On July 9, 2019, the Plenum of the Supreme Court of the Russian Federation adopted a resolution (Resolution of the Plenum of the Supreme Court of the Russian Federation dated 09.07.2019 No. 24 «On the Application of Rules of International Private Law by the Courts of the Russian Federation»), in which it explained the particularities of applying the rules of private international law. The resolution summarises the judicial practice of considering various categories of cross-border disputes over the past few decades.
In fact, the Supreme Court of the Russian Federation confirmed the answers to a number of questions that had previously been raised in course of resolving disputes in international commercial arbitration, as well as had been considered in the scientific doctrine.
What exactly does the Supreme Court of the Russian Federation specify in the judgment? The most significant and interesting points are stated below.
On cross-border cases
The composition of a cross border case is not limited only to the subject and object of legal relationship. A cross border case may also be “the performance of an action abroad or the occurrence of an event (legal fact)”, for example, the conclusion of a supply agreement between Russian counterparties in a foreign country.
On the application of foreign law to legal relationship between two Russian entities
The choice of foreign law as an applicable law is possible, even if the parties to the legal relationship are Russian individuals / organisations, the subject of the dispute is in the Russian Federation and the actions of the parties relevant to the dispute occurred in the Russian Federation.
But we must not forget about the restriction of foreign law by the action of any peremptory norms of Russian legislation, regardless of their qualification as norms of direct application.
In practice, this will mean that even if the legal relationship is completely connected with the Russian legal order, but by agreement of the parties it is subject, for example, to French law, peremptory norms of Russian law will be applied regardless of whether the parties choose foreign law as an applicable law.
On the principle of closest connection
In the absence of a choice of applicable law and the impossibility of determining a characteristic performance (A characteristic performance refers to the crucial performance for the content of a particular agreement, for example, the fulfillment of obligations by the seller under a sale and purchase agreement), the principle of closest connection indicates the applicable law by the extent to which the legal relationship is connected with a particular legal order.
It used to be quite difficult to unambiguously determine how exactly a close connection with a specific legal order is established.
The Supreme Court of the Russian Federation has solved this problem by establishing the following criteria for close connection:
- place of residence and citizenship of the individual;
- main place of activity and place of incorporation of the legal entity;
- location of a separate subdivision of the legal entity – a party to the agreement;
- location of the object of the legal relationship;
- place of fulfillment of the obligation;
- the application of which law will make it possible to implement the universally recognised principles of civil law and its individual institutions (for example, protecting a weak side, prohibiting the abuse of law, etc.).
It is important to note that the existence of a close connection should be established at the time of conclusion of the agreement, and not later (during its execution, after termination, etc.).
On peremptory norms and norms of direct application
Peremptory norms and norms of direct application are correlated as universals and particulars respectively.
A peremptory norm is equivalent to a norm of direct application when it protects “a public interest associated with the foundations of building the economic, political or legal system of a state.” Norms of direct application include, for example, those that establish restrictions on the turnover of certain objects of civil rights, circumstances that prevent a foreign citizen from marrying in the territory of the Russian Federation, etc.
It should be noted that with such definition of the norms of direct application, it is rather difficult to distinguish between a norm of direct application and a public order. The latter includes fundamental legal principles (principles) that create the basis for building the economic, political, legal system of the Russian Federation.
On the autonomy of the parties’ will
The Supreme Court of the Russian Federation confirmed the autonomy of the agreement on applicable law. This means that if the agreement is invalid, the agreement and / or clause on applicable law continues to be valid.
The validity, as well as the conclusion of an agreement on applicable law, is determined on the basis of the law chosen in this agreement. In other words, the applicable law governs both the agreement itself and the relationship concerning the choice of applicable law.
The possibility of choosing a “neutral” right is confirmed. This is the so-called soft law, for example, UNIDROIT Principles of International Commercial Contracts, Principles of European Contract Law, Principles, Definitions and Model Rules of European Private Law.
The applicable law can be determined at any time, but no later than the moment a lawsuit is filed.
On prorogation and arbitration agreements
The agreement on disputes’ jurisdiction to the courts of a certain country or an arbitration is not equivalent to the agreement of the parties on the choice of applicable law. Thus, for example, the parties’ choice of the Arbitration Institute at the Stockholm Chamber of Commerce to resolve disputes from the agreement will not automatically mean the application of Swedish law.
On the main place of activity of the legal entity
The Resolution makes a clear distinction in the context of determining the main place of activity of a legal entity and determining its personal law. So, the main place of activity is equal to the place of management of the activity of the legal entity. It does not always coincide with the place of its incorporation, which determines the personal law of the legal entity.
It also clarifies the conditions upon which, if they apply simultaneously, a legal entity contesting a transaction cannot refer to its personal law:
- The transaction was performed outside the place of incorporation of the legal entity;
- The law of the place of transaction does not provide for a restriction declared by a representative of the legal entity;
- The other party to the transaction did not know and obviously should not have known about this restriction.
On international private law sources
An international treaty with substantive rules excludes the application of any conflict of law rules. In the absence of such agreement, one should be guided by the conflict of law rules of international treaties. Moreover, a special international treaty prevails over a general treaty. If an international agreement does not provide for a conflict of law procedure for determining applicable law, domestic conflict of law rules apply.
In other words, in the case of, for example, an international sale and purchase agreement, the provisions of the Vienna Convention on the International Sale of Goods of 1980 (the “Vienna Convention”) will first apply. With regard to issues not regulated by the Vienna Convention, it is possible to apply the conflict of law rules of the international treaty to determine the applicable law, and in the absence of such international treaty – national conflict of law rules.
On the protection of consumer rights when buying goods in an online store
The Supreme Court of the Russian Federation clearly indicated the conditions for the application of peremptory norms of the consumer’s country of residence to protect their rights when purchasing goods in online stores:
- The manufacturer carries out activities at the place of residence of the consumer; or
- The activities of the manufacturer are aimed at the territory of the consumer.
The focus of the activities on the consumers of the respective country is demonstrated by the following factors:
- The consumer can read the information on the website in their national language;
- The price of the goods is indicated in the national currency of the consumer;
- The telephone number for contacting the manufacturer is indicated with the code of the consumer’s country of residence;
- The site owner ordered services to increase the citation of their site from Internet users in the consumer’s place of residence.
In general, the Resolution provides detailed answers to many questions of Part 3 of the Civil Code of the Russian Federation, confirming some of the positions already existing in law enforcement practice and the scientific doctrine regarding the application of private international law. A detailed analysis of the Resolution allows us to conclude that the clarifications of the Supreme Court of the Russian Federation will contribute to a uniform law enforcement practice in cross-border dispute resolution.