6 January 2005
The commercial laws of The Russian Federation. Part 1. General System of Law

General System of Law.

a. Description of System of Law.

The Russian legal system is a continental legal system where statutory law is more important than precedents. In resolving cases, the judges interpret legislation rather than search for a close match in prior jurisprudence. Most legislation is quite recent. It was developed in the 1990s after proliferation of economic and political reforms. Comparative law methods were an important instrument in developing a body of new law. For this reason, different legal institutions derive more or less from laws of different countries. For instance, securities law is based on the US model whereas the RF Civil Code is closer to the European tradition, while bankruptcy law relies heavily on German legislation.

The distinction between public and private law has now received official recognition. Russia has taken a step back from practices of administrative governance. The following general principles are declared to be the basis of the Russian legal system, enacted in Constitution and various other legislative acts: democracy and separation of powers, supremacy of the law, transparency, recognition of universal human rights and freedoms, rejection of retroactive (ex post facto) laws, equality before the law, due process, and freedom of contracts.

Jurisprudence and the practice of law are quite formalistic in Russia. Russian jurisprudence far more often pays attention to the form than to the substance. Literal interpretation of contracts is the leading principle. Compliance with strict formal requirements (seals, notary certification, and state registration) is a condition for validity of many transactions, particularly related to real property. All contracts by legal entities are required to be in writing. Usually, when a recourse is made to the law, it receives a very strict and mechanistic interpretation. But a new trend is emerging. Recently the courts, particularly arbitrazh courts, started going beyond the literal meaning of the words of statutes. In quite a few published decisions, one might find policy analysis used as the leading decision making method.

b. Constitutional Law.

(i) General provisions.

The most important documents in Russian constitutional law are (i) the Constitution adopted on 12 December 1993, (ii) the Declaration of Independence of Russia (12 June 1990), and (iii) the Federal Treaty (the treaty on allocation of subject matter jurisdiction and competence between the federal bodies of state power and bodies of state power of subunits of the Russian Federation 31 March 1992). Rulings of the Constitutional Court are so important that they may also be recognized as a source of the constitutional law.

The Constitution of the Russian Federation has supreme legal force and is effective throughout the Russian Federation. It includes the following chapters:

• The Fundamentals of the Constitutional System
• Rights and Freedoms of Human and Citizen
• The Federal Structure
• The President of the Russian Federation
• The Federal Assembly
• The Government of the Russian Federation
• Judicial Power
• Local Self-government
• Constitutional Amendments and Review of the Constitution

(ii) Political system.

The Russian Federation is a presidential republic. The president is strongly entrenched. The Constitution promotes the separation of powers among the federation and subunits (regions), which are constituent parts of the federation. But overall the RF is designed as a federal state with a strong federal center.

The Russian Federation is comprised of eighty-nine subunits: twenty-one republics (republic), forty-nine regions (oblast), ten autonomous districts (avtonomnyj okrug), six territories (kraj), Moscow and St. Petersburg (cities of federal subordination), and one autonomous region (avtonomnaya oblast). As of 01 January 2005 the Russian Federation will contain eighty-eight subunits due to the merger of Permskaya oblast (region) with Komi-Permiatsky autonomous district (amendments to the Constitution of 25 March 2004). The difference in designations not only has historical grounds but also affects the constitutional status of subunits.

(iii) Jurisdiction.

Subunits have their own jurisdiction and are competent to enact legislation. Consequently, not all legislation is adopted at the federal level. The subunits have full and exclusive jurisdiction over all issues except those listed as matters of federal or joint competence. Although the jurisdiction of the Russian Federation is very broad, as will be shown, many important matters still fall under jurisdiction of the subunits. Even more powers are transferred by the federal center to subunits by means of the treaties on allocation of competence.

A. Federal Jurisdiction.

The constitutional (default) jurisdiction of the Russian Federation includes:
(1) adoption and amendment of the Constitution of the Russian Federation and federal laws and supervision of compliance with them;
(2) the federal structure and territory of the Russian Federation;
(3) regulation and protection of the rights and liberties of private persons and citizens; citizenship of the Russian Federation; and regulation and protection of the rights of national minorities;
(4) establishment of a system of federal bodies of legislative, executive, and judicial power; procedures for the organization and activities thereof; formation of federal bodies of state power; and federal and state property and management thereof;
(5) determination of the basic principles of federal policy and federal programs in the sphere of national structure, the economy, the environment, and the social, cultural, and national development of the Russian Federation;
(6) establishment of the legal framework for a single market; financial, monetary, credit, and customs regulation; issuance of money and guidelines for price policy; and federal economic services, including federal banks;
(7) the federal budget; federal taxes and levies; and federal funds for regional development;
(8) federal power networks, nuclear energy, and nuclear materials; federal transportation, railways, information, and communications; and space activities;
(9) foreign policy and international relations of the Russian Federation, international treaties of the Russian Federation, and questions of war and peace;
(10) foreign trade relations of the Russian Federation;
(11) defense and security; defense industry; determining procedures for the sale and purchase of arms, munitions of war, military hardware, and other equipment; production of nuclear materials, toxic substances, and narcotics and procedures for the use thereof;
(12) determination of the status and protection of the national border, territorial waters, air space, the exclusive economic zone, and the continental shelf of the Russian Federation;
(13) law courts; procuratura (office of public prosecutor); criminal, criminal-procedure, and penitentiary legislation; amnesty and pardon; civil, civil-procedure, and arbitrazh procedure legislation; and legal regulation of intellectual property;
(14) federal conflict of laws rules;
(15) meteorological service; standards, models, the metric system, and time measurement; geodesy and cartography; names of geographical objects; and official statistics and accounting;
(16) state decorations and honorary titles of the Russian Federation; and
(17) federal state service.

B. Joint Jurisdiction.

On the matters of joint jurisdiction, legislative and other regulations of the subunits of the Russian Federation are subordinate to federal regulation. Local rules which fail to comply with federal statutes are not enforceable.
Article 72.1 of the Constitution provides that the joint jurisdiction of the Russian Federation and the subunits of the Russian Federation shall include:
(1) ensuring compliance of the constitutions and laws of the republics, charters, laws, and other regulations of the territories, regions, federal cities, autonomous regions, and autonomous areas with the Constitution of the Russian Federation and federal laws;
(2) protection of the rights and freedoms of the individual and citizen; protection of the rights of ethnic minorities; maintenance of the rule of law and public order, and public safety; and border zone regulation;
(3) issues of the possession, use, and management of land, mineral resources, water, and other natural resources;
(4) allocation of state property;
(5) management of natural resources, protection of the environment, and ecological safety; specially protected natural reserves; and protection of historical and cultural monuments;
(6) general questions of upbringing, education, science, culture, physical culture, and sports;
(7) coordination of health issues, protection of the family, motherhood, fatherhood, and childhood; and social protection including social security;
(8) implementation of measures to combat catastrophes, natural disasters, epidemics, and eliminating the consequences thereof;
(9) establishment of general guidelines for taxation and levies in the Russian Federation;
(10) administrative, administrative-procedure, labor, family, housing, land, water, and forestry legislation and legislation on natural resources and environmental protection;
(11) personnel of the judiciary and law enforcement agencies; the bar; and notaries;
(12) protection of the original environment and traditional way of life of small ethnic communities;
(13) establishment of general guidelines for organization of a system of agencies of state power and local self-government; and
(14) coordination of the international and external economic relations of the subunits of the Russian Federation and compliance with the international treaties of the Russian Federation.
Cited provisions apply equally to the republics, territories, regions, federal cities, autonomous regions, and autonomous areas.

C. Treaties of the Federation and Subunits.

The allocation of the jurisdiction under the Federal Treaty of 1992 is superceded by the Constitution. However, the treaties on allocation of competence executed after the effective date of the Constitution may modify the default scope of federal and local jurisdiction provided by the Constitution. This practice is backed by Article 11.3 of the Constitution, which provides that scope of the jurisdiction and powers of the bodies of state authority of the Russian Federation and those of the bodies of state authority of the subunits of the Russian Federation shall be determined under the Constitution, Federal and other Treaties on the allocation of jurisdiction and certain powers. Similar agreements are often concluded by the executive organs of the Russian Federation and of the subunits on matters of their jurisdiction (Art. 76 of the Constitution).
Today, the overall number of such agreements is close to a hundred. Some of these treaties are available in Russian at the WWW site [http://www.region.ras.ru].

(iv) Legislative Process.

The separation of powers between the legislative, executive, and judicial branches is a fundamental feature of the Russian state system. It is implemented both on the federal level and in the subunits of the Federation. The legislative and the executive branch of subunits are independent of the federal bodies and not accountable to them.

The power to enact federal legislation is vested in the legislative branch. The Parliament is called the Federal Assembly (Federalnoye Sobranie) of the Russian Federation. It is comprised of two houses, the State Duma (the lower house) and the Council of Federation (the upper house).

The State Duma (Gosudarstvennaya Duma) includes 450 deputies serving two-year terms, half of whom are elected by party lists and the other half by personal voting.

The Council of Federation (Sovet Federatzij) is formed by two representatives of each subunit of the federation; one representing the executive power of the subunit, and the other representing the legislative power of the subunit. The Council of Federation is competent to resolve certain appointments, state of war and emergency, and impeachment. Members of the Council of Federation lose their status when the office of their mandate expires. Federal legislation can be initiated by the President of the Russian Federation, the Council of Federation, State Duma, the government of the Russian Federation, legislative and executive bodies of subunits of the Russian Federation, as well as by the Constitutional Court, Higher Arbitrazh (Commerical) Court, and the Supreme Court of General Jurisdiction.

All bills are initially introduced to the State Duma. Bills affecting state budget funds can be introduced only after the government gives its opinion regarding the proposed law. According to the Rules (Regiment) of the State Duma, the proposed law normally passes three hearings (readings) before it is finally approved by the Duma. A majority vote of the deputies of the State Duma in each of these hearings is required to adopt federal laws and amendments to laws. Federal constitutional laws require approval by three-quarters of the deputies of the upper house of the Parliament and by two-thirds of the lower house.

A bill approved by the Duma is sent to the Council of Federation. If the Council of Federation considers a federal bill and declines it, the bill is returned to the lower house. The Duma then has the option to either introduce amendments suggested by the upper house or bypass the need for the Council of Federation approval by a two-thirds majority vote in support of the bill. Bills of certain categories may proceed to President’s desk not only if they are approved by the Council of Federation, but also if the Council fails to take an action on the bill within fourteen days after its approval by Duma.
Within five days after approval by the Council of Federation or after expiration of time for action by the Council, the federal law is sent to the President of the Russian Federation for signing and promulgation. If the President rejects the law, the bill is reconsidered by the Parliament. In order to overcome Presidential veto, both houses of the Parliament must adopt the law by two-thirds majority. The President is then bound to sign and promulgate the law.

The federal executive branch is represented by the President and the Government of the Russian Federation. The President is elected for a four-year term by nationwide direct vote. It appoints key officials, including Prime Minister (the Chairman of the Government of the Russian Federation). The federal government consists of federal executive bodies responsible for particular directions of work: Ministries, State Committees, Committees, Federal Services, Federal Supervision Departments, Federal Agencies, and Federal Inspections. Some of these bodies report to the Government while other report directly to the President.

c. Statutory Law.

(i) General.

The system of sources of written law is quite complex and multilayered. There is no coherent overall code or collection of laws so far, but rules of superiority at least are now well-established and enforced. All federal laws and federal constitutional laws, as well as executive legislation bearing upon individuals’ rights and freedoms must be officially published before they become effective.
The following acts are recognized as valid sources of law in order of superiority:

(ii) Constitution.

The Constitution is the highest legal act which has a direct effect and supreme legal force The present Constitution of the Russian Federation was adopted at the nationwide referendum on 12 December 1993. No substantial amendments to the Constitution were introduced since then. Subunits of the Russian Federation have their own constituent documents. Republics have constitutions. All other subunits have charters.

(iii) International Agreements.

Generally recognized principles and norms of the international law and the international treaties of the Russian Federation are a constituent part of its legal system. When an international treaty of the Russian Federation stipulates other rules than those stipulated by a national statute, the rules of the international treaty prevail. (Art. 15 of the Constitution). Therefore international agreements are second most influential source of Russian law. The RF Civil Code provides that this rule is only applicable to treaties having direct effect (self-executory treaties). That is, if the language of the Agreement makes it apparent that it was not considered to be “self-executory” it will not have direct legal effect in Russia. Russia is a successor to the USSR in international relations. It recognizes and honors the international obligations of the USSR.

(iv) Statutory Law.

Laws (zakony) are adopted by the representative bodies of state power on the federal level (within federal jurisdiction and shared jurisdiction) and also on the regional level (on matters of joint jurisdiction and matters of jurisdiction of regions). According to the Constitutional supremacy clause (Article 15(1)), all laws must conform to the Constitution of Russia. On the federal level, two types of laws are adopted: federal laws and federal constitutional laws. Federal constitutional laws are adopted on few issues which are enumerated in the constitution. They take precedence over other federal laws. Legislation adopted by the subunits on the issues of joint jurisdiction must conform to federal legislation. Notably, the civil (private) law is a matter of exclusive federal jurisdiction (with the exception of family and housing legislation, which are referred to joint jurisdiction).

Codified laws called Codes (kodeksy) or Fundamentals (osnovy) are the most important sources of statutory law. Codes are adopted on subject matters of federal jurisdiction, and Fundamentals are adopted on subject matters of shared jurisdiction. Codified legal acts generally have priority over other laws (for instance, the laws governing private transactions must conform to the RF Civil Code; the laws providing for administrative liability must be in line with the Administrative Code). For instance, it is set forth in the RF Civil Code of the Russian Federation, Article 3, that “rules of civil legislation embodied in other laws shall conform to the present Code.”

(v) Acts of Federal Executive Bodies/Presidential Decrees.

Acts of executive bodies have to conform to legislation. The federal government and subordinate executive bodies can only adopt delegated legislation on the basis of a special mandate based upon the law. The President of the Russian Federation has gap-filling legislative powers. He can issue decrees on all issues where no law exists, provided that these Decrees do not contradict the Constitution and laws. The Government of the Russian Federation may issue decrees and orders and ensure their implementation on the basis of and pursuant to the Constitution of the Russian Federation, federal laws, and normative decrees of the President of the Russian Federation. Delegated legislation is also issued by the departments and ministries of the Russian Federation on the basis of authority provided for under the law or decree. Nevertheless, acts are sometimes issued without such authority, in which case they are held by the courts to be unenforceable. As a precaution against departmental home-made legislation, it was established that delegated legislation issued by departments of executive bodies and affecting rights, freedoms, and obligations of individuals, or the legal status of organizations, is subject to registration with the Ministry of Justice.