In Russia, private deals and foreign investments are regulated on the basis of the Civil Code, which forms part of the larger private law legislation. The ideology behind private law is related to libertarian ideas of the free market: people are regarded as being free to agree on the exchange of their own resources and possessions. State law guarantees that their rights shall not be violated or the rights shall be restored in the event of a dispute.
According to data from collected interviews, one of the biggest difficulties senior foreign executives face in Russia is related to the use of Russia's legal system. That is why a position of a corporate lawyer is central in many international corporations, as this person provides a link between different cultural realities rather than merely being responsible for legal issues. Hence, Russian law needs to be analyzed through cultural lenses and be evaluated at the conceptual level in order to understand why it is regarded as rigid and unwieldy to use in international business affairs.
KIn Russia, private deals and foreign investments are regulated on the basis of the Civil Code, which forms part of the larger private law legislation. The ideology behind private law is related to libertarian ideas of the free market: people are regarded as being free to agree on the exchange of their own resources and possessions. State law guarantees that their rights shall not be violated or the rights shall be restored in the event of a dispute. This latter idea gives rise to various forms of regulation of private deals. The substance of this regulation varies between different countries. Russia is an example of a system with very limited freedom for private deals, even though at first glance the text of the Civil Code does not appear to provide any grounds for this limitation.
The Civil Code of Russia contains the necessary vocabulary to make it look like a good base for free market development: freedom of contract, bona fide, trade customs law (lex mercatoria), alternative dispute resolution, and so on - all the ideas are recognized and listed in Article 1551 of the Code. However, a closer examination of the text of the law shows how these ideas are turned into unimportant words without significant effect rather than substantive legal concepts. For example, in Russia, the jurisdiction of lex mercatoria is negligible insofar as for trade customs to be recognized as a valid norm, they have to comply with the provisions of Article 5 of the Civil Code and never contradict the black letter law. It is interesting to note that even agreements are not regarded as valid unless they use standard forms published in official newspapers (Art. 427). These limitations evidently make the nature of Russian private law too state-centered and legalistic. Article 2 explicitly articulates this idea, because it provides a legal basis for state intervention in private deals under certain circumstances. The problem is that the list of such circumstances is left open-ended.
The same can be said about alternative dispute resolution. One the one hand, the Civil Code ensures the right of parties to talk through their disagreements in state courts or arbitration (Art. 10). On the other hand, arbitration courts are state agencies in Russia, so the state is the only legal source of justice for private actors. The Civil Code is written for judges who retroactively make decisions on business affairs in the event of disputes, rather than for people who would be able to use the provided guarantees to create their own laws in agreements and negotiations.
The most obvious restrictions are in the regulation of freedom of agreement (Art. 421). The Civil Code claims it is guaranteed in Russia. However, the law provides dispositive and imperative norms for regulations related to private agreements: in order to exclude dispositive norms, the parties have to do so explicitly within the text of the contract; and imperative norms cannot be excluded at all. Moreover, imperative norms include: the obligation to use rubles (Art. 317); the obligation to provide documents about the completion of the agreed deals (Art. 408); a written form of acceptance of an offer (Art. 445) and so on. Overall, almost all norms that regulate agreements are imperative and therefore unavoidable. Even a particular form of an agreement or deal is prescribed by the law: though in Russia oral, written and notarial forms of agreements are available (Art. 158), the oral form is legally valid only for insignificant deals, whereas a written form of agreement is recognized only when it falls under certain criteria: when it uses templates, contains the stamps of the parties, includes details of the registration of the parties and so on.
One of the ways to avoid the state-centered Russian legal system is to use a different law in agreements (this opportunity is provided in Article 1210.1). However, imperative norms of the Russian law (that relate to state control institutions) will still be valid for such a contract (Art. 1210.5). Actual freedom of contract is not provided by the Russian Civil Code. Another way to avoid using the Russian law in one's private affairs is to lobby international agreements that would limit state control over international business in Russia. For example, in 2012 the Russian government signed an agreement with Finland that ensures the facilitation of investment exchanges between the two countries. One of the goals of this agreement is to restrict the functions of border controls on the border between Russia and Finland. Many senior executives are also optimistic about Russia's membership of the WTO as that also entails limitations of state control over the free market. Overall, Russian private law is characterized by its legalistic nature and high degree of state-centeredness. It uses a formalistic approach to legal concepts by mentioning them in the text of the Civil Code, but ignoring the substance of these concepts. The Civil Code is far too strict in regulating agreements as it turns freedom of contract into an empty phrase without specific substance. All these limitations are related to the determination of the state to exercise control over business and the market, a situation which does little to contribute to the development of a good investment climate, makes Russian law unwieldy to use and frightens off the managers of international companies.
The author is a laureate of the Valdai Club Foundation Grant Program