Federal Law No. 42-FZ on Amendments to Part One of the Russian Federation Civil Code of March 8, 2015

The Law entered into force on June 1, 2015 and made sweeping changes to the general part of the law of obligations, enabling the use of new flexible approaches to structuring transactions, including real estate transactions. The Law has enshrined both mechanisms that were already customary for business but had previously been recognized only by court practice, and new institutions borrowed (either entirely or partially) mainly from English law and whose adoption at the legislative level was timely and long-awaited.

In particular, new types of contracts (the framework agreement, the agreement for the option to conclude an agreement, the option agreement, the subscription (service) agreement) have been introduced; new provisions concerning so-called legal interest (interest on a monetary obligation) have been introduced; the provisions on securing obligations have been changed (in particular, the concept of the independent guarantee has been introduced, and the security deposit has been enshrined as a separate way of securing the performance of obligations); the concept of representations has been introduced and a party to a contract can now be held liable for making false representations to the other party; there is now liability for bad-faith negotiating, etc.

In order to clarify a number provisions of the Law and statutes previously adopted as part of the civil law reform, the Plenum of the RF Supreme Court issued Resolution No. 25 on the Application by the Courts of Certain Provisions of Section I of Part One of the Russian Federation Civil Code of June 23, 2015 and Resolution No. 43 on Certain Issues Related to the Application of Rules of the Russian Federation Civil Code Concerning the Limitation Period of September 29, 2015.

The amendments made to the RF Civil Code are primarily intended to make Russian law more attractive as the governing law for major investment transactions, and the new developments are worthy of a positive assessment because they are aimed at increasing the liability of parties (in particular, pre-contractual liability), bringing Russian contract law closer to international standards and further developing the principles of good faith and freedom of contract. At the same time, given the current absence of court practice of applying these norms, some of which have already raised questions in interpreting them (one vivid example is the concept of legal interest), the use of new mechanisms of the RF Civil Code does not always make it possible to reduce the parties’ risks.