Russia: an economy attracting individual entrepreneurs and large investors
Foreward by Andrew Chilvers
During the past two decades the key nations of Central and Eastern European (CEE) have grown significantly following moves to liberalise their economies. On average Poland, the Czech Republic, Hungary, Bulgaria and Romania, to name a few, increased their per capita GDP by 115% between 2004-2020. Employment was at its lowest ever at a mere 4.6% and productivity levels were catching up with the developed states of the EU.
In CEE countries growth has been the result of several factors such as the prosperity of the traditional industries, competitive exports and foreign investment, as well as the significant inflow of various funds from the EU and others.
However, this growth ground to an abrupt halt last year with the onset of the Covid-19 pandemic. As elsewhere, the pandemic hit the CEE region on several fronts, with disruptions to the regional services sector and global supply chains – this was particularly damaging to those countries with large vehicle manufacturing sectors. Nevertheless, the CEE economies are known for their economic resilience and many believe they are better positioned to cope with the aftermath of the Covid-19 crisis than their West European counterparts.
Indeed, many analysts predict that the next year or so will be only a temporary setback as CEE economies quickly find their feet again. With this gradual re-opening, the economies in the region are forecast to grow by a healthy 4.1% in 2021 from what was a severe 5.1% contraction last year, according to Moody’s Investors Services.
Overall, economic growth is expected to be more robust in the region compared with countries to the West due to the regional economies’ reliance on traditional manufacturing and heavy industry, with less exposure to hospitality and tourism. The collapse of the latter sectors has had devastating effects on countries such as Croatia and Greece but has spared the majority of CEE countries.
Russia: an economy attracting individual entrepreneurs and large investors
Russian commercial law in the time of the pandemic: how businesses and courts react to the new reality
The world, including Russia, continues to be affected by the Covid-19 pandemic. Currently, according to estimates by the Russian authorities, the threat is gradually diminishing. In this connection, restrictions in Russia are far less burdensome for citizens and organisations than they were last year. At the same time, it is impossible to say that the economic and legal effects associated with the pandemic have lost their relevance.
During the Covid-19 peaks, full or partial quantitative restrictions on employees in the workplace were introduced. In Moscow, major restrictions of this kind were lifted in February 2021. Despite this, many enterprises voluntarily maintained remote working to one degree or another. This enforced home working has made businesses realise there are also benefits and many are now using it as a tool for mobility and cost optimisation. It should be noted that at the end of 2020 important amendments about remote working were introduced into the Russian Labor Code.
Pandemic-related restrictions have also prompted retailers to actively develop remote sales. At the beginning of the pandemic in 2020, the Russian Government emphasised the possibility of selling foods and non-food products (with certain exceptions) remotely during restrictive measures. In 2020, a legislative framework also appeared in the form of amendments to the Russian Federal Law “On the Circulation of Medicines”, as well as the Russian Government decrees that opened up the opportunity and established rules and administrative licensing procedures for the remote sale of medicines.
The Russian Government determined and periodically clarifies the list of Russian economic sectors that are most affected by the spread of Covid-19. The list includes several dozen items belonging to industries such as transport, organization of leisure and entertainment, public catering, retail trade in non-food products, etc. The list is used for financial and credit support of the affected enterprises, provision of tax incentives, as well as postponement of enforcement proceedings. Small and medium-sized businesses that face difficult financial uncertainties actively seek to obtain support. In our opinion, the need for such support will continue even after the pandemic is over.
The pandemic and force majeure
As part of this adaptation to the pandemic, the main business requests and, accordingly, court practice has been built around the question of whether the pandemic and restrictive measures can serve as an excuse in various legal situations. On April 21, 2020, the Presidium of the Russian Supreme Court issued a landmark review of judicial practice regarding the legislation application in the context of Covid-19.
The Presidium of the Supreme Court commented on the possibility of recognising the pandemic and restrictive measures as force majeure grounds for exemption from liability for failure to fulfill an obligation. The Presidium noted that such recognition is possible, but it cannot be universal for all categories of debtors, regardless of the type and conditions of their activity. The existence of force majeure should be established considering the circumstances of a particular case, including the term and nature of the unfulfilled obligation, the reasonableness and good faith of the debtor’s activities, etc. It was also noted that if the pandemic and associated restrictions led to a complete or partial objective impossibility of fulfilling obligations, which is of a permanent (unremovable) nature, the obligation may be terminated in full or in the relevant part.
Furthermore, the Presidium of the Supreme Court described the possibility of suspending an action limitation period if the filing of a claim was prevented by force majeure in the last half of the year of such a period. In order to be recognised as grounds for suspension, the anti-pandemic measures interfering with the filing of a claim must be extraordinary and unavoidable.
The issues of reducing contractual penalties have also become relevant for the courts. In many cases, the courts refused to reduce contractual penalties for contractual breaches, recognising the circumstances and arguments concerning the pandemic as insufficient. However, there were cases when the amount of the penalties decreased during the period of self-isolation with reference to the company’s belonging to the list of industries most affected by the pandemic. In addition to penalties, in certain cases the courts refused to block accounts of enterprises whose activities were socially or economically significant to prevent the freezing of such activities.
In general, the reaction of business to the effects of the pandemic was and is predominantly adaptive. However, it should be noted that these effects have allowed businesses to look differently at their commercial strategies and discover new opportunities provided by the changed circumstances. In turn, the law enforcement practice of the courts is a reaction to the complex legal effects of the pandemic. In turn, the law enforcement practice of the courts is a reaction to the complex legal effects of the pandemic and the market players’ demands. At the same time an important goal of the courts has become a rather cautious and selective recognition of the pandemic as an excuse to maintain a balance of interests for all participants involved with economic activity.