Lawyers, attorneys, and in-house counsels from every corner of Russia gathered in Sochi to take part in the Winter Legal Week 2024. There, they discussed new legal trends of the year and long-term troubles in the business sector. As usual, Yug Times was a media partner for the event. Todays interviewee shared his view on the Russian legal community - its development, priorities, and expected changes.

Yuri Pustovit , Managing Partner of the Advocates Bureau Yug.

- Mr. Pustovit, what does the Winter Legal Week Forum look like today?

- Its one of the most significant events in the legal community. And, to my great satisfaction, ABY hosts it together with our partner Pravo.ru. As usual, the Forum is the first legal event of the year 2024, and it gathers high-skilled practicing lawyers and attorneys in Krasnaya Polyana during the ski season. Among the guests, you also can find colleagues from the sector of the real economy, who enjoy the Forum. It has a packed and dynamic official program alongside informal communication and ends with a full-fledged ski race accompanied by professional judges and an awarding ceremony.

Law and the market

- Lets start discussing current legal issues with this years sensational events. After the marketplaces large warehouse burnt down, the issue of compensating suppliers losses arose. Im sure, it also affected suppliers from Kuban. What do the legal mechanisms advise you to do in such a situation?

- Yes, the whole country heard about the situation, however, we still dont know about all the consequences. According to public sources, the warehouse was operated without compliance with the procedures provided for by current legislation. It means that the main question is how the retailer has carried out its business activities in the warehouse. Moreover, the retailer cannot indemnify this asset, if it wasnt commissioned and lawfully registered. The retailer could take out insurance for the asset under construction against any related incidents, but theres no insurance against incidents related to commercial exploitation of the asset. I dont know if the mass media tells us all the truth about the case, but it still raises questions. Regarding damage to suppliers goods, the supply contracts usually define such risks of accidental loss of goods as obligations that pass from the supplier to the marketplace and then - to the final buyer. You also can take out insurance against these risks. Its an effective tool. Therefore, suppliers ought to submit a claim to the marketplace and then file it to the court if the marketplace refuses to settle it amicably. If suppliers have insurance, they should submit an application on loss occurrence and meticulously work together with the insurance company using legal assistance.

Another trend impacting businesses obligations, particularly towards banks, is the rise in the key interest rate. This trend is likely to continue as a measure to combat inflation. How should businesses navigate this challenge to ensure their survival?

Indeed, the increase in the key interest rate poses a significant obstacle for businesses, rendering credit virtually inaccessible and setting the stage for higher interest rates on existing loans. In this scenario, businesses must manage their credit portfolio effectively and avoid becoming over-leveraged and unable to service their debt. Seeking the assistance of financial advisors and engaging in refinancing or restructuring negotiations with banks are prudent steps to take. The threat of bankruptcy can sometimes serve as a wake-up call for banks, but this mechanism should be employed cautiously. A thorough assessment of the risks - both civil and criminal - is necessary, along with identifying individuals who may be held vicariously liable and scrutinizing transactions that could potentially be challenged as void.

Fate of Assets

In light of recent events such as foreign companies leaving Russia and accidents occurring on public utilities networks leading to discussions about nationalization of assets in Russia and the absence of a specific law on nationalization in the country despite the apparent course towards it raises questions about the necessity of such a law and what it should delineate and define if enacted? Your opinion on the issue?

The issue you raise is indeed pressing as nationalization may replenish the state treasury in the short term but can lead to significant losses in the medium and long term. Nationalization disrupts the stability of civil circulation, undermines Russias investment attractiveness, violates the constitutional principle of the inviolability of private property without prior and equivalent compensation, damages trust in state institutions, results in court decisions that lack a legal basis, and contradicts established judicial practice of the Supreme Court of the Russian Federation. In the media landscape, there are frequent exhortations to invest in Russia, yet not ,,in the salary of Ursula von der Leyen.,, Narratives are disseminated suggesting that in the West, our monetary resources and property may be subject to confiscation. Concurrently, within Russia, a pernicious practice of asset de-privatization is taking shape. Despite the challenges Russia faces such as the ongoing special military operation and unprecedented sanctions disrupting economic and logistical chains it is essential to demonstrate to businesses and citizens that Russia is a territory of law where investments are protected and property rights are inviolable. While the state may have certain tasks to accomplish there are legal mechanisms within the current legislation that have proven its effectiveness making the adoption of a separate law unnecessary. The focus should be on the application of existing laws and practices based on them as depriving private property without prior and equivalent compensation is unacceptable and cannot be justified by any lofty goal.

Is the Sanctity of Private Property a Principle in Law? In recent times, there has been a notable surge in lawsuits filed by prosecutorial authorities challenging the ownership of substantial assets. A prominent example of this trend is the case of the former Sedins Factory in Krasnodar, where the authorities have contested the ownership of certain assets. As a rule, such lawsuits are decided in favor of the authorities. What does the legal community think about this trend?

The Sanctity of private property is a fundamental constitutional guarantee enshrined in the Constitution of the Russian Federation. The issue you have raised is a serious one, and it is systemic in nature. Similar lawsuits have flooded courts throughout Russia, and the Krasnodar Region is no exception, unfortunately. Initially, this wave of lawsuits by the Prosecutor Generals Office came as a result of sentencing in corruption-related criminal cases, and it was aimed at returning the assets of corrupt officials to the state treasury. However, a practice has since emerged in which there are no criminal cases whatsoever, yet the Prosecutor Generals Office, in such lawsuits, describes past events using language that clearly implies criminal wrongdoing. From our experience in participating in such cases, we have observed that they are often processed with astonishing speed. The defendants are not given sufficient time to present evidence in their defense, and the courts routinely reject motions to admit such evidence, without giving due consideration to the arguments presented. The courts appear to be guided solely by the position of the Prosecutor Generals Office, which naturally objects to any actions by the defendants. Moreover, the courts routinely grant all of the requests made by the Prosecutor Generals Office in these lawsuits. In effect, the defendants in such cases are deprived of their constitutional right to a fair trial. They are barely allowed to submit written objections to the claims against them. This practice has caused serious concern within the legal community, but prominent lawyers and attorneys are very cautious and reluctant to speak out publicly about it. As I mentioned earlier, the impact on the business environment is devastating. It disrupts the stability of civil transactions, destroys Russias investment climate, and undermines the faith of citizens and businesses in state institutions. Successful outcomes in these types of cases are extremely rare nationwide. It is reasonable to assume that they involve high-level agreements and compromises. In all other cases, the Prosecutor Generals Office gives the defendants absolutely no chance to defend themselves.

Current mechanisms

Is re-domiciliation a growing trend among Businesses? Is legal assistance a crucial factor? What does the judicial practice say?

Re-domiciliation is the process of changing a companys place of registration and jurisdiction. In 2018, Russia introduced legislation that created two special administrative regions (SARs) with conditions similar to those found in offshore jurisdictions. These SARs are located on Russky Island in Primorsky Region and Oktyabrsky Island in Kaliningrad Region. Since then, several companies from unfriendly countries have successfully relocated to Russia while maintaining their international status and benefits. While re-domiciliation is not yet a mass phenomenon, there has been a noticeable increase in interest in this option. However, it is a complex process that should not be undertaken without qualified legal assistance. For example, it is essential that the laws of the country where the offshore company is registered permit re-domiciliation. If the law does not allow it, it is impossible to relocate the company using a genuine re-domiciliation procedure.

Option agreements appeared in Russia in 2015, now they seem to be on the rise. What are your thoughts about this mechanism and its disadvantages?

Option agreements have been a part of the Russian business landscape for quite some time, particularly in companies with international structures and governed by English law. However, it was only after the 2015 reform of Russian civil legislation that the possibility of concluding option agreements emerged in domestic law. Initially, the uptake was slow, but recent events, such as the imposition of sanctions on Russia and the subsequent departure of several foreign companies from the country, have sparked a renewed wave of interest in these agreements. Bussines sector is used to pragmatic approach. Recognizing the significance of the Russian market, many businesses are reluctant to abandon it entirely. As a result, option agreements are being utilized to secure the possibility of reacquiring companies after a specified period. However, it is important to note that the Government Commission has imposed certain restrictions on these agreements. For instance, the maximum repurchase period is limited to two years. As with any agreement, it is crucial to carefully consider the terms and conditions, including the purchase price, under which the companies will be subject to repurchase. It is equally important to be aware of all the limitations imposed by the government on such agreements.

Global competition

What are the most in-demand legal services nowadays amidst changing economic relations?

Amidst the ebb and flow of events, certain legal services remain consistently in demand, such as litigation and bankruptcy proceedings. In the wake of recent developments, the early days following the commencement of the special military operation and the imposition of sanctions witnessed a surge in activities such as registering companies in friendly jurisdictions, opening bank accounts, and acquiring real estate and other assets. Russian lawyers, in response to their clients needs, ventured into these friendly jurisdictions, establishing offices in countries like Turkey, Armenia, Uzbekistan, the UAE, and China. Time will reveal the extent of their success in competing with local legal professionals and profiting from these endeavors. However, I posit that the exportation of Russian lawyers without the concomitant exportation of Russian law and Russian courts is an exercise in futility. It is not uncommon for Russian companies to have intricate holding structures, often headquartered in jurisdictions such as the Netherlands or Cyprus. In such instances, when engaging in substantial transactions, they typically resort to Dutch or English law, demonstrating a preference for English lawyers even over their Russian counterparts. Therefore, our primary focus should be on crafting effective national legislation, an area where notable progress has been made in recent years. Subsequently, we must enhance the practical application of these laws, an aspect that still requires considerable attention. Once we have achieved these milestones, we can then embark on exporting our legal framework, along with Russian lawyers, to the international stage. There is no need to reinvent the wheel. We can draw inspiration from the exemplary model established by English lawyers, who meticulously crafted effective English law and independent English courts, ultimately propelling their legal system to global prominence.

Russian lawyers have historically been an integral part of the global legal community. Have the mechanisms become more intricate in the current climate?

The world has undergone a profound transformation over the past two years. Colleagues from unfriendly countries, with whom we regularly convened in Moscow and various Western European venues, have virtually ceased communication and collaboration. Many are reluctant to assist Russian clients, even those not subject to sanctions. Nevertheless, some English and American law firms have obtained licenses to work with Russian clients who are not on the sanctions list, and they are profiting handsomely from this. There are now challenges in recognizing and enforcing Russian court decisions in unfriendly countries, and vice versa. Additionally, there are difficulties in serving notices to parties located in unfriendly countries due to the absence of postal communication. While we continue to find solutions to these obstacles, it is undeniable that the processes have become significantly more complex and time-consuming.

You and Advocate Bureau Yug have received numerous awards for your rankings in various assessments. The research is also published quite frequently. Today, the legal services market is being evaluated by domestic analysts, as foreign ones have departed. Why are company victories in legal rankings important? Have analytical approaches changed?

Yes, we actively participate and occupy leading positions in international and Russian legal rankings. Taking part in a ranking is primarily significant for self-evaluation. It helps us understand where we stand with our peers and what we need to strive for. Moreover, when using procurement procedures, large Russian and international businesses include a requirement in their qualification criteria for lawyers and attorneys to be present in specific rankings. This does not imply that clients will automatically choose you when you appear in a ranking simply because you are listed there. However, it is a necessary set of credentials for a reputable law firm that aspires to work with prominent Russian and international businesses. Chambers & Partners and Best Lawyers, two of the most prominent international rankings, have withdrawn from Russia, effectively abandoning us in the middle of the 2022 research. We had already submitted questionnaires with projects and conducted interviews with interviewers from Russian rating agencies. Subsequently, we received notifications that there would be no rankings for our country in 2021 or subsequent years. The ranking pages, which previously displayed the top Russian lawyers and attorneys, are no longer accessible on the websites of international rating agencies. The diplomas and statuettes in our office and those of our colleagues serve as reminders of a time when this was a part of our reality. In my opinion, Pravo-300 is currently the oldest and most prestigious national ranking of Russian lawyers. Over its 15-year history, its methodology for selecting companies has been substantially refined, the criteria for inclusion in the ranking have been raised, it has gained popularity among international law firms, and the rankings prestige has increased manifold. The award ceremony for the leaders of the Pravo-300 ranking is traditionally held in December at the Carlton Hotel and resembles the Oscar award ceremony, subsequently flooding social media feeds with photos and videos of delighted nominees. Among the reputable Russian lawyer rankings, I can also mention the ranking of the Kommersant publishing house. Last year Rossiyskaya Gazeta published its first ranking of lawyers. Regarding new companies participating in the rankings, they certainly emerge, and competition intensifies each year, making it increasingly challenging for leaders to maintain their positions.