Construction Arbitration

Last verified on Wednesday 14th July 2021

Construction Arbitration: Russia

Timur Aitkulov, Olga Semushina and Galina Valentirova

Aitkulov & Partners

Legal system

1. Is your jurisdiction primarily a common law, civil law, customary law or theocratic law jurisdiction? Are the laws substantially derived from the laws of another jurisdiction and, if so, which? What instruments have legal force and effect? Who are the lawmaking bodies? How and where are new laws published? Can laws be passed with retrospective effect?

Russia

Russia is a civil law jurisdiction. Russian civil law does not substantially derive from the laws of another jurisdiction.

Instruments having legal force and effect in Russia include the universally recognised principles and norms of international law, the Constitution of the Russian Federation, international treaties and agreements to which Russia is a party, federal laws (on civil law matters – the RF Civil Code), regulatory acts of the Russian President and government (which in relation to civil law matters should not contradict federal laws), the regulations of other federal state agencies (on civil law matters, as provided for by federal laws and other regulatory acts), and regulations issued by the Russian Federation regions, republics and local authorities on issues within their competence (although civil law matters are within the exclusive competence of federal bodies). For courts trying civil law matters, the decrees of the Plenum of the Supreme Court of the Russian Federation are also mandatory.

New laws are officially published in the following sources: Russian Gazette (Rossiskaya Gazeta), Legislation Bulletin of the Russian Federation (Sobranie Zakonodatelstva Rossiskoy Federatsii), Parliamentary Gazette (Parlamentskaya Gazeta), and the official government website for legal information (www.pravo.gov.ru).

As a general rule, laws do not have retrospective effect unless expressly stated otherwise (although laws establishing liability or making it more stringent may not have retroactive effect).

Answer contributed by Timur Aitkulov, Olga Semushina and Galina Valentirova

Contract formation

2. What are the requirements for a construction contract to be formed? When is a "letter of intent" from an employer to a contractor given contractual effect?

Russia

To conclude a construction contract the parties must generally agree on its essential terms and conditions, namely: (i) the subject matter (meaning, inter alia, identification of the types and scope of work to be performed), (ii) start and completion dates, (iii) all conditions that must be agreed at the request of either party to the contract. The price or construction cost estimate (smeta) may be treated as an essential term of the construction contract, but in practice different interpretations are possible.

The way a letter of intent is interpreted depends on its specific provisions. A letter of intent is usually not legally binding on the parties unless it meets the requirements of a preliminary contract, or a framework agreement, or an option to enter into an agreement. For instance, a preliminary contract is an agreement by the parties to enter into a construction contract in the future on the terms contemplated by such preliminary contract. The preliminary contract (i) must be entered into in the form prescribed for a main contract or – if this is not prescribed – in written form, and (ii) must specify the subject matter and other conditions of the main contract that either party wishes to agree on when entering into the preliminary agreement.

In some cases, a sudden and unjustified breakoff of negotiations (particularly if the parties have already signed a letter of intent) allows the injured party to claim damages resulting from preparations to those negotiations and lost opportunities to negotiate with third parties.

Answer contributed by Timur Aitkulov, Olga Semushina and Galina Valentirova

Choice of laws, seat, arbitrator and language

3. Are parties free to choose: (a) the governing law of their contract; (b) the law of the arbitration agreement; (c) the seat of the arbitration; (d) any arbitral rules; (e) anyone to act as arbitrator; and (f) the language of the contract and the arbitration? If not, what are the limitations on choice and what happens if the parties act contrary to them?

Russia

These issues will be determined on a case-by-case basis. As a rule, if there is a ‘foreign element’ (eg, a foreign party to the contract), the parties are free to choose the governing law of their contract, the law of arbitration agreement, the seat of arbitration, arbitral rules, arbitrators, and the language of the contract and the arbitration. The choice of governing law of the contract is limited if all circumstances related to the contract involve the Russian Federation only. In this case contractual provisions cannot affect mandatory rules of the Russian Federation. These rules will be applied by Russian courts regardless of the law chosen by the parties. Additionally, in certain cases, disputes (if resolved by means of arbitration) can be referred only to Russian permanent arbitration institutions (eg, some corporate disputes, disputes arising from procurement contracts entered into with state-owned entities), and in some cases the seat of arbitration must be in Russia (eg, some corporate disputes). Also, there could be an argument that internal disputes should not be referred to foreign arbitration.

Answer contributed by Timur Aitkulov, Olga Semushina and Galina Valentirova

Implied terms

4. How might terms be implied into construction contracts? What terms might be implied?

Russia

The terms of construction contracts, unless they are essential terms of the contract, can generally be implied from statutory provisions, from standard terms generated by non-commercial organisations of construction market participants (if the contract makes specific reference to such rules or if they can be deemed customary), and from customary relationships between the parties. For example, if penalties for late payment are not specified by the construction contract, statutory interest charged for late payment or other breach of monetary obligations under the construction contract can be implied from the provisions of the RF Civil Code.

Answer contributed by Timur Aitkulov, Olga Semushina and Galina Valentirova

Certifiers

5. When must a certifier under a construction contract act impartially, fairly and honestly? To what extent are the parties bound by certificates (where the contract does not expressly empower a court or arbitral tribunal to open up, review and revise certificates)? Can the contractor bring proceedings directly against the certifier?

Russia

Under Russian law, an employer can engage an engineer (independently, without the contractor's consent) to oversee the construction works and to make decisions on behalf of the employer in its relationship with the contractor. In this case the construction contract should specify the functions of such engineer as they relate to the implications of the engineer's actions for the contractor (including whether the certificates / other directions of the engineer are binding upon the parties).

There are no specific provisions in law obliging such engineers to act impartially, fairly and honestly. However, engineers are obliged to act in good faith in line with the general obligation of all participants in a civil law relationship stipulated by law.

Generally, whether the contractor can bring proceedings directly against the engineer would largely depend on the provisions of the construction contract and/or other agreement to which the contractor and the engineer are both parties (eg, a services agreement between the employer, contractor and engineer), although the contractor could also pursue a non-contractual claim against the engineer if there are grounds.

Answer contributed by Timur Aitkulov, Olga Semushina and Galina Valentirova

Competing causes of delay

6. If an employer would cause (eg, by variation) a two-week critical delay to the completion of the works (which by itself would justify an extension of time under the construction contract) but, independently, culpable delay by the contractor (eg, defective work) would cause the same delay, is the contractor entitled to an extension?

Russia

The question as to whether the contractor is entitled to an extension or not will depend on the provisions of the construction contract and will be decided on a case-by-case basis. Also, as a rule, if the employer requests changes, and those changes cost more than 10 per cent of the total contract price or cost estimate (smeta) and actually require a change in the nature of the works, the parties should agree on such changes separately.

The contractor should not be liable for failure to complete the work on time if the delay was due to the increased amount of additional work requested by the employer, and this is confirmed by court practice. However, it is arguable whether the contractor will be entitled to claim an extension of time if it fails to perform its own contractual obligations (eg, if there is culpable delay by the contractor).

As a matter of law, the contractor could be partially relieved from liability (i) if the delay was caused by the fault of both the contractor and the employer, or (ii) if the employer wilfully or negligently contributed to the increased losses caused by the delay or failed to take reasonable steps to mitigate the losses. Based on this provision one could argue that the contractor should be entitled to at least some sort of extension. However, it is more likely that in the above-mentioned scenario the court or arbitral tribunal would reduce the scope of the contractor's liabilities rather than grant an extension (for instance, it could be difficult to determine the exact delay's duration caused by each of the parties to the construction contract).

Answer contributed by Timur Aitkulov, Olga Semushina and Galina Valentirova

Disruption

7. How does the law view "disruption" to the contractor (as distinct from delay or prolongation to the completion of the works) caused by the employer’s breaches of contract and acts of prevention? What must the contractor show for a disruption claim to succeed? If an entitlement in principle can be shown (eg, that a loss has been caused by a breach of contract) must the court or arbitral tribunal do its best to quantify that loss (even if proof of the quantum is lacking or uncertain)?

Russia

As a general rule, if the employer fails to perform its obligations under the construction contract (eg, to provide land plots, materials, equipment, technical documentation), and this hinders the contractor's performance, the contractor is entitled (i) not to commence the works or to suspend works which have already been commenced, or (ii) unless agreed otherwise, terminate the contract and claim compensation of losses. For the latter claim to succeed, the contractor must demonstrate: (i) the existence and amount of damages, (ii) that the employer failed to perform its obligations and that this hindered the contractor’s performance, and (iii) a direct causal link between the employer's actions or omissions and the damages.

Russian law requires the court to quantify the amount of damages incurred with a reasonable degree of accuracy. The court cannot dismiss the claim based on the sole fact that the quantum of damages cannot be established with reasonable degree of accuracy. In that case, the court must assess the amount of losses taking into consideration all facts of the case and the principles of justice and commensurability of the liability to the breach of obligations.

Answer contributed by Timur Aitkulov, Olga Semushina and Galina Valentirova

Acceleration

8. How does the law view "constructive acceleration" (where the contractor incurs costs accelerating its works because an extension of time has not been granted that should have been)? What must the contractor show for such a claim to succeed? Does your answer differ if the employer acted unreasonably or in bad faith?

Russia

Russian law contains no specific rules in relation to 'constructive acceleration’. Generally, the contractor should bear all costs and expenses required to properly perform its contractual obligations. However, in some situations the contractor can be entitled to compensation for additional costs incurred if there are grounds for increasing the contract price (eg, if the contractor discovers that any works were missing from the technical documentation, requiring the performance of additional works) or the employer fails to provide the contractor with assistance in performing the works as required by the contract. In addition, the contractor could be entitled to compensation for damages if the employer, in breach of the contract, refuses to grant the contractor an extension. In this case, the contractor will have to demonstrate all the grounds that generally have to be proven in damages claims: (i) the existence and amount of the damages, (ii) failure by the employer to grant an extension to the contractor in breach of the contract, and (iii) a direct causal link between the employer's breach and the contractor's damages).

Answer contributed by Timur Aitkulov, Olga Semushina and Galina Valentirova

Force majeure and hardship

9. What events of force majeure give rise to relief? Must they be unforeseeable and to whom? How far does the express or implied allocation of risk under the contract affect whether an event qualifies? Must the event have a permanent effect? Is impossibility in performing required or does a degree of difficulty suffice? Is relief available where only some obligations (eg, to make a single payment or carry out one aspect of the works) are affected or is a greater impact required? What relief is available and does it apply automatically? Can the rules be excluded by agreement?

Russia

By law, force majeure is defined as an emergency event that could not be prevented in the given circumstances. Therefore, to qualify as force majeure, an event must satisfy three requirements. It must (i) have an ‘emergency’ nature, meaning that such event is extraordinary and does not typically occur in a particular situation (or, in other words, is unforeseeable by the party in breach); (ii) be unavoidable, so that any person conducting the same activities as a debtor could not prevent its occurrence or its consequences; (iii) be irresistible, meaning that the event must be of such a nature that it would be unreasonable to claim that the debtor should take measures to overcome it.

Additionally, Russian courts generally accept as force majeure only those events that are objective in nature and do not depend on the contracting party. For example, according to recent guidance of the RF Supreme Court, the covid-19 pandemic can be classed as force majeure on a case-by-case basis. Although the law does not specify the particular events that may qualify as force majeure, there are several situations that, according to the RF Supreme Court, should not qualify as force majeure, such as (i) failure by a debtor's contractual counterparties to perform their obligations, (ii) lack of necessary funds on the part of a debtor (although, according to the RF Supreme Court, in certain circumstances a lack of funds may be held to constitute force majeure if caused by restrictive measures imposed by public authorities in connection with covid-19), or (iii) the unavailability of goods on the market that are required for performance of the obligations.

A force majeure event does not need to have a permanent effect.

By law, force majeure exempts a party from liability for improper performance or non-performance of some obligations only if it renders such performance impossible. At the same time, impossibility should not be construed literally. For example, should performance be possible but require disproportionate or commercially unreasonable efforts by the debtor, it may constitute a force majeure event.

In practice, relief could be available if it is impossible for the party to perform its contractual obligations in full or in part due to the force majeure event. However, where that event affects only some obligations, relief will be available only in respect of them, and no excuses will be entertained for non-performance of those parts of the contract that can be performed.

Force majeure does not automatically discharge the debtor from its obligations if they can still be performed after such events have ceased to exist. According to court practice, the debtor must notify the creditor of a force majeure. In this case, the creditor retains the right to terminate the contract if it is no longer interested in performance owing to delay caused by force majeure.

The parties to a construction contract are entitled to establish liability even if force majeure occurs.

Answer contributed by Timur Aitkulov, Olga Semushina and Galina Valentirova

10. When is a contractor entitled to relief against a construction contract becoming unduly expensive or otherwise hard to perform and what relief is available? Can the rules be excluded by agreement?

Russia

The contractor must perform the works in accordance with the cost estimate (smeta) that determines their price. Unless the parties agree otherwise, the contractor is considered to be obliged to perform all the works described in the cost estimate (smeta) and technical documentation.

Should the contractor discover any works that are missing in the technical documentation that result in the necessity to perform additional works, thus increasing the price of the works set forth in the cost estimate (smeta), the contractor must notify the employer to this effect. If the employer fails to provide a response within a statutory or contractual time frame, the contractor must suspend such works. In this case, damages incurred by the contractor are attributable to the employer unless the employer proves that the additional works were not required.

Should the contractor fail to comply with the above requirements to notify the employer and suspend the works, the contractor will be estopped from demanding that the employer pay for the additional works and compensate damages incurred unless the contractor proves that its taking of immediate action was essential for the employer's benefit (in particular if suspension of the works could result in the loss of or damage to the facility under construction).

If the employer agrees to pay for the performance of additional works, the contractor can decline to perform them only if it lacks expertise in the field or encounters externalities that prevent it from performing them.

In addition, by law, in certain situations where there was a substantial increase in the price of materials and equipment provided by a contractor or in the price of services rendered to a contractor by third parties, which could not be foreseen when entering into the contract, the contractor might be entitled to request that the contract price be increased, and if the employer refuses to do so, the contractor is entitled to terminate the contract on the basis of a significant change in circumstances (the specific conditions for relying on such a change are set out in law).

Although the law does not expressly state that the above rules can be modified by agreement between the parties, one could argue that in practice such modifications are generally possible.

Answer contributed by Timur Aitkulov, Olga Semushina and Galina Valentirova

Impossibility

11. When is a contractor entitled to relief if after the contract is concluded it transpires (but not due to external events) that it is impossible for the contractor to achieve a particular aspect of the contractual specification? What relief is available?

Russia

If contract performance becomes impossible after the contract is concluded as a result of an event for which neither of the parties is responsible, the contractual obligations are terminated.

If the contractor fails to commence the works on time or performs them so slowly that completing them by the deadline will obviously be impossible, the employer may terminate the contract and claim damages. If during the course of performance it becomes obvious to the employer that the works are not going to be performed properly, the contractor may be granted a reasonable time to fix the deficiencies. However, should the contractor fail to do so, the employer has the right to terminate the contract or ask a third party to fix the results of the works at the contractor’s expense and claim damages.

Answer contributed by Timur Aitkulov, Olga Semushina and Galina Valentirova

Clauses that seek to pass risks to the contractor for matters it cannot foresee or control

12. How effective are contractual provisions that seek to pass risks to the contractor for matters it cannot foresee or control, for example, making the contractor liable for: (a) a specified event of force majeure; (b) ground conditions that no reasonably diligent contractor could have foreseen; or (c) errors in documents provided by the employer, such as employer's requirements in design and build forms?

Russia

Parties are generally free to determine their rights and obligations on the basis of a contract and to contemplate any contractual provisions that are compliant with the law. Theoretically the parties could agree that the contractor will be liable in the cases listed in items (a)-(c) above. However, the validity of these contract conditions will be determined on a case-by-case basis. If the court finds, for instance, that some conditions of the contract are unfair, or are fundamentally defined by one contract party and dictated to the other (the so called weaker party, due to an obviously unequal bargaining position), then those conditions could be modified, not applied or rendered null and void, or the contract could be terminated by the court.

In relation to item (a) the parties to a construction contract should be entitled to establish liability even if force majeure occurs (it will be determined on a case-by-case basis). In relation to item (b) the law states that the employer shall provide the land for construction in timely manner, and that the size and condition of the land provided must meet the requirements stipulated by the contract or, in the absence of such requirements, must allow the works to commence on time and to proceed and be completed normally (there is an argument that this is a mandatory rule). In relation to item (c), by law, as a rule, a contractor is not liable for errors in documents provided by the employer. However, for example, the contractor is obliged to immediately notify the employer if the employer’s technical documentation is unsuitable or defective. Failure to give such notice deprives the contractor of the possibility of citing the errors in the technical documentation should claims be brought against it.

In public-private partnership (PPP) contracts, matters that the contractor cannot foresee or control are usually covered by the rules of Exceptional Circumstances (Osobie Obstoyatelstva). This is a specific contractual provision that is not prescribed by law, but developed as part of the practice of concluding PPP contracts, according to which a contractor may be entitled to claim an extension of time or compensation of expenses incurred as a result of the events listed as Exceptional Circumstances. Since the practice of PPP contracts is quite unique and construction contracts are extensively regulated by law, it is unclear whether similar provisions may be applicable in construction contracts.

In construction contracts, should some obstacles to the proper performance of the contract arise in the course of construction, each party is required to take all available and reasonable measures to overcome such obstacles. Failure to fulfil this obligation deprives the breaching party of the right to damages incurred due to the fact that those obstacles were not eliminated. A party's expenses related to performance of the above-mentioned duty to cooperate are recoverable only if this is stipulated by the contract. In addition, the party’s failure to cooperate may be taken into account when contractual liability is determined.

Answer contributed by Timur Aitkulov, Olga Semushina and Galina Valentirova

Duty to warn

13. When must the contractor warn the employer of an error in a design provided by the employer?

Russia

The contractor must immediately notify the employer and suspend performance of the contract until the employer gives further instruction if it transpires that the technical documentation provided by the employer is unsuitable, or the consequences of performing the works in compliance with the employer's instructions could possibly be detrimental to the employer.

Answer contributed by Timur Aitkulov, Olga Semushina and Galina Valentirova

Good faith

14. Is there a general duty of good faith? If so, how does it impact upon the following (where they are otherwise permitted under the construction contract): (a) the level of intervention in the works that is allowed by the employer; (b) a party’s discretion whether to terminate or suspend the contract; or (c) the employer’s discretion to claim pre-agreed sums under the contract, such as liquidated damages for delay?

Russia

The RF Civil Code provides for a general duty of good faith for all participants of civil law relationships, which also requires that no one should gain an advantage by means of unlawful or bad faith conduct. The abuse of rights, meaning to exercise rights exclusively with the aim of causing harm to someone else, or acting in circumvention of the law for an unlawful purpose, or otherwise exercising rights deliberately in bad faith is prohibited by law. The legal category of 'abuse of rights' is interpreted by the courts very broadly and could include almost any unfair action that results in loss for the affected party. For instance, depending on the circumstances, if a party to a contract abuses its rights, the courts could deny protection of those rights in whole or in part, a contract could be held invalid by the court, or the affected party could claim compensation of damages.

The legal presumption is that participants of civil law relationships act in good faith and reasonably.

In relation to construction contracts, courts and arbitration bodies will consider whether the rights of the respective party (including the rights mentioned in items (a)-(c) above) were exercised reasonably and in good faith. For instance, as follows from court practice, an employer attempting to terminate a contract on the grounds of delay in completion will be considered to have abused its contract termination right and to have acted in bad faith if such delay is attributable to the employer’s own fault.

Answer contributed by Timur Aitkulov, Olga Semushina and Galina Valentirova

Time bars

15. How do contractual provisions that bar claims if they are not validly notified within a certain period operate (including limitation or prescription laws that cannot be contracted out of, interpretation rules, any good faith principles and laws on unfair contract terms)? What is the scope for bringing claims outside the written terms of the contract under provisions such as sub-clause 20.1 of the FIDIC Red Book 1999 ("otherwise in connection with the contract")? Is there any difference in approach to claims based on matters that the employer caused and matters it did not, such as weather or ground conditions? Is there any difference in approach to claims for (a) extensions of time and relief from liquidated damages for delay and (b) monetary sums?

Russia

Russian courts have not developed a common approach to the validity of contractual provisions that bar claims if they are not validly notified within a certain period. In some cases the courts have found that Russian legislation does not restrict the right to submit a claim to court after the contract-specified period for notification has expired, since under Russian law a waiver of the right to bring a case before court is invalid. At the same time, we are aware of the opposite practice supporting such contractual provisions (although not related to construction contracts). In particular, the courts in some cases reject claims based on inadequate quality of goods sold under sales and purchase agreements which were not validly notified within the time period specified by the contract. In any case if the court finds that some conditions of the contract are unfair, or are fundamentally defined by one contract party and dictated to the other, then those conditions could be modified, not applied or rendered null and void, or the contract could be terminated.

With regard to the scope of claims that can be brought by the parties, in the majority of cases Russian law does not expressly limit them to the written terms of the contract (although each case should be determined on a case-by-case basis). However, the parties could include specific provisions to this effect in their contract. From a procedural point of view, there is generally no difference in approach to claims based on issues that the employer caused and issues it did not or with respect to the remedy pursued. Also, Russian law does not have the concept of liquidated damages and generally allows contractual penalties.

Answer contributed by Timur Aitkulov, Olga Semushina and Galina Valentirova

Suspension

16. What rights does the employer have to suspend paying the contractor or performing other duties under the contract due to the contractor’s (non-)performance, or the contractor have to suspend carrying out the works (or part of the works) due to the employer’s (non-) performance?

Russia

The employer must generally make payment for the works performed in the amount stated in the cost estimate (smeta) in the times and manner prescribed by law or the contract. Unless otherwise prescribed by law or agreed by the parties, the employer must make payment after final acceptance of the works subject to their proper completion on time (or before time, if approved by the employer).

However, the Russian Supreme Court has clarified that if the contractor fails to complete the works on time, but they are still accepted by the employer without raising any objections as to their scope and quality, and the employer can use the result of the works, the latter must pay for them. Court practice also exists whereby should the works be performed only in part because their full completion is not possible for reasons beyond the contractor's control, the employer must pay for the partial works accepted even if the contract does not provide for milestone payments.

The employer may suspend payment to the contractor or suspend performance of other duties due to the contractor's failure to properly perform its contractual obligations, eg, to obtain a bank guarantee (although judicial practice is inconsistent in this regard).

As a rule, the contractor has the right not to commence performance or to suspend performance if (i) the employer's breach of its contractual obligations, for example, failure to provide proper quality materials, impedes the contractor's performance or (ii) there are circumstances clearly indicating that the employer's obligations will not be performed in timely manner.

Answer contributed by Timur Aitkulov, Olga Semushina and Galina Valentirova

Omissions and termination for convenience

17. May the employer exercise an express power to omit work, or terminate the contract at will or for convenience, so as to give work to another contractor or to carry out the work itself?

Russia

Unless the parties agree otherwise, the employer has the right to terminate the contract at any time before the result of the works is transferred to the employer. In this case, the contractor is entitled to receive partial payment for the works, calculated in proportion to the partial works performed, and to be compensated for damages incurred due to termination of the construction contract (up to the amount constituting the difference between the total price for the works and the partial price paid for the works performed).

If the contractor fails to commence the works on time or performs them so slowly that their completion by the deadline obviously becomes impossible, the employer is also entitled to terminate the contract and claim damages. Should it become clear in the course of performance that the works will be not completed properly, the employer may give the contractor a reasonable time to fix the defects. If the latter fails to do so, the employer is entitled to terminate the contract or instruct a third party to fix such defects at the contractor's expense and claim damages.

Answer contributed by Timur Aitkulov, Olga Semushina and Galina Valentirova

Termination

18. What termination rights exist? Can a construction contract be terminated in part? What are the practical and financial consequences?

Russia

According to the law, the following termination rights exist:

  • by mutual agreement of the parties;
  • by a court in case of material breach of contract, in cases prescribed by law or by the contract, or in case of a significant change in circumstances (the specific conditions of such change are prescribed by law);
  • by the employer if the contractor is in breach and in cases not connected with the contractor's breach of the construction contract (unless the parties agree otherwise, the employer has the right to terminate the contract at any time before the result of the works is transferred to the employer – see below);
  • by the contractor (i) if the employer fails to address the contractor's timely and reasonable notification of externalities beyond its control that generally impede proper performance of the works (eg, circumstances jeopardising the suitability of the works, or the fact that the technical documentation provided by the employer is unsuitable or defective); (ii) if the employer's failure to perform its obligations impedes the contractor's performance (unless otherwise agreed by the parties); (iii) if circumstances clearly indicate that the employer's obligations will not be performed in timely manner (unless otherwise agreed by the parties); (iv) if the employer refuses to replace materials or equipment whose use might affect the quality of the works.

 

To terminate the contract, one party has to send notification to the other. The contract is deemed terminated as of the date the termination notice is received (unless otherwise prescribed by law or by the contract). The exercise of termination rights is subject to a general good faith requirement (the RF Civil Code prescribes the general duty that all parties to civil law relationships must act in good faith, and that no one should gain an advantage by means of unlawful or bad faith conduct).

A contract can be terminated in full or in part.

Termination of the contract is typically coupled with a duty to compensate the contractor per the contract price for completed works and to compensate losses incurred as a result of termination. Should the contract be terminated on grounds prescribed by law or by the contract prior to the employer’s acceptance of the works performed, the employer is entitled to request the contractor to transfer the uncompleted works to itself, provided it pays compensation to the contractor for the expenses incurred.

Answer contributed by Timur Aitkulov, Olga Semushina and Galina Valentirova

19. If the construction contract provides for the circumstances in which each party may terminate the contract but does not expressly or impliedly state that those rights are exhaustive, are other rights to terminate available? If so, what are they and what are the practical and financial consequences?

Russia

The termination rights prescribed by law are usually available. However, court practice is inconsistent (for instance, there are two divergent viewpoints with respect to the employer’s termination rights: if the contract states that the employer is entitled to terminate it if the contractor breaches the contract, one viewpoint holds that in such cases the employer’s termination rights based on non-breach may not apply).

Termination rights available to the parties to a contract are determined on a case by case basis. The practical and financial consequences of termination depend on, among other things, the particular grounds for termination.

Answer contributed by Timur Aitkulov, Olga Semushina and Galina Valentirova

20. What limits apply to exercising termination rights?

Russia

In general, the following limitations (among others) apply to exercising termination rights:

  • if a contract is terminated unilaterally by a party in cases prescribed by law or the contract, the following limitations generally apply: (i) a party shall act reasonably and in good faith in compliance with the rules established by law and the contract; (ii) if a party having valid grounds for termination fails to exercise this right and confirms continuance of contractual relations by its own conduct (eg, by acceptance of performance of the other party's obligations), such party could lose the right to terminate the contract on the same grounds in the future;
  • if a party seeks termination of the contract by a court due to substantial breach by the other party of its obligations, this party must demonstrate that the damage occasioned by such breach substantially deprives it of what the party was entitled to expect when entering into the contract;
  • a party may seek termination of the contract by a court due to material change of circumstances if it proves all relevant circumstances envisaged by law (eg, when the contract was concluded the parties did not anticipate such change in circumstances; the change of circumstances was caused by reasons that the party concerned was unable to overcome, etc).

Answer contributed by Timur Aitkulov, Olga Semushina and Galina Valentirova

Completion

21. Does the law of your jurisdiction deem the works to be completed (irrespective of what the contract says) if, say, the employer takes beneficial possession of the works and starts using them?

Russia

Russian law does not expressly state whether the works should be deemed completed. However, there are specific rules for acceptance of the results of works, in particular, the parties are to sign a properly executed certificate of acceptance of works. Meanwhile, existing court practice shows that if the employer takes possession of the works, making no claims with respect to their scope or quality, and starts using them, such works could be deemed to have been accepted by the employer irrespective of what the contract says and the employer would be obliged to pay the contractor for the works performed.

Answer contributed by Timur Aitkulov, Olga Semushina and Galina Valentirova

22. Does approval or acceptance of work by or on behalf of the employer bar a subsequent complaint? What constitutes acceptance? Does taking over the work by the employer constitute acceptance? Does this bar subsequent complaint?

Russia

The completion of works is to be confirmed by a special document which is signed by both the employer and the contractor – a certificate of acceptance of works performed. If the employer refuses to sign, this should be stated in the certificate and it can be signed by the contractor only. In this case, the certificate can be invalidated by a court only if the court finds that the employer had reasonable grounds for refusing to sign it. If the employer who refused to sign a certificate of acceptance still takes the results of works over and starts using them, such works should be considered accepted.

Unless the parties agree otherwise, should the employer accept the works by issuing a certificate of acceptance, but fail to check their quality, he is estopped from relying on claims arising out of any obvious defects. In practice in this regard, the parties sign a certificate of acceptance together with a punch list. If the employer discovers some concealed defects in the works after acceptance, it must notify the contractor to this effect within a reasonable time.

Answer contributed by Timur Aitkulov, Olga Semushina and Galina Valentirova

Liquidated damages and similar pre-agreed sums ('liquidated damages')

23. To what extent are liquidated damages for delay to the completion of the works treated as an exhaustive remedy for all of the employer’s losses due to (a) delay to the completion of the works by the contractual completion date; and (b) delays prior to the contractual completion date (in the absence of, say, interim milestone dates with liquidated damages for delay attaching to them)? What difference does it make if any critical delay is caused by the contractor’s fraud, wilful misconduct, recklessness or gross negligence? If so, what constitutes such behaviour and can it be excluded by agreement?

Russia

The concept of liquidated damages is alien to Russian law. In practice, the courts could refuse in some cases to enforce the parties' agreement establishing liquidated damages, stating, among other things, that the existence and amount of damages must be proved by the parties in each particular situation. The concept most similar to liquidated damages under Russian law is 'penalty' (neustoyka).

Penalty is a monetary sum established by law or by the contract which the breaching party must pay to the non-breaching one in case of non-performance or improper performance of its obligations (inter alia, in case of delay).

The parties may agree on the following: (1) damages will be recoverable to the extent they are not covered by a penalty; (2) a party may recover (i) only a penalty but not damages; (ii) damages in full in addition to a penalty; (iii) either a penalty or damages. Option (2)(i) appears to be the closest analogue of liquidated damages, as in this case a party is not required to prove the amount of damages incurred.

Generally, it does not make any difference if the delay is caused by the contractor’s fraud, wilful misconduct, recklessness or gross negligence, since the parties to a construction contract are liable irrespective of whether their non-performance or improper performance is culpable or not (assuming that the contract is related to the performance of business activities). An agreement between parties that excludes or limits liability for wilful misconduct is null and void.

Answer contributed by Timur Aitkulov, Olga Semushina and Galina Valentirova

24. If the employer causes critical delay to the completion of the works and the construction contract does not provide for an extension of time to the contractual completion date (there being no "sweep up" provision such as that in sub-clause 8.4(c) of the FIDIC Silver Book 1999) is the employer still entitled to liquidated damages due to the late completion of works provided for under the contract?

Russia

The concept of liquidated damages is alien to Russian law. The concept most similar to liquidated damages under Russian law is 'penalty'. If the contractor is not liable for non-performance or improper performance of its contractual obligations, the employer cannot request payment of a penalty. Moreover, in circumstances where the delay was caused by the employer, if the employer were to claim payment of the penalty prescribed by the contract, this could be treated as abuse of rights, which is a separate basis for dismissal of such claim by the courts or arbitration body.

Answer contributed by Timur Aitkulov, Olga Semushina and Galina Valentirova

25. When might a court or arbitral tribunal award less than the liquidated damages specified in the contract for delay or other matters (eg, substandard work)? What factors are taken into account?

Russia

The concept of liquidated damages is alien to Russian law. The concept most similar to liquidated damages under Russian law is a penalty. The amount of the penalty awarded in construction disputes may be reduced by the court in exceptional circumstances if recovery of the penalty will entail unjustified enrichment of the claimant and if there is a specific request by the defendant for the penalty to be reduced.

Answer contributed by Timur Aitkulov, Olga Semushina and Galina Valentirova

26. When might a court or arbitral tribunal award more than the liquidated damages specified in the contract for delay or other matters (eg, work that does not achieve a specified standard)? What factors are taken into account?

Russia

The concept of liquidated damages is alien to Russian law. The concept most similar to liquidated damages under Russian law is 'penalty'. A court or arbitral tribunal might award more than the sum of such penalty if, under the parties' agreement, (i) damages are recoverable in full in addition to a penalty; (ii) damages are recoverable to the extent that they are not covered by such penalty and it is proved that the amount of damages is higher than the sum of penalty.

Answer contributed by Timur Aitkulov, Olga Semushina and Galina Valentirova

Assessing damages and limitations and exclusions of liability

27. How is monetary compensation for breach of contract assessed? For instance, if the contractor is liable for a defect in its works is the employer entitled to its lost profits? What if the lost profits are exceptionally high?

Russia

Unless otherwise prescribed by law or agreed by the parties, damages for non-performance or improper performance of the obligations under the contract must be compensated in full. Damages comprise actual losses and lost profits. When assessing lost profits, a court should take into account the measures and preparations already undertaken by the injured party to obtain such profits. However, it is acceptable to provide other evidence of the possibility of obtaining such profits. If the amount of lost profit is exceptionally high, the court should establish inter alia whether calculation of the amount claimed is justified and whether the employer wilfully or negligently contributed to the increased lost profits and took reasonable steps to mitigate its lost profits.

If the employer discovers defects in the works within the time limits prescribed by law or by the contract, the following remedies will be available to it: (i) rectification of defects by the contractor free of charge; or (ii) reimbursement of the employer's expenses incurred to rectify the defects; or (iii) a proportionate decrease in the price of the works agreed; or (iv) termination of the contract and compensation of damages. In addition, the employer may seek compensation of its lost profits attributable to the contractor’s improper performance of its contractual obligations (however, in practice it could be difficult to prove such lost profits).

Answer contributed by Timur Aitkulov, Olga Semushina and Galina Valentirova

28. If the contractor’s work is technically non-compliant, is the contractor liable for remedying it if the rectification cost is disproportionate to the benefit of the remedy? Can the parties agree on a regime that is stricter for the contractor than under the law of your jurisdiction?

Russia

If the contractor’s work is non-compliant, the contractor is liable for remedying it. Russian law does not provide the contractor with a defence when the rectification cost is disproportionate to the benefit of the remedy.

There is a defence that provides that the contractor is not liable for minor deviations from technical documentation requirements if it can provide evidence that such deviations do not affect the quality of the construction facility.

Parties to a contract are generally entitled to agree on provisions deviating from those specified by law. Therefore, one could argue that in principle, the parties to a construction contract are entitled to agree on stricter conditions of the contractor’s liability. However, whether such a provision will work or not will depend on each specific case. Specifically, in order to consider whether the parties are entitled to agree on provisions deviating from the rules of law, the courts would have to establish whether ‘imperative criteria’ of said rules (such as the need to protect public interests, to prevent the balance of interests of the parties to the contract from becoming severely disrupted, etc) exist or not.

Answer contributed by Timur Aitkulov, Olga Semushina and Galina Valentirova

29. If there is a defects notification period (DNP) during which the contractor must or may remedy any defect in its works that appears during a certain period after their completion, if the construction contract is otherwise silent, does it affect the employer’s rights to claim for any defects appearing after the DNP expires?

Russia

The contractor is generally obliged to rectify defects about which it was notified by the employer within the contractual warranty period, unless it proves that they occurred due to normal wear and tear of the building or parts thereof, incorrect instructions given by the employer itself or third-party contractors hired by the employer, or improper building repairs by the employer itself or by the third-party contractors hired by the employer.

If such warranty period is not specified, the employer can claim for defects within five years of the date of work acceptance. Running of the limitation period is then suspended for the entire time during which the building could not be used owing to the defects for which the contractor is liable.

Answer contributed by Timur Aitkulov, Olga Semushina and Galina Valentirova

30. What is the effect of a construction contract excluding liability for “indirect or consequential loss”?

Russia

The parties to a construction contract can agree that the contractor is liable for actual loss only. Such an exemption clause is considered valid by Russian courts. However, the law provides that contractual provisions agreed in advance that limit liability for willful misconduct are void.

Answer contributed by Timur Aitkulov, Olga Semushina and Galina Valentirova

31. Are contractually agreed limits on – or exclusions of – liability effective and how readily do claims in tort or delict avoid them? Do they not apply if there is fraud, wilful misconduct, recklessness or gross negligence: (a) if the contract is silent as to such behaviour; or (b) if the contract states that they apply notwithstanding such behaviour? If so, what causation is required between the behaviour and the loss?

Russia

Under Russian law, the parties to a construction contract are entitled to agree that the contractor is liable for actual loss. The law provides that contractual provisions agreed in advance that limit liability for willful misconduct are void. There are no similar provisions with respect to recklessness or gross negligence. A party to a commercial contract (which in most cases a construction contract is) is generally liable if it fails to prove that performance of its contractual obligations is impossible due to force majeure.

A direct causal link between the behaviour and the loss is generally required.

Answer contributed by Timur Aitkulov, Olga Semushina and Galina Valentirova

Liens

32. What right does a contractor have to claim a lien (or similar) in the works it has carried out? If so, what are the limits of the right if, for example, the employer has no interest in the site for the permanent works? How is the right recognised and enforced?

Russia

If the employer fails to pay the contract price or other sums due to the contractor under the construction contract, the contractor is entitled to claim a lien with respect to the result of the works, the employer’s equipment, property that has to be redesigned, and any unused leftovers or other property of the employer that remains in the contractor’s possession. The contractor may maintain the lien until full discharge of the employer’s obligations. If the employer fails to fulfil its obligations, the contractor may enforce the lien and collect any resulting proceeds either through court or (if agreed by the parties) out of court enforcement. The contractor's right to claim a lien can be excluded by the agreement of the parties.

Answer contributed by Timur Aitkulov, Olga Semushina and Galina Valentirova

Subcontractors

33. How do conditional payment (such as pay-when-paid) provisions operate under the law of your jurisdiction (including interpretation rules, any good faith principles and laws on unfair contract terms)?

Russia

Russian law generally allows conditional payment provisions. Thus, by law, discharge of obligations under the contract may be contingent on performance or non-performance of certain actions by one contract party or on the occurrence of specific events (even if these events totally depend on the will of one of the parties).

The RF Supreme Court has clarified that pay-when-paid provisions are generally compliant with Russian law, however, the following should be taken into account. If the general contractor in bad faith impedes payment for its works by the employer, the subcontractor could claim that the general contractor is obliged to pay for the subcontractor's works (this conclusion is supported by case law).

Answer contributed by Timur Aitkulov, Olga Semushina and Galina Valentirova

34. May a subcontractor claim against the employer for sums due to the subcontractor from the contractor? How are difficulties with the merits and proof of the subcontractor’s claim addressed, including any rights the contractor has to withhold payment? What if aspects of the project suggest that the law of your jurisdiction should not apply (eg, the parties to both the main contract and the subcontract have chosen a foreign law as the governing law)?

Russia

Subcontractors and the employer are generally unable to make direct claims against each other due to a breach of the contracts concluded by each of them with the contractor. This is confirmed by court practice. However, this rule may be altered in the contract.

If the parties have chosen a foreign law as the governing law, the Russian court will apply Russian mandatory rules (such as rules in the area of public procurements).

Answer contributed by Timur Aitkulov, Olga Semushina and Galina Valentirova

35. May an employer hold its contractor to their arbitration agreement if their dispute concerns a subcontractor (there being no arbitration agreement between the contractor and the subcontractor or no scope for joining two sets of arbitral proceedings) or can the contractor, for example, require litigation between itself, the employer and the subcontractor? Does it matter if the arbitration agreement does not have its seat in your jurisdiction?

Russia

Under Russian law, parties to an arbitration agreement are bound by it, and they are not entitled to file a claim with a court if the respective dispute falls within the scope of the arbitration agreement. If they do so, their claim can be 'left unconsidered' (ie, dismissed without prejudice) by the court. If there is no arbitration clause in the subcontract, the contractor may initiate parallel proceedings in Russian courts against the subcontractor irrespective of the seat of arbitration under the main contract. Then, the contractor could file a motion to have the employer joined to those proceedings in Russian courts if it shows that the proceedings could affect the employer’s rights or obligations.

In light of recent sanctions-related changes to Russian procedural law, there could be some routes for an employer and/or a contractor to submit a dispute to the Russian state courts (even if there is an arbitration clause in place providing for international commercial arbitration seated outside Russia), including with a view to using various procedural mechanisms to join the subcontractor to the proceeding. Specifically, based on amendments to Russian procedural law which were enacted in June 2020, any dispute involving a sanctioned entity or that arises based on the application of restrictive measures is within the exclusive jurisdiction of Russia’s arbitrazh (state commercial) courts, unless expressly provided otherwise in an international treaty or agreement between the parties referring disputes to a foreign court or to international commercial arbitration seated outside the Russian Federation. Even if such international treaty / agreement provides otherwise, the above rule on the exclusive competence of the Russian arbitrazh courts will apply if the dispute resolution clause is incapable of being performed due to restrictive measures imposed on one of the parties to the arbitration agreement which impede access to justice for that party. Therefore, in the above-described circumstances, the employer or contractor may be entitled to refer a dispute between them to a Russian arbitrazh court and move that the subcontractor be joined to those proceedings as a third party (if the proceedings could affect the subcontractor’s rights or obligations) and/or move that those proceedings be joined with the respective proceedings in arbitrazh court between the contractor and subcontractor (eg, if both proceedings are interrelated in terms of the grounds for the claims and/or the evidence presented).

Answer contributed by Timur Aitkulov, Olga Semushina and Galina Valentirova

Third parties

36. May third parties obtain rights under construction contracts? How readily can those connected with the employer (such as future or ultimate owners) bring claims against the contractor in respect of (a) delays and (b) defects? To what extent are exclusions and limitations of liability in the construction contract relevant?

Russia

Where provided for by law or an agreement, third parties may have rights in relation to one or both parties to the contract. However, in practice it could be difficult to enforce such rights if the third party is not a party to a contract. Usually, third parties can only bring claims in tort against the contractor. In such cases, limitations of liability under the construction contract do not apply.

In practice, it is more typical for rights and obligations under the construction contracts to be assigned to third parties. Such third parties would then obtain the same scope of rights under the construction contract as their predecessors (ie, they would have the same remedies as the predecessor, including with respect to delays and defects).

Answer contributed by Timur Aitkulov, Olga Semushina and Galina Valentirova

37. How readily (absent fraud, wilful misconduct, recklessness or gross negligence) can those connected with the contractor (such as affiliates, directors or employees) face claims in respect of (a) delays (b) defects and (c) payment? To what extent are exclusions and limitations of liability in the construction contract relevant?

Russia

Third parties (including persons affiliated with the contractor) cannot have liabilities under the contract if they are not parties thereto. Therefore, the contractor's affiliates, directors and employees should not face claims under the construction contract for delays, defects or payment. However, in case of the contractor's bankruptcy, they could be held to have secondary liability for the contractor's debts, if any of the grounds specified by the bankruptcy law apply. Also, a tort claim may be filed if the persons affiliated with the contractor contributed to the loss incurred by the employer. In such cases, exclusions and limitations of liability in the construction contract should not apply.

Answer contributed by Timur Aitkulov, Olga Semushina and Galina Valentirova

Limitation and prescription periods

38. What are the key limitation or prescription rules for claims for money and defects (and insofar as you have a mandatory decennial liability (or similar) regime, what is its scope)? What stops time running for the purposes of these rules (assuming the arbitral rules are silent)? Are the rules substantive or procedural law? May parties agree different limitation or prescription rules?

Russia

By law the limitation period constitutes three years, from the day a person becomes aware (or ought to have become aware) of the infringement of its rights and of the person who can be a valid defendant (except where the law expressly provides otherwise). This period can be suspended, including in case of mediation. Running of the limitation period is also suspended by, among other things, the commencement of court proceedings or the defendant's acknowledgement of debt. The limitation period cannot exceed 10 years from the date of infringement of rights (except for extraordinary circumstances referred to in anti-terrorist laws). This applies to most contractual and tort claims. Parties cannot agree on different limitation rules.

Limitation periods relevant to construction contracts in terms of claims for money and defects include (among others) three years for claims related to poor quality of construction works. This limitation period starts running from the date of acceptance of the results of construction works as a whole or from the date the employer notified the contractor about defects, if a warranty period is provided for by law or by the contract.

Russian courts consider the rules prescribing limitation periods to be substantive law rules. By law, the limitation period rules are governed by the law of the country applicable to the relevant material relationship (lex causae).

Answer contributed by Timur Aitkulov, Olga Semushina and Galina Valentirova

Other key laws

39. What laws apply that cannot be excluded or modified by agreement where the law of your jurisdiction is the governing law of a construction contract? What are the key aspects of, say, the FIDIC Silver Book 1999 that would not operate as its plain words suggest?

Russia

Under Russian law, mandatory provisions cannot be excluded or modified by the agreement of the parties. Such mandatory provisions include limitation period rules and the prohibition on excluding or limiting liability for willful misconduct.

For example, the provisions of the FIDIC Silver Book 1999 relating to liquidated damages, the prohibition on increasing the contract price even in case of unforeseeable difficulties and costs, and the loss of the contractor's right to claim an extension of time to complete the works or claim additional payments envisaged by FIDIC or the contract in the absence of timely notice to the employer to that effect might not operate in terms of Russian statutory law.

Answer contributed by Timur Aitkulov, Olga Semushina and Galina Valentirova

40. What laws of your jurisdiction apply anyway where a foreign law governs a construction contract? What are the key aspects of, say, the FIDIC Silver Book 1999 that would not operate as its plain words suggest?

Russia

If the construction contract is governed by foreign law, Russian mandatory rules will be applied by Russian courts to the extent the provisions of foreign law and the contract contradict such rules. See also questions 3 and 39.

Answer contributed by Timur Aitkulov, Olga Semushina and Galina Valentirova

Enforcement of binding (but not finally binding) dispute adjudication board (DAB) decisions

41. For a DAB decision awarding a sum to a contractor under, say, sub-clause 20.4 of the FIDIC Red Book 1999 for which the employer has given a timely notice of dissatisfaction, in an arbitration with its seat in your jurisdiction, might the contractor obtain: a partial or interim award requiring payment of the sum awarded by the DAB pending any final award that would be enforceable in your jurisdiction (assuming the arbitral rules are silent); or interim relief from a court in your jurisdiction requiring payment of the sum awarded by the DAB pending any award?

Russia

Only final awards on the merits of the claim may be enforced. Russian law does not provide for enforcement of provisional awards or orders granting interim relief.

Answer contributed by Timur Aitkulov, Olga Semushina and Galina Valentirova

Courts and arbitral tribunals

42. Does your jurisdiction have courts or judges specialising in construction and arbitration?

Russia

There are no courts that specialise exclusively in construction and arbitration. However, in arbitrazh (state commercial) courts or arbitration institutions, there could be judges or arbitrators experienced in construction disputes or arbitration matters.

Answer contributed by Timur Aitkulov, Olga Semushina and Galina Valentirova

43. What are the relevant levels of court for construction and arbitration matters? Are their decisions published? Is there a doctrine of binding precedent?

Russia

There are two systems of courts hearing civil law cases in Russia: arbitrazh (state commercial) courts (hearing the majority of commercial disputes) and courts of general jurisdiction (hearing disputes to which an individual is party). In practice, construction disputes and arbitration matters relating to business activity are heard by arbitrazh courts. Construction and arbitration matters should generally be referred to arbitrazh courts of the first instance, whose judicial acts can be further appealed.

Arbitration or construction matters to which an individual is party are heard by courts of general jurisdiction. Construction or arbitration matters (such as enforcement or annulment of an arbitral award, appointment, dismissal or challenge of arbitrators, injunctions) are generally heard by district courts. Judicial acts of district courts can be further appealed.

Judicial acts of the arbitrazh courts are published in the official court database (kad.arbitr.ru). Judicial acts of courts of general jurisdiction are generally published on the official website of each court (however, courts of general jurisdiction may not disclose personal data contained in the respective judicial acts and may not publish certain judicial acts).

There is no doctrine of binding precedent in Russia; however, the Plenum of the RF Supreme Court periodically issues decrees in which it clarifies provisions of the legislation and provides guidance for the lower courts. Such clarifications are crucial for practice and are binding on the lower courts (their binding nature has been confirmed in recent decrees of the Plenum of the RF Supreme Court). Also, the lower courts tend to adhere to the position of the Supreme Court or cassation courts, because failure to maintain uniformity in application and/or interpretation of the law can serve as grounds for a judicial act to be set aside by the Presidium of the RF Supreme Court.

Answer contributed by Timur Aitkulov, Olga Semushina and Galina Valentirova

44. In your jurisdiction, if a judge or arbitrator (specialist or otherwise) has views on the issues as they see them that are not put to them by the parties, can they raise them with the parties? Is the court or arbitral tribunal permitted or expected to give preliminary indications as to how it views the merits of the dispute?

Russia

In general, Russian procedural law is based on the adversarial principle which prohibits judges from raising issues not raised by the parties themselves. Exceptions to this rule are very limited. For example, judges can use their own initiative to apply the consequences of invalidity of a void transaction when it is necessary to protect public interests. At a preliminary stage of the proceedings the court discusses with the parties which laws should apply to the case at hand, but it is when rendering judgment that the court finally determines which laws should apply to the dispute.

Prior to rendering judgement, the court must not discuss with the parties its conclusions regarding the merits of the case, otherwise one of the parties may seek to disqualify the judge.

Generally, the same approach could apply in arbitration proceedings with the seat of arbitration in Russia.

Answer contributed by Timur Aitkulov, Olga Semushina and Galina Valentirova

45. If a contractor, say, wishes to arbitrate pursuant to an arbitration agreement, what parallel proceedings might the employer bring in your jurisdiction? Does it make any difference if the dispute has yet to pass through preconditions to arbitration (such as those in clause 20 of the FIDIC Red Book 1999) or if one of the parties shows no regard for the preconditions (such as a DAB or amicable settlement process)?

Russia

If the employer initiates parallel proceedings in Russian courts, its claim can be left without consideration by the court in the following cases:

  • there is an arbitration agreement concluded between the parties, provided that the contractor submits its respective objections no later than it makes its first argument on the merits of the case and the court does not find that the arbitration agreement is invalid, void or unenforceable; or
  • if the court finds that an arbitral tribunal is already hearing a dispute on the same subject matter and between the same parties. It does not make any difference if the dispute has yet to pass through preconditions to arbitration or if one of the parties shows no regard for the preconditions.

Answer contributed by Timur Aitkulov, Olga Semushina and Galina Valentirova

46. If the seat of the arbitration is in your jurisdiction, might a contractor lose its right to arbitrate if it applied to a foreign court for interim or provisional relief?

Russia

No, there are no such provisions in Russian law.

Answer contributed by Timur Aitkulov, Olga Semushina and Galina Valentirova

Expert witnesses

47. In your jurisdiction, are tribunal- or party-appointed experts used? To whom do party-appointed experts owe their duties?

Russia

Unless the parties agree otherwise, a tribunal is entitled to appoint an expert. In this case (unless agreed otherwise by the parties) the expert, at the party's request or if the tribunal considers it necessary, must participate in the proceedings and the parties will have an opportunity to ask him or her questions.

However, in practice, given the significant amount of time usually required to prepare an expert report in construction disputes, the parties engage experts on a contractual basis. In such cases the expert has a duty toward the appointing party, and the expert’s report will be considered as part of the evidence submitted by the party in arbitration.

Answer contributed by Timur Aitkulov, Olga Semushina and Galina Valentirova

State entities

48. Summarise any specific limitations or requirements that apply when the employer is a state entity or public authority (including, for example, public procurement rules, limits on rights to suspend or terminate, excluded lien rights and arbitrating – as well as enforcing an award – against such an employer).

Russia

When the employer is a public authority or a state entity, construction contracts are subject to special procurement procedures set forth in Federal Law No. 44-FZ dated 5 April 2013, which governs the procurement by public and local authorities, and Federal Law No. 223-FZ dated 18 July 2011, which governs procurements by special types of legal entities, including state entities. These laws establish extensive specific rules on entering into, performing, amending, and terminating contracts, including construction contracts, liability of the parties, contractual penalties, acceptance of works. Construction contracts are also concluded in the form of concession agreements as part of a PPP. The grantor in such agreements is generally the Russian Federation, its constituent entities or municipalities represented by their respective bodies.

As regards the arbitrability of disputes arising out of such contracts, there is a distinction in the way contracts concluded with state entities and public authorities are governed. Construction contracts with public authorities are not arbitrable by law and hence any arbitral awards will not be enforceable in Russia. On the other hand, construction contracts with state entities are considered arbitrable. While there have been some inconsistencies in judicial practice on this issue, a recent ruling by the Russian Supreme Court confirmed the arbitrability of such disputes. It should be noted, however, that if enforcement is sought against the assets of a state entity, or the arbitral award arises out of contracts that are funded from the state’s budget funds, such awards may be ruled unenforceable. By law, disputes arising out of PPP contracts are arbitrable in Russian arbitration tribunals. However, it is unclear whether foreign arbitration awards in such cases would be enforceable in Russia.

In addition, when the employer is a state entity or public authority, the risk of sanctions comes into play and should be taken into account, because according to recent sanctions-related changes to Russian procedural law, in certain circumstances disputes with sanctioned entities and disputes that arise based on the application of restrictive measures are within the exclusive jurisdiction of Russian arbitrazh (state commercial) courts.

Answer contributed by Timur Aitkulov, Olga Semushina and Galina Valentirova

Settlement offers

49. If the seat of the arbitration is in your jurisdiction, on what basis can a party make a settlement offer that may not be put before the arbitral tribunal until costs fall to be decided?

Russia

A party to an arbitration case is free to make a settlement offer to the other party, which will, however, not be covered by ‘without prejudice’ privilege, as this concept is unfamiliar to Russian law (although reservations made in the offer could be taken into account by the tribunal or court). If the parties have reached a settlement agreement, the proceedings are discontinued and, optionally at the parties’ request, the tribunal may render an award on the terms agreed by the parties. If the tribunal discontinues the proceedings without rendering such award, the issue of arbitration costs can be addressed by the tribunal in accordance with the relevant arbitration rules or agreement of the parties, or both. If the tribunal renders an award on the terms agreed by the parties, the arbitration costs can be addressed in such award.

Answer contributed by Timur Aitkulov, Olga Semushina and Galina Valentirova

Privilege

50. Does the law of your jurisdiction recognise "without prejudice" privilege (such that "without privilege" communications are privileged from disclosure)? If not, may it be agreed that a sum is payable if communications to try to achieve a settlement are disclosed to a court or arbitral tribunal?

Russia

Russian law does not recognise the concept of privilege. As a rule, parties to proceedings are entitled to use any documents obtained in accordance with the law as evidence. However, parties are also free to conclude a confidentiality agreement between them. It is unclear, though, whether provisions that the party disclosing information to a court or arbitral tribunal is obliged to pay a sum of money to the other as a remedy for the breach of such agreement are enforceable or not. Moreover, some types of information may not be subject to the confidentiality agreement (eg, information regarding violations of law, information subject to mandatory disclosure).

Answer contributed by Timur Aitkulov, Olga Semushina and Galina Valentirova

51. Is the advice of in-house counsel privileged from disclosure under the law of your jurisdiction? Is the relevant law characterised as substantive or procedural law?

Russia

Russian law does not recognise the concept of privilege. The concept most similar to privilege in English law is advocate’s secrecy. However, advocate’s secrecy only protects Russian advocates (lawyers who have qualified and been registered as attorneys with the Register of Russian Advocates) from being compelled to disclose, in certain cases, information related to the attorney’s provision of legal services to the client.

Answer contributed by Timur Aitkulov, Olga Semushina and Galina Valentirova

Guarantees

52. What are the requirements for a guarantee under the law of your jurisdiction? Are oral guarantees effective?

Russia

As a matter of Russian law, security may be provided in the form of a suretyship or an independent guarantee.

Under a suretyship agreement a surety assumes responsibility toward a creditor for the debtor's performance in full or in part of its obligation. The suretyship must generally specify the debtor whose performance is secured by the suretyship, and also the obligations themselves. For the purpose of describing the obligations, a reference in the terms of the suretyship to the underlying construction contract whose obligations are secured should suffice. Debtor and surety are jointly and severally liable for non-performance or improper performance of the obligations by the debtor unless subsidiary liability of the surety is prescribed by law or set forth in the terms of the suretyship.

Under an independent guarantee the guarantor assumes, at the request of the principal, an obligation to pay to a third party specified by the principal (beneficiary) a specific monetary sum in line with the obligations assumed by the guarantor, regardless of the validity of the obligations secured by such guarantee. The independent guarantee can be issued by a bank or other commercial entity and must specify the following: date of issue; names of the principal, beneficiary and guarantor; the main obligation for which the independent guarantee is given as security; the sum that will be paid once the payment conditions are met, or the method of calculating it; the term of the guarantee; and the circumstances under which the guarantee can be called.

Answer contributed by Timur Aitkulov, Olga Semushina and Galina Valentirova

53. Under the law of your jurisdiction, will the guarantor’s liability be limited to that of the party to the underlying construction contract, if the guarantee is silent? Can the guarantee’s wording affect the position?

Russia

Under a suretyship, the liability of the surety is limited to that of the party to the underlying construction contract unless otherwise provided for in the terms of the suretyship.

The independent guarantee must specify the sum to be paid once the payment conditions are met or the method of calculating it. The guarantee may also state that its amount will be increased or decreased upon occurrence of a specific date or other circumstances.

The guarantor’s obligations toward the beneficiary under the guarantee are limited to the sum specified in the guarantee. This is further confirmed by recent guidance issued by the RF Supreme Court, from which it follows that, as a rule, if the terms of the underlying contract are amended (eg, the price of the contract is increased), the scope of the guarantor’s obligations does not change. On the other hand, the guarantor's responsibility toward the beneficiary for non-performance or improper performance of the obligations under the guarantee is not limited to the sum specified in the guarantee, unless the guarantee specifies otherwise.

Answer contributed by Timur Aitkulov, Olga Semushina and Galina Valentirova

54. Under the law of your jurisdiction, in what circumstances will a guarantor be released from liability under a guarantee, if the guarantee is silent? Can the guarantee’s wording affect the position?

Russia

Under Russian law, a surety will be released from liability under a suretyship in some cases that are prescribed by law, including in case of termination of the main obligation or expiration of the suretyship's term.

As for an independent guarantee, the guarantor will be released from liability thereunder in case of payment of the due amount specified therein; expiration of its term; beneficiary's waiver of its rights under the independent guarantee; or under a mutual agreement by the guarantor and the beneficiary. Court practice indicates that this list cannot be extended by the agreement of the parties. Also, the RF Supreme Court has clarified that institution of bankruptcy proceedings against a guarantor during the effective term of a guarantee issued by it does not release the guarantor from liability under that independent guarantee. By law, obligations under an independent guarantee can also cease in the case of its withdrawal by the guarantor, if this is expressly agreed by the parties.

Answer contributed by Timur Aitkulov, Olga Semushina and Galina Valentirova

On-demand bonds

55. If an on-demand bond is governed by the law of your jurisdiction on what basis might a call be challenged in your courts as a matter of jurisdiction as well as substantive law? Assume the underlying contract is silent on when calls may be made.

Russia

There is no such concept as an on-demand bond in Russia. The closest security mechanism to the concept of an on-demand bond is an independent guarantee.

Absent a jurisdiction clause in the independent guarantee, a challenge on call is to be filed with the court of jurisdiction for the defendant's place of business or residence.

A call for payment under an independent guarantee may be challenged if the beneficiary’s claim or the documents attached to it are inconsistent with the independent guarantee’s terms or are presented to the guarantor beyond the guarantee's effective term. Also, the RF Supreme Court has clarified that courts can restrain a call upon a guarantee if, based on the circumstances of the specific case, it clearly follows that it is the intention of the beneficiary (who beyond any doubt received proper performance under the underlying contract) to enrich itself in bad faith by claiming payment from the guarantor. There are grounds for believing that fraudulent actions by the beneficiary (eg, when the beneficiary calls the guarantee but is aware that the underlying claim is groundless) could also qualify as such bad faith behaviour.

Answer contributed by Timur Aitkulov, Olga Semushina and Galina Valentirova

56. If an on-demand bond is governed by the law of your jurisdiction and the underlying contract restrains calls except for amounts that the employer is entitled to (such as sub-clause 4.2 of the FIDIC Red Book 1999), when would a court or arbitral tribunal applying your jurisdiction’s law restrain a call if the contractor contended that: (i) the employer does not have an entitlement in principle; or (ii) the employer has an entitlement in principle but not for the amount of the call?

Russia

There is no such concept as an on-demand bond in Russia. The closest security mechanism to the concept of an on-demand bond is an independent guarantee. 

An independent guarantee constitutes a primary obligation on the bank or other commercial entity to pay a specific amount to the beneficiary. As a rule, such payment should be made regardless of the validity of the secured obligation under the underlying construction contract provided that the beneficiary’s claim and attached documents are consistent with the independent guarantee’s terms and the guarantee is called within the time period prescribed therein. Therefore, the possibilities of restraining a call are very limited. 

Answer contributed by Timur Aitkulov, Olga Semushina and Galina Valentirova

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