On 31 July 2014, the Supreme Arbitrazh Court of the Russian Federation (the “Supreme Court”) published one of its latest rulings aimed at unifying settlement procedures (the “Ruling”). The Ruling advocates the parties to a dispute entering into settlement agreements to decrease the workload of the arbitrazh courts.
The main guidelines of the Ruling are as follows.
1. Scope of settlement
The Supreme Court stressed that the “freedom of contracts” principle shall apply to settlement agreements. This said the parties to a settlement agreement shall be entitled to agree any terms which are connected with the claims at dispute even when such terms do not constitute the subject matter of the dispute itself.
Traditionally, Russian courts refused to approve settlement agreements with the terms falling out from the precise scope of the subject matter of the dispute. This, in turn, entailed additional sets of related disputes or complicated out-of-court settlement agreements. Over the last years the Supreme Court occasionally stated that a settlement agreement may include clauses which go beyond the scope of a dispute (for example, the Ruling of the Presidium of the Supreme Court No. 8035/12 dated 30 October 2012). This approach was initially reflected in the draft Ruling: it established the possibility of the parties agreeing even those terms which are not directly linked to the claim at dispute. However, as per the final version of the Ruling, the Supreme Court took a more cautious stand. Nevertheless, it should be still treated as a positive shift aimed at comprehensive settlement of a dispute.
2. Secondary claims
The issue of the finality of settlement agreements has been discussed over many years. Pursuant to the Ruling, a settlement agreement ultimately settles all claims (both out of principal and secondary obligations) between the parties to the dispute, unless otherwise specifically agreed by the parties.
3. Third parties
The Supreme Court clarified that third parties involved in a dispute may be party to settlement agreements. This approach simplifies the settlement of complicated disputes.
4. Amendment of settlement agreement and postponement of its enforcement
According to the Ruling, the parties may, by mutual agreement, amend a settlement agreement, and the amended settlement agreement must be approved by the court. The Supreme Court also confirmed that the enforcement of settlement agreement may be postponed, albeit only in extraordinary circumstances. These clarifications aimed at safeguarding the parties’ rights arising subsequently to execution of settlement agreements.
5. Settlement of tax disputes
The Supreme Court specifically stressed that the parties to tax disputes may execute settlement agreements encompassing issues which are not directly connected with the subject matter of the dispute (e.g., issues relevant for other tax periods). The Ruling contains some further clarifications regarding settlement of tax disputes.
Although the law envisages the right of parties to settle tax disputes by means of settlement agreements, only a small number of settlement agreements have been executed over the years in relation to tax disputes. In this regard the Ruling may encourage the parties to settle tax disputes and to overcome the tax authorities’ resistance to the use of settlement agreements.
6. Other means of settlement
The Supreme Court also clarified that some other types of agreements (other than settlement agreements) between parties involved in a dispute may be used to resolve such disputes through conciliation.