Category: Russia

From 1 July 2020, an experimental legal regime is being introduced in Moscow for a five-year period. The Law is aimed at creating the necessary conditions for the development and introduction of artificial intelligence technologies, and the subsequent use of the results of their application.

As a result of the experiment, existing norms will likely be amended to meet the technical capabilities of IT companies and the needs of the market. In turn, this should contribute to the development of technologies in Russia while taking into account the rights and interests of individuals.

The experiment is being conducted in connection with the adoption by the Russian President of the National Strategy for the Development of Artificial Intelligence* for the period until 2030. The purpose of this document is to create conditions that will allow Russian artificial intelligence technologies to occupy a significant share of the world market.

Key aspects

According to the new Law, a legal entity or an individual entrepreneur can become a participant in the experimental legal regime provided that the entity or individual has successfully applied for entry into a special register.

To participate in the experiment, legal entities and individual entrepreneurs must:

• be registered in Moscow;

• engage in the development, creation, introduction, implementation or sale of artificial intelligence technologies or individual goods, works or services based on them; and

• have no unexpunged or outstanding convictions for economic crimes or crimes of medium gravity, or grave and especially grave crimes (for legal entities, this criterion applies to their directors and members of the executive board).

Moscow City Hall has been instructed to determine the conditions, requirements and procedure for the development, creation, introduction and implementation of artificial intelligence technologies, as well as the cases and procedures for using the results of the application of artificial intelligence.

It is expected that large IT companies using artificial intelligence in the field of medicine, urban infrastructure, face recognition and other uses will take part in the experiment.

The Law separately outlines certain provisions relating to the storage and processing of personal data that will be obtained during the experiment.

As a result, the Law makes it possible to use the previously anonymised personal data of individuals participating in the experiment to increase the effectiveness of the state or municipal government. However, the Law specifically establishes that such personal data can only be transferred to participants in the experiment and must be stored in Moscow.

Moscow City Hall will regulate, subject to the approval of the Ministry of Communications, the details of the procedure and conditions for the processing of personal data by the participants in the experiment.

Moscow City Hall will also determine the procedure under which owners of urban cameras and video cameras can transfer images and the situations in which they may do so.

A coordination council will be responsible for developing the strategy for improving the mechanisms of the experimental legal regime and for monitoring it. Moscow City Hall will adopt a regulation supporting this council in coordination with the Russian government.

Based on the results of the experiment, the coordination council will prepare and submit proposals to the Russian government regarding whether it is appropriate to amend Russian legislation.

Related development

From 1 September 2020, the first national standards in the field of artificial intelligence will come into force:

• GOST R 58776-2019 “Means of monitoring behaviour and predicting people’s intentions. Terms and definitions”.

  This standard was adopted to develop intelligent systems based on predicting human behaviour and communicating with humans by intelligent robotic systems, including unmanned vehicles. It will be possible to use predictions of behaviour to prevent crime and resolve other issues related to public safety.

• GOST R 58777-2019 “Air transport. Airports. Technical means of inspection. Methodology for determining the quality indicators for the recognition of illegal input by shadow X-ray images”.

  This standard was adopted to establish single requirements for systems and algorithms in the recognition of the contents of baggage and hand luggage to identify items whose transportation is prohibited. It takes into account international research on the processing of big data and X-ray images, and contains a description of various algorithms for detecting illegal input.

Comment

For the first time, legal aspects related to artificial intelligence are reflected in Russian legislation. The rapid development of artificial intelligence technology and the active participation of Russian companies in its use justify the need for this experiment and the subsequent improvement of the corresponding legal regime.

In the near future, additional regulatory legal acts detailing the regulation of the experiment will be adopted. Key issues such as the collection, anonymisation and transfer of personal data are of particular interest. It is assumed that the experiment will contribute to a significant improvement in legislation on personal data, which does not currently take into account new technologies and their capabilities.

* In Russian

By Anton Bankovskiy, Partner, Irina Shurmina, Senior Associate, Vladislav Eltovskiy, Associate, and Ksenia Danshina, Associate, CMS

 

On 11 May 2020, a new Bank of Russia Regulation* “On Standards for the Issuance of Securities” (the “Regulation on Issuance Standards”) came into force. The regulator updated this Regulation in line with amendments* to the Federal Law “On the Securities Market”, which came into force on 1 January 2020.

These amendments also led the Bank of Russia to adopt a new Regulation* “On the Disclosure of Information by Issuers of Issued Securities” (the “Disclosure Regulation”), which will go into effect on 1 October 2021.

These updates to the Bank of Russia’s Regulations are aimed at simplifying procedures for issuing securities and information disclosure, and bring Russian regulation closer to international standards.

Below, we outline the key changes brought about by the two Regulations.

A simplified procedure for issuing securities

Issuers can now choose to either register a securities prospectus or provide the Bank of Russia with a notice on its preparation. This right is granted to issuers that satisfy the following conditions:

• the issuer was established at least three years before;
• no bankruptcy proceedings have been introduced in relation to the issuer;
• during the last three completed reporting years, the issuer placed securities in at least three issues;
• no securities prospectus has been drawn up for securities of a subordinated bond loan;
• the Bank of Russia did not send a compliance order to the issuer for the last three completed reporting years to eliminate violations related, in particular, to the procedure or deadline for disclosing information from a securities prospectus; and
• the issuer’s authorised representative who signed the securities prospectus has not been held criminally liable for knowingly including false information in a securities prospectus or approving a securities prospectus containing such information.

The changes also affect the procedure for issuing securities during the establishment of a joint-stock company. The Regulation on Issuance Standards stipulates that the issuer must first register the securities issue, submit documents for the registration of the joint-stock company, and only then provide the Bank of Russia with a report on the results of the issue for its registration. Previously, issuers had to register an issue of securities simultaneously with the report on the results of the issue after the registration of the joint-stock company.

In addition, the shareholders of a non-public joint-stock company now have the right to establish a different procedure for exercising preemptive rights by concluding a corporate agreement to which all shareholders are parties. Such a shareholder agreement also affects the procedure and conditions for the placement of shares provided for by the decision on their placement since, under the Regulation on Issuance Standards, this procedure and these conditions must comply with this shareholder agreement.

Besides, the Regulation on Issuance Standards expanded the list of signatories of issue documents – in addition to the general director, a representative also now has the right to sign issue documents under a power of attorney – and made it possible to manage documents as part of the issue procedure electronically.

Updated disclosure requirements

The Disclosure Regulation reduces the list of material facts that require disclosure. For example, issuers will no longer have to disclose that they have sent an application to make entries in the Unified State Register of Legal Entities related to their reorganisation, termination of business or liquidation. At the same time, new material facts have been introduced. Issuers will need to disclose, for instance, information about the completion of any interested-party transaction by an organisation that is controlled by them and that is of significant importance to them.

Information will have to be disclosed in the form of a report by the issuer and a list of its affiliates every six months. (At the moment, this needs to be done using other forms and on a quarterly basis).

Requirements are changing concerning the content of the issuer’s report and the list of affiliates. The report will need to present EBITDA and ROE financial indicators, which is not required in accordance with the current regulation. There will also be a different methodology for calculating some financial indicators. The data disclosed in the issuer’s report will therefore be closer to what is provided under IFRS.

If information on affiliates has changed from the previous reporting period, this will now have to be stated in the list of affiliates.

Finally, the rules on the disclosure of financial statements (whether consolidated or not) are changing. It will be sufficient to publish such a statement together with the audit report on a website, and the information contained in these two documents will not have to be disclosed in the issuer’s report. In addition, the Disclosure Regulation exempts certain types of entities from disclosing information in this form (e.g. issuers that are small or medium-sized enterprises whose securities are not included in the quotation list of a stock exchange).

This article is co-authored by Viktoria Shcherba and Stepan Gritsay, Paralegals at CMS Russia.

* In Russian

By Vladimir Zenin, Partner, and Elizaveta Rakova, Associate, CMS Russia

Liniya Prava has assisted DNS Development with preparations for the first ever public-private partnership to build a school and kindergarten in the Primorsky Kraj territory of the Russian Far East.

The school and kindergarten will be built by the “DNS Development” company in ​​the “Format’ residential complex being built in the village of Winter-South in the Nadezhda district.

“We are committed to an integrated approach to housing construction,” said DNS Group Co-Owner Konstantin Bogdanenko. “Even at the stage of developing the concept and design, we include in the project all the necessary infrastructure of the future micro-district for the comfortable life of new settlers: new roads, communications, places for relaxing walks, and, of course, such important social facilities as a school and kindergarten. We plan that about 1,500 families will live in the Format housing complex, so parents should have the opportunity to take their children to kindergarten within walking distance from home, to let their child go to school on their own, without worrying about safety.””

“Currently, Liniya Prava reports, “the Government of Primorsky Krai and DNS Development are conducting preparatory work for concluding concession agreements for the construction of a school for 450 children and a kindergarten for 240 children.”

“This will be the first experience in implementing PPP projects in the field of education in Primorye,” said Natalya Bondarenko, Minister of Education of Primorsky Krai. “We understand that this is not a simple legal process: both we, in the person of the state, and the developer undertake very serious obligations to each other. Moreover, today the PPP mechanism is the most advanced and efficient way to comprehensively develop the region’s territories, involving private investors. The conclusion of such an agreement [reduces] the burden on the regional budget at the same time, making sure that businesses invest their money and begin building social facilities simultaneously with housing, ”

According to Liniya Prava, such concession agreements take on average six months to prepare.

The Liniya Prava team is led by Partner Andrey Novakovskiy and includes lawyer Mikhail Kornev.

“The COVID-19 crisis and the constitutional amendment vote to extend the presidential rule are two major political events on the table in Russia,” says Ella Omelchenko, Counsel at Clifford Chance in Moscow. 

In general, Omelchenko reports, people have adapted to the new life, as have corporations and businesses. “The crisis will be a major topic for some time in the future, and its impacts will obviously be big and long-lasting,” she says. “We will need to find a way to overcome the situation, not only economically, but technologically too, in the way we work and live.”

“Local authorities have adopted a lot of new laws, such as regimes of self-isolation, for example,” she says. “These laws, which were adopted as a substitute for the classic quarantine, were imposed after the federal government empowered local authorities and encouraged them to implement measures locally.” Otherwise, she reports, the Russian Government implemented the same kinds of public-health measures that other countries have, such as travel bans, airport- and seaport-closings, and limitations on movement.

Ultimately, she reports, the slow-down or cancellation of projects that were in the planning stages earlier in the year will end up costing billions. Jobs are being lost as a result. “Many construction projects we worked on are not able to guarantee that they can keep as many people employed,” she says. “They will have to adapt to the situation and change the way they work. People older than 65 are still not allowed to go out or work. Stringent health-care requirements will stay in effect for a long period, and all employers will have to comply with cumbersome but still unavoidable measures.”

Omelchenko reports that a slow-down in investment is obvious, and she says that companies are currently focused mainly on reconsidering, reshaping, and restructuring. “The situation will affect pretty much all businesses, but it’s difficult to say which ones will sustain the most harm. It depends on the industry. The Real Estate market will be completely reshaped and largely impacted, as will the Health and Pharma industries, which have to fight through a lot of new regulations.”

According to Omelchenko, “the M&A market is also going through a rather slow period. Investors are reconsidering their investments, although some ongoing projects that started before the COVID-19 outbreak are continuing, as their termination or suspension may be even more expensive in terms of additional costs and losses. They too might have to be restructured, but at least they are still there.”

And, she says, lawyers are staying busy. “The legal industry has successfully overcome the situation,” she says. “It generally adopted so many opportunities. The need for personal meetings and head to head communication, as well as the general need for people to communicate in business, led to more contemporary technological measures – which work just fine. We had a very successful meeting with colleagues from all over the world recently, and it was almost more convenient than before.” Count her among the believers that “the unique experience and a complete change to the way people work will continue to exist even after the crisis is gone.”

Russian lawyer Pavel Novikov has been made Partner at Baker McKenzie in Moscow.

Novikov has been working at Baker McKenzie since 2011, and, the firm reports, “as head of the Insolvency and Asset Tracing practice group, he specializes in domestic insolvency litigation, international (cross-border) insolvencies, and global asset tracing.” According to the firm, “Pavel represents clients in domestic and international courts and arbitral tribunals, advising on corporate compliance and in criminal investigations.”

Novikov graduated from the Higher School of Economics with a degree in Law. Prior to joining Baker McKenzie, he spent over two years with Vegas Lex.

“I congratulate Pavel on this promotion, and I wish him and his team continued success and new victories,” said Baker McKenzie CIS Managing Partner Sergei Voitishkin. “I’m very happy that despite our current difficulties, we are growing and strengthening the practices that are most in-demand on the market.” 

“Pavel is a very talented lawyer, a true professional in his field,” added Vladimir Khvalei, Baker’s CIS Head of Dispute Resolution Practice Group

Bryan Cave Leighton Paisner has advised Sberbank Investments LLC on the acquisition of a 50% interest in Mayak LLC and Prima LLC, which are implementing projects related to the construction of a five-star hotel and apartments and Moscow’s “Lucky” residential quarter.

According to BCLP, the developer of both projects is Vesper, a company that develops premium clubhouses. Fairmont & Vesper is the result of a collaboration between Vesper and the luxury Fairmont Hotels chain. According to the firm, “the project consists of two buildings located in the very center of Moscow on Tverskaya Street near the Mayakovskaya metro station, in one of which the Fairmont Hotel will be located, and in the second — apartments under the control of a global network.”

Bryan Cave Leighton Paisner describes the Lucky Residential Quarter as “a unique socio-cultural cluster with modern residential buildings, historical buildings, private park areas, fitness, and a food court, which will be located next to the Ulitsa 1905 metro station.”

Bryan Cave Leighton Paisner’s team included Partner Matvey Kaploukhiy, Counsels Igor Zhivotov, Oksana Orlovskaya, Anna Zelenskaya, Andrey Neminuschiy, Senior Associate Denis Khramkin, and Associates Mikhail Erokhin, Elena Shelomenzeva, Vladislav Feklin, Evgenia Shirugina, and Lira Pogodina.

Bryan Cave Leighton Paisner did not reply to our inquiry on the matter.

On 19 June 2020, amendments* to the Commercial Procedure Code of the Russian Federation came into force, which provide for the exclusive jurisdiction of Russian courts to consider disputes involving Russian individuals and legal entities who are subject to international sanctions.

New rights

Under new Article 248.1 of the Russian Commercial Procedure Code, disputes involving sanctioned individuals and entities fall within the exclusive jurisdiction of the Russian commercial courts, unless otherwise provided for by an international treaty of the Russian Federation or by agreement of the parties to the dispute.

The amendments protect both Russian citizens and legal entities that have fallen under foreign sanctions, and foreign individuals and entities who are caught by restrictive measures due to the sanctions imposed on Russian individuals or entities (e.g. foreign entities deemed affiliated with Russian individuals or entities under sanctions).

Individuals and entities described above can apply for a dispute to be resolved in a Russian commercial court at their location, provided that no similar dispute has been brought before a foreign court or international arbitration tribunal.

If the parties to a dispute have agreed to refer the dispute to a foreign court or international arbitration tribunal, but – due to the introduction of restrictive measures – the Russian individual or entity is not able to participate in the consideration of the dispute, the agreement is unenforceable because it has created an obstacle to access to justice, and the rules on the exclusive jurisdiction of the Russian courts apply.

A Russian individual or entity subject to sanctions, however, can participate in and accept the competence of a foreign court or arbitration tribunal to consider a dispute, and the decision of such a court or tribunal will be subject to enforcement in Russia.

In addition, Russian individuals and entities under sanctions can now file an application with a Russian court to ban the initiation (if there is evidence that proceedings will commence) or continuation of proceedings in a foreign court or international arbitration tribunal located outside the Russian Federation (new Article 248.2 of the Commercial Procedure Code). The court will consider the application in a hearing, which the parties to the current or potential dispute will be invited to attend. If the application is successful, the court ruling must indicate those claims that cannot be considered in a foreign court or arbitration tribunal. The court may also order the party subject to such a ban to pay the claimant up to the amount of the claims and court costs if the party fails to comply with this court ruling.

Comments

The amendments are aimed at increasing access to justice for Russian companies and individuals who are experiencing difficulties protecting their interests during proceedings in foreign courts and arbitration tribunals because they are subject to foreign restrictive measures. However, the provision of the exclusive competence of Russian commercial courts at the level of national legislation (rather than at the level of international treaties) may give rise to a conflict of jurisdictions and, as a result, parallel proceedings in Russian and foreign courts. This in turn could give rise to legal uncertainty for foreign counterparties of sanctioned entities and individuals.

Sanctioned Russian companies and individuals can waive the rights provided by the amendments by accepting the foreign competence, but there is a risk that in some circumstances foreign judgments of this kind could be impossible to enforce in Russia as they would contradict Russian public order (e.g. when, due to sanctions, the Russian party is not able to attend hearings at the court or arbitral tribunal that settles the dispute). Therefore, foreign companies and individuals should review their cross-border transactions with Russian sanctioned persons and, if necessary, renegotiate dispute resolution clauses.

The amendments came into force on 19 June 2020 and will protect Russian entities in new proceedings that were initiated after that date. Still it is unclear whether its provisions apply to proceedings which are already underway in foreign courts.

If foreign counterparties are currently negotiating contracts with sanctioned counterparties, they should carefully select the jurisdictions in which they want their disputes to be settled. As for contracts concluded before 19 June 2020, foreign counterparties should try to negotiate amendments and choose a court or tribunal that the sanctioned party is able to attend. However, it is currently unclear how and to what extent the Russian courts will apply the new rules.

* In Russian

By Sergey Yuryev, Partner, and Tatiana Sviridova, Associate, CMS

Herbert Smith Freehills has advised RusChemAlliance, a joint venture of Gazprom and RusGazDobycha, on the Baltic LNG integrated gas processing and LNG project.

Herbert Smith Freehills describes the Baltic LNG project as “currently the largest Russian national project,” and reports that it will be located in the Baltic Sea port of Ust-Luga, in the Leningrad region of Russia. “The complex will have a gas processing capacity of 45 bcm per year and LNG liquefaction capacity of 13 mtpa,” the firm reports. “In addition to LNG, the project will produce sales pipeline gas for EU export, ethane fraction to be supplied to the co-located gas petrochemical plant, [and] LPG and PHF to be sold directly on the market.”

Herbert Smith Freehills also reports that on June 8, 2020, the “Baltic LNG project achieved a key milestone by awarding its first full-scale EPC contract for the gas processing plant and technological utilities, infrastructure and offsites to NIPIGAZ (part of SIBUR group). The project has also signed a 20-year supply and offtake contracts with Gazprom and Baltic Chemical Company (the owner of the co-located ethanol plant).”

Herbert Smith Freehills’ team included Partners Vadim Panin and Olga Davydava, Hong Kong Partner Danila Logofet, Senior Associate Natalia Kraslyanskaya, Counsels Oxana Koerner and Mark Veitch, and Associates Yulia Turkina and Elvira Vanieva.

The regulation of payment terms applicable to business to business (B2B) relationships is of increasing important for many enterprises.

Over recent years there has been a tendency for many businesses to try to extend the terms on which they pay suppliers. Sometimes periods can extend up to 180 days. For many large enterprises the resulting preservation of cash has proved extremely important. On the other hand, smaller businesses often claim that such payment terms derive from an imbalance of power and are potentially very damaging to their interests.With this in mind, many national governments have introduced restrictions on maximum payment terms and imposed certain other restrictions. Some even go so far as to require larger companies to report on their payment terms policies.

Read about specific legal requirements in respect of payment terms in Russia explained by Georgy Daneliya, Maxim Gubanov and Alexey Shadrin.

1.  Are there any specific legal requirements in respect of payment terms?

Russian law does not establish any general legal requirement with respect to payment terms. Parties to a civil law contract may set forth payment terms suitable to them. In the absence of payment terms specified by the parties in the contract, the payment shall be made within seven days upon the creditor’s request, unless otherwise envisaged by the provisions of the Russian Civil Code regulating the relevant type of contract.

Thus, pursuant to Article 486(1) of the Russian Civil Code, payment for goods purchased under a sale-purchase contract must be performed immediately before or after the transfer of goods to the buyer. The term ‘immediately’ in practice is often interpreted as meaning‘reasonable’. 

In case a customer fails to pay for purchased goods, performed works or rendered services within the term stipulated in the contract, and in the absence of specified contractual penalties, a statutory penalty equal to the key rate set by the Russian Central Bank (currently 5.5% per annum) would apply. In addition, a seller or contractor will be eligible to claim damages exceeding the above statutory penalty. 

2. Is there a standard payment term set out in law? If so, what is it?

As noted above, Russian law does not specify any general legal requirement with regard to payment terms. Parties to a contract are free to establish payment terms as they deem appropriate.

3. What are the circumstances in which parties may contractually agree to extend payment beyond the standard payment term?

This is not applicable as there is no standard payment term (please see above).

4. May an obligation beyond the standard payment term be evidenced in a PO?

This is also not applicable as there is no standard payment term (see above).

5. Are there any penalties for breach of payment term legislation other that a civil claim of the seller?

Russian FOREX legislation sets forth strict requirements for Russian parties obliging them to procure (or at least to take all reasonable efforts to procure) the repatriation of funds paid abroad to foreign entities or persons, which failed to deliver goods, services or works against such payments. The Russian Administrative Code and FOREX legislation set forth severe penalties for the failure by Russian parties to observe the foregoing requirement. The amount of a fine typically ranges from 75% to 100% of the amount paid abroad.

6. Is there any special legislation regarding payment obligations for the COVID-19 situation?

There is no special legislation in Russia regarding payment obligations during the current COVID-19 situation. 

7. Any additional comments

The parties to a contract may agree that the key rate set by the Russian Central Bank may apply to the purchase price of goods sold on terms of commercial credit. This does not qualify as a penalty, since no breach-of-payment terms takes place.

Furthermore, unpaid but delivered goods are considered pledged to the seller by operation of law unless the payment is made, and unless the parties agreed otherwise in the contract. 

By Georgy Daneliya, Counsel, Maxim Gubanov, Senior Associate, and Alexey Shadrin, Associate, CMS

After an initial wave of euphoria at the prospect of seeing autonomous vehicles (AVs) on our streets and the associated opportunities and new business models that AVs could create, there is now more realism as to what will actually be possible in the short term. One of the main reasons for this shift is the immensely high cost of making self-driving technology ready for the market and for mass production. There are also no internationally recognised, uniform rules or regulations currently governing the circumstances for using AVs on public streets. This adds further complexity to their development and roll out. So while self-driving technology promises a range of benefits for business and society as a whole, significant challenges remain to be overcome on the road to mass adoption. At the very least, legislators need to make sure that the existing regulatory framework does not act as a barrier to technological development in this area.

Dr. Thomas Heidemann and Maxim Gubanov answered five questions on the legal requirements for testing and using AVs in Russia.

1. Is the testing of AVs (SAE Levels 3-5) permitted on public roads in your jurisdiction?

Yes, the testing experiment is currently underway in a number of Russian regions including Moscow. The experiment was initiated by the Government of the Russian Federation in 2018. The respective participants can only be legal entities, which are obliged to pass through an admission procedure that includes technical expertise with the vehicle, etc. 

2. Are consumers permitted to use AVs (SAE Levels 3-5) on public roads in your jurisdiction?

Not yet, as the relevant car model is unlikely to pass the certification for its use on public roads under current safety standards. However, the Government of the Russian Federation recently adopted the Concept on Ensuring Safety on Pubic Roads While Using Pilotless Vehicles. The Concept sets forth five levels of driving automation and anticipates future developments in this area including the need to create a necessary infrastructure for the use of AVs, etc.

3. Who has liability for damages caused by a car in automated driving mode?

The owner of the AV that participates in the testing experiment remains liable, unless it has been proven that the relevant traffic accident has happened due to fault of other traffic participants. 

4. Are there any specific mandatory insurance requirements for AVs?

Yes, the insurance coverage against third party liability should be RUB 10m (approx. EUR 125,000) – for each AV participating in the testing experiment.

5. Is there general liability based on warranty claims against the manufacturer for AVs?

Russian consumer legislation allows consumers to file claims directly to the manufacturer. As soon as it is permissible for the corresponding AV to be sold to consumers, its manufacturer will likely be exposed to potential direct liability from consumers similar to other car manufacturers.

By Thomas Heidemann, Partner, and Maxim Gubanov, Senior Associate, CMS