On 18 January 2011, the Constitutional Court of the Russian Federation (the “Constitutional Court”) and the Supreme Arbitration Court of the Russian Federation (the “SAC”) both passed important acts, which have a material effect on the confidentiality protection of corporate information. The Constitutional Court’s Ruling refers to the Law on Joint-Stock Companies, while the SAC’s Information Letter relates, in addition, to limited liability companies.
Background: a minority shareholder’s claims against the largest Russian companies
One reason behind the acts passed by the highest courts is the claims filed against several large Russian companies by Alexey Navalny, a minority shareholder. During 2008 and 2009, Alexey Navalny demanded that Gazpromneft, Surgutneftegaz and Rosneft disclose information on agreements with a company called Gunvor. State arbitration courts dismissed the claims, referring to the following facts:
- this information is confidential;
- the numbers and dates of the requested documents must be specified; and
- this information may not be disclosed to minority shareholders.
Finally in August 2010 the State Arbitration Court of Moscow upheld Alexey Navalny’s new claim against Rosneft. This time he requested the minutes of meetings of the company’s Board of Directors.
The Supreme Arbitration Court of the Russian Federation: expanded access to corporate information
Compared to previous court practice, the SAC’s information letter dated 18 January 2011 significantly expands shareholders’ and participants’ rights to access company information. Specifically:
- companies must now permit access to their most important documents, including contracts;
- the classification of information as a commercial secret does not prevent shareholders and participants from accessing it, but only imposes a non-disclosure obligation on the recipients (a written undertaking of non-disclosure should be obtained); and
- a shareholder or participant must describe the requested information in reasonable detail, but is not obliged to indicate specific numbers and dates of documents.
When a company may refuse to disclose information
As stated by the SAC, a company may refuse to disclose information to its participants, in particular in the event of:
- a repeated request for documents, if the first request has been duly satisfied;
- a request for documents relating to previous time periods, where the documents are of no value in terms of economic and legal analysis, including on account of the relevant limitation period expiring; or
- abuse of the right to information (for example, if a shareholder or a participant is acting for the benefit of a competitor).
Events where a company’s refusal to disclose information is recognised as unreasonable
The SAC has stated that a shareholder’s or a participant’s request may not be qualified as an abuse of right where information is required by the shareholder or participant in connection with:
- a planned sale of shares or participation interest;
- preparation for filing a claim with a court, seeking to challenge a decision of a company’s management body or a contract or to hold the company’s management body liable; or
- preparation for attending a general meeting of shareholders.
If documents contain a state or bank secret, a company must provide extracts from the documents with the secret information omitted.
The Constitutional Court of the Russian Federation: requirement to observe a balance of interests
Also on 18 January 2011, the Constitutional Court issued a Ruling concerning a complaint filed by ОАО “Oil Company “Rosneft”.
Despite the appellant’s position the Constitutional Court held that a provision of the Law “On Joint-Stock Companies”, regarding disclosure to shareholders, complied with the Constitution. At the same time, the Ruling revealed "the constitutional meaning of this provision, which is generally mandatory and excludes any other interpretation in the practical application of the law".
More specifically, the Constitutional Court referred to:
- the requirement to observe a balance of interests in corporate legal relations;
Shareholders’ rights to access a company’s documents must be exercised without violating the rights and legitimate interests of both the shareholders themselves and the joint-stock company, taking into account its interest in preserving the confidentiality of significant and valuable information.
- the possibility of varying the scope of information to be disclosed, by way of addressing certain matters in a company’s internal corporate documents;
For example, the minority shareholders in a company whose charter vests additional powers in its Board of Directors, at the expense of its executive bodies’ powers, may have an advantage over the same shareholders in a company where its Board of Directors does not have additional powers.
- the possibility of a joint-stock company to raise reasonable objections against a shareholder’s demand;
Objections may not be of an arbitrary or biased nature. A dispute will, in any case, usually be subject to judicial review.
Objections may be raised, in particular if there are elements indicating an abuse of right by the shareholder, “including a case where a shareholder lacks a legal interest in receiving the appropriate information or a case where there are other factual circumstances establishing the bad faith of the shareholder”.
Comments: differences in judicial approaches
Notwithstanding the fact that the SAC Information Letter and the Constitutional Court Ruling were adopted simultaneously, there is some discrepancy in the approaches of these higher judicial bodies.
According to the Constitutional Court, the “groundlessness of the interest” of a shareholder in receiving the appropriate information may be indicative of his bad faith and an abuse of right. Meanwhile SAC provided that “when exercising their rights to access information, companies’ participants are not obliged to disclose their guiding purposes and motives for demanding information on the company as well as establish their interest in receiving the appropriate information in any other way except in cases arising from the law”.
Companies should take active steps to regulate the disclosure of corporate information in their internal documents by adopting Regulations on corporate information.
In view of the Information Letter of the SAC, it is clear that the judicial tendency is toward a high level of disclosure of detailed commercial information to shareholders and participants. The possibility that those same shareholders or participants might be competitors or that the disclosure of such a level of commercial information to shareholders might otherwise be undesirable must be considered on a case-by-case basis, and appropriate action must be taken.
It should also be noted that, for shareholders and participants to be bound by the obligation of confidentiality referred to in the SAC’s Information Letter, the information must be classified as a commercial secret. To effect this, the company must take additional measures, beyond merely stamping a document as “confidential”.