transferring the said property to the buyer and upon signing the relevant transfer document by the parties. Courts of general jurisdiction adhere this approach, satisfying claims against bankrupts on the state registration of the ownership transfer if the object has been transferred to the buyer (see the appellate decision of the Moscow State Court dd.26.01.2017 №.33-0095, and the appellate decision of the Volgograd Regional Court dd.16.03.2016 №33-3102/2016).

If the object is transferred to the buyer, the bankruptcy trustee cannot include it into the bankruptcy estate, since the buyer is its legal owner (§3, cl. 60 of the Resolution of the Plenum of the Supreme Court and the Supreme Commercial Court of the Russian Federation dd.29.04.2010 № 10/22). In order to return ownership to the bankruptcy trustee, the buyer s ownership grounds must be annulled, i.e. the sale contract must be terminated (for example, due to the seller breaching payment obligations) or become invalid (for example, on the grounds specified in Chapter III.1 of the Federal Law "On bankruptcy"). After that the object s ownership returns to the debtor and can be included into the bankruptcy estate. It is impossible to include the object owned by the buyer into the bankruptcy estate by mean of including it into the inventory list, as the bankruptcy trustee did in case № 305-ЭС17-12927. The buyer still remains as the owner, but since he cannot register the ownership transfer, the object stay permanently out of touch. It is impossible to acquire it due to acquisitive prescription, since the buyer is the rightful owner. The Supreme Court of the Russian Federation unlikely wanted to achieve such result while denying claims on the state registration.

However, what to do if the court denied the claim to register the transaction? In our opinion, there is only one way out: to wait for the completion of bankruptcy process, liquidation of the seller and its exclusion from the register, then apply to Rosreestr. This option is specified in cl.62 of the resolution the Plenum of the Supreme Court and the Supreme Commercial Court of the Russian Federation dd.29.04.2010 № 10/22. According to it, if the seller has no heirs or in case of the seller s liquidation as a legal entity, the buyer with transferred ownership to the property under the sale contract is entitled to apply for registration of the ownership transfer. If the state registrar refuses to register the ownership transfer without the seller s application, it can be appealed to the court under the rules of ch. 25 of Civil Procedural Code of The Russian Federation or ch. 24 of the Commercial Procedure Code of the Russian Federation. While considering the buyer s claim, the court shall verify that the seller has fulfilled the obligations on the ownership transfer and that the buyer has fulfilled payment obligations. The court shall satisfy the buyer s claim, if the seller s absence is the only obstacle to the state registration of the ownership transfer. The court obliges the state Registrar to perform actions for the state registration of the ownership transfer in the operative part of the decision.

The claim against the bankrupt on registration of the ownership transfer of the immovable must be distinguished from the claim against the bankrupt on registration of the transaction. The latter can be filed if the bankrupt avoids applying to Rosreestr for the contract registration, for example, the mortgage contract, equity participation in construction, the agreement on assignment of the rights from the registered lease contract, etc. The basic difference between these two claims is as follows.

According to §7, cl. 1, art. 126 of the Federal law "On insolvency (bankruptcy)", upon declaring the debtor as a bankrupt by the court decision, all claim of creditors on monetary obligations, mandatory payments, other property claims (except for current payments specified in cl.1, art. 134 of the Law, and the claims to recognize the property ownership, to recover moral damage, to recover property from illegal ownership, to verify invalidation of void transactions and to apply consequences of their invalidation) can be presented only during the bankruptcy proceedings. The explanations, fixed cl. 34 of the Resolution of the Plenum of the Supreme Commercial Court of the Russian Federation № 35 dd. 22.06.2012 "On certain procedural issues related to consideration of bankruptcy cases", state as follows: during the bankruptcy proceedings the claims of creditors on non-monetary property obligations (on the ownership transfer, performance of works and rendering services) ) that have arisen before the commencement of the bankruptcy proceedings and are treated according to the rules of art. 100 of the Bankruptcy Law, can be filed. Therefore, such claims are subject to a monetary assessment, specified in the register, in order to determine the number of votes at the meeting of creditors and satisfaction terms.

Thus, the Federal Law "On insolvency (bankruptcy)" allows creditors with non-monetary claims transform it into monetary claims if the debtor fails to fulfill or fulfills improperly any civil obligation. Given that the claim on the state registration of the agreement is a non-monetary claim and cannot be considered as a property claim, since it does not involve any actions with the property, the state registration itself does not create rights to immovable property. It only officially recognizes them. The said claim is a non-monetary claim on official recognition of the legal consequences caused by the parties having committed legally significant actions with the property.


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11.01.17

The Law “On the state registration of immovable property”. What is new?

On January 1, 2017, the Federal Law № 218-FZ dd. 13.07.2015 "On the state registration of immovable property" (hereinafter, the new law) came into force, replacing two other laws: "On the state registration of rights to immovable property and transactions with it" (hereinafter, the old registration law), and "On the state cadastre of immovable property" (hereinafter, the old cadastre law). The old registration law dd. 01.01.2017 became ineffective with the exception of one article 31.1, which terminates on 01.01.2020. The old cadastre law continues to operate in a substantially updated version as it excludes all the rules on cadastral accounting, and now this law, as stated in its part 1 Art. 1 "regulates relations arising due to implementation of cadastral activities, activities of self-regulatory organizations of cadastral engineers, the National Association of self-regulatory organizations of cadastral engineers".

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On January 1, 2017, the Federal Law № 218-FZ dd. 13.07.2015 "On the state registration of immovable property" (hereinafter, the new law) came into force, replacing two other laws: "On the state registration of rights to immovable property and transactions with it" (hereinafter, the old registration law), and "On the state cadastre of immovable property" (hereinafter, the old cadastre law). The old registration law dd. 01.01.2017 became ineffective with the exception of one article 31.1, which terminates on 01.01.2020. The old cadastre law continues to operate in a substantially updated version as it excludes all the rules on cadastral accounting, and now this law, as stated in its part 1 Art. 1 "regulates relations arising due to implementation of cadastral activities, activities of self-regulatory organizations of cadastral engineers, the National Association of self-regulatory organizations of cadastral engineers".

The reasons for the new law are the need to eliminate the shortcomings of the previously existing registration and accounting system: the inconvenience and high cost of the two registers, duplication and inconsistency of their information. Therefore, it should eliminate the gap between cadastral accounting as an object and registration accounting as rights to an object, simplify and accelerate registration and accounting procedures, reduce the risks of operations in the real estate market.

The article continues discussion on what is new, important and useful in the new law as compared with the old laws.

1. There is a Unified State Register of Immovable Property (USRIP). It combines the previously existed the Unified State Register of Rights to Immovable Property and Transactions with it and the State Cadastre of Immovable Property. The USRIP consists of the register of immovable property objects (the cadastre of immovable property), the register of the rights, restrictions and encumbrances of immovable property (the register of the rights to immovable property), and the register of borders (earlier data on them were contained in the cadastre of immovable property). Previously registers were kept on electronic and paper media. The USRIP is conducted in electronic form. Only registered files will be kept in paper form.

2. There are new objects of immovable property that are subject to cadastral accounting and the rights to which are to be registered: parking spaces, a single complex of immovable property, the enterprise as a property complex. Parking spaces are recorded in the USRIP and registered as independent objects of immovable property. Accounting for a single complex of immovable property and registration of the right to it is carried out in two cases: (1) construction of objects of immovable property is completed, and its design documentation provides for operating as such a complex, (2) if the owner requests to combine accounted and registered objects of immovable property that have a single purpose and are inextricably connected physically or technologically, or located on the same land plot. It is possible to register the property right to the enterprise as a property complex only after performing accounting and state registration of the rights to each object which is its part.

In contrast to the previous registers, the USRIP includes information on the territories of advanced socio-economic development, territorial development zones in the Russian Federation, gambling zones, forest areas, forest parks, hunting grounds. Moreover, the USRIP contains the history of operations with objects, all changes made to it will also be saved, and these data will be reflected in the USRIP extract. This is useful to check the legal purity of the object during its transaction.

3. Rosreestr (the Federal Service for State Registration, Cadastre and Cartography) has sole power to account and register rights. Cadastral chambers used to work on cadastral accounting but they do not exist anymore.

4. Cadastral accounting of objects and registration of rights will be carried out both simultaneously and separately.

The old laws could not provide simultaneous implementation of accounting and registration. According to the new law, if there is no information about the object in the USRIP, its cadastral accounting and registration of rights are carried out simultaneously in the case of creating the object of immovable property, terminating the object of immovable property, the rights to which are registered in the USRIP, creating or terminating a part of the object, which is subject to restrictions of rights and encumbrances of the object that must be state-registered. Without simultaneous cadastral accounting right s transfer registration takes place as well as confirmation of previously arisen rights. The new law also deals with situations when cadastral registration is carried out without simultaneous registration of rights. It includes creating object of immovable property based on permit to put a construction object into commission, terminating the object of immovable property, the rights to which are not registered in the USRIP, changes in main characteristics of the object of immovable property.

5. Rules for application on cadastral accounting of immovable property and state registration of rights were amended. Previously, anyone could file such an application. Under the new law, the list of applicants depends on how procedures of accounting and registration are carried out - simultaneously or separately. For example, if accounting and registration are implemented simultaneously, the owner or the legal holder of the land plot on which such immovable property object is located, can file the application. Moreover, if accounting and registration are carried out separately, a state authority or local government that issued permit to put the object into commission can file the application. Previously, applications for cadastral accounting and registration were filed at the location of the object within the cadastral and registration district. Under the new law, the place to apply and submit documents does not depend on the location of the object of immovable property.

Under the old registration law, the refusal grounds to accept documents submitted for registration were the presence in them of erasures, additions, strikethrough words and other unspecified corrections, their execution in pencil, as well as if documents were so seriously damaged that it was impossible to interpret their content clearly. Under the new law, these circumstances are the ground to return documents without consideration. Moreover, the Registrar can leave the application without consideration in case if electronic documents have incorrect format, or applicant s signature is absent in the application for cadastral accounting of the object or registration of rights.

The old cadastre law did not provide the grounds to refuse documents, and the old registration law prohibited it. Under to the new law, the documents can be returned if identity of the applicant who directly applied the documents is not established (for example, the applicant does not present a passport).

Previously, while sending documents for registration by post, it was necessary to certify only the signature on the application at the notary office. The new law requires the notary to certify the entire package of documents to be sent.

6. The grounds to suspend cadastral accounting and state registration by the decision of the Registrar are specified. Previously, the old laws provided each its own list of grounds for suspension and refusal of the documents. One of the grounds for refusal each law called failure to eliminate reasons for suspension. The new law combines all pre-existing reasons for suspension and refusal into one list of grounds for suspension (compared to the existing grounds, this list is increased significantly - there are 55 grounds). This list combined lists stated in old laws, specified these grounds, and added new ones.

Under the new law there is only one ground to refuse registration or accounting: if the reasons interfering with implementation of the state cadastral accounting and (or) state registration of the rights are not eliminated within the period of suspension. Among the new grounds for suspension it is worth noting the following: nullity of the transaction, on the basis of which a registered right appears; created (being created) object of immovable property, which construction (reconstruction) does not require the issuance of a construction or commission permit, in accordance with the legislation, or the object does not correspond to the type of the land permitted usage where it is created (being created), or does not correspond to the town-planning regulations; the land plot on which the object of immovable property is created (being created), is provided or transferred by the owner not for the construction (placement) purposes of such object; the room is not isolated or separated from other premises in the building or construction (except for parking spaces).

We also should note that the period of suspension has increased. Previously, upon the Registrar s decision the registration of rights could be suspended for one month, and upon the the applicant s request - for three months. The new law increased these terms. They will be: three months suspension upon the decision of the Registrar (except for certain grounds provided by other suspension terms); six months suspension upon the applicant s request.

New grounds for termination of accounting and registration. The new law provides new grounds to terminate cadastral accounting and registration of rights: the termination of registration is possible upon the request of a notary, if he is the one who has filed documents for registration. If the premises are purchased with the bank s credit funds or target loan provided by another legal entity, the termination of state registration of rights related to the alienation or encumbrance of the premises is allowed only if parties of transaction apply jointly and provide documents that confirm consent of the creditor (lender).

The total period of cadastral accounting and state registration of rights has been reduced. Previously, the total period of cadastral accounting of the immovable property and state registration of rights to it was 10 working days for each procedure. With simultaneous submission of documents for cadastral accounting and state registration, the term of state registration of rights begins from the date of recording information into the cadastre of immovable property, i.e. the maximum period is 20 working days. According to the new law (part 1, Art. 16), the total period of cadastral accounting of the immovable property and state registration of rights is reduced. When submitting documents to Rosreestr, it will be: 5 working days - for cadastral accounting; 10 working days - for simultaneous cadastral accounting and state registration; 7 working days - for state registration of rights. If documents are submitted to MFC, terms of cadastral accounting and registration of the rights increase for two working days.

9. Issuance of data from the Registry. There are two innovations. Firstly, if under the old laws on registration and cadastre information from the registers was provided within five working days, under the new law it makes three working days from the date the registration authority of the rights received request on data issuance. Secondly, the amount of information provided to liquidators in bankruptcy cases has increased. If previously they were provided with information only on the content of title documents and general data about the rights of the debtor to immovable property, the new law supplemented this list with a copy of the title document on the basis of which information is included in the USRIP. Moreover, such information is provided not only in respect of the debtor, but also in respect of all persons belonging to the management bodies of the debtor and persons controlling the debtor. It must help liquidators to deal with the withdrawal of debtors assets.

10. New rules on errors correction contained in the registry. “Errors in data”, specified in the old cadastre law are now called “registry errors”. It is worth noting two new rules: the correction of the registry error is carried out if such correction does not entail the termination, creation, or transition of the registered right to immovable property; it means the removal of land from the cadastral register is banned, which was considered unacceptable in the practice of commercial courts, but was widespread in courts of general jurisdiction. The new law highlighted particularly the correction procedure of the most common and conflict registry errors due to its special importance; it is the error in describing location of land plot boundaries that mostly takes place in the form of boundaries crossing and overlapping. Now, upon request of any person or any body, including the registration authority of rights, the court can decide to correct the registry error in describing location of land plot boundaries.

11. Regarding liability for violations during registration, there are two innovations. Firstly, under the old law when registering rights based on a notarized transaction, the bodies carrying out the state registration of rights are not responsible for the legality of the transaction. Under the new law, the rights registration authority shall not be liable for losses caused by the state registration of rights on the basis of the inheritance certificate, which the court recognizes as invalid, the certificate of share ownership in the common property between spouses or on the basis of a notarized transaction, which the court recognizes as invalid or applied consequences due to invalidity of a void transaction.

Secondly, liability for failure to execute a court decision is limited (this rule will be effective from 01.01.2020). Under the old registration law, an owner of residential premises, who is not entitled to claim it from a bona fide purchaser, and a bona fide purchaser, from whom premises were reclaimed, is entitled to a one-time refund by the Treasury of the Russian Federation, in the case when recovery under the executive document was not made within one year from the beginning date of terms to execute the document in accordance with a legally effective court decision on damage recovery caused by the loss of the said property due to force majeure. Under the new law, this right does not belong to all subjects of the law, but only to citizens who have lost the only residential premises. Moreover, if the recovery used to be made only in the case of the debtor s termination (the death of a citizen or the exclusion of a legal entity from the USRLE), therefore, there would be no need to wait a year, as it used to be under the old registration law.

Conclusions. Under the new law:

1. The number of obstacles to registration and cadastral accounting has significantly decreased: the number of documents submitted has been reduced, registration and accounting procedures have been accelerated, and they are more detailed in order to leave less to discretion of officials. The new law introduced more detailed and systematic rules, which were previously scattered in various regulations and judicial practice: on cadastral accounting when specifying the land plot boundaries, on accounting a part of the object, on increased number of documents Rosreestr is obliged to request independently.

2. Value of notary services increased: faster registration, no verification by Rosreestr of documents legal purity, which reduces the risk of suspension and refusal of registration.

3. The control of Rosreestr over construction has strengthened: the grounds for suspension in case of violation of facilities construction procedure and the obligation to inform the competent authorities about the violations detected during construction have been spelled out in details.

4. Favour of electronic document flow is stated. It will speed up registration and accounting procedures and unload paper archives.

Generally, the new law deserves a positive assessment. Only time can show how it works.


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