Russian Corporate Disputes

Jurisdiction of Arbitration Courts

Corporate disputes in Russia fall within the exclusive jurisdiction of the arbitration courts (arbitrazhnye sudy), which constitute the system of economic courts within the Russian judicial hierarchy. Article 225.1 of the Arbitration Procedure Code (APK RF) defines the categories of disputes classified as corporate disputes (korporativnye spory). The list includes: disputes over the establishment, reorganisation, and liquidation of legal entities; disputes over the ownership of shares and participatory interests; disputes over challenges to decisions of corporate bodies; disputes arising from the activities of corporate bodies; disputes over the exclusion of participants; and disputes arising from derivative actions.

The exclusive jurisdiction of the arbitration courts over corporate disputes was established by the 2002 procedural reform and confirmed by subsequent amendments. The rationale is that corporate disputes involve economic activity and require specialised judicial expertise. The Supreme Court of the Russian Federation serves as the highest judicial authority for corporate disputes, ensuring uniform interpretation of corporate legislation across the arbitration court system.

Corporate Conflicts

The concept of corporate conflict (korporativny konflikt) is central to Russian corporate litigation. A corporate conflict is defined as a dispute between the participants (shareholders) of a company, or between participants and the company, arising from the exercise of corporate rights and obligations. Corporate conflicts may involve: disputes over control of the company; disputes over the distribution of profits; disputes over the validity of corporate decisions; and disputes over the exclusion of participants.

Russian courts recognise that corporate conflicts differ from ordinary commercial disputes in their complexity, the multiplicity of parties, and the need for injunctive relief. The APK RF establishes special procedural rules for corporate disputes, including: the mandatory joinder of the company as a party; the possibility of joining multiple claims in a single proceeding; and the availability of interim measures specifically adapted to corporate disputes.

Exclusive Jurisdiction Under Article 225.1

Article 225.1 of the APK RF establishes the exclusive jurisdiction of arbitration courts over corporate disputes, regardless of the parties’ place of registration or the seat of the corporate entity. The exclusive jurisdiction rule prevents forum shopping: a corporate dispute may not be brought before a court of general jurisdiction or a foreign court.

The scope of exclusive jurisdiction includes: challenges to the decisions of general meetings of shareholders, boards of directors, and other corporate bodies; disputes over the acquisition, encumbrance, or exercise of rights to shares and participatory interests; disputes over the payment of dividends; disputes over the appointment and removal of management bodies; disputes over the reorganisation and liquidation of legal entities; and disputes over the exclusion of a participant from a limited liability company.

Derivative Actions

The derivative action (kosvenny isk) is a procedural mechanism that permits a shareholder or participant to bring a claim on behalf of the company against directors, officers, or controlling shareholders. Articles 53.1 and 225.8 of the APK RF govern derivative actions in Russian law. The shareholder bringing a derivative action must hold at least 1% of the voting shares in a joint-stock company or at least 1% of the charter capital in a limited liability company.

The derivative action is brought by the shareholder in the name of the company, and any damages recovered are paid to the company, not to the shareholder. The shareholder must demonstrate: that the company has suffered harm as a result of the defendant’s actions; that the defendant acted in bad faith or unreasonably; and that the company has failed to take action to recover the damages. The derivative action is a remedy of last resort: the shareholder must first demand that the company bring the action itself, and the shareholder may proceed only where the company refuses or fails to respond within a reasonable period.

Challenges to Corporate Decisions

The challenge to decisions of corporate bodies (obzhalovanie resheniy organov upravleniya) is one of the most common categories of corporate dispute. Article 181.4 of the Civil Code and Article 225.1 of the APK RF establish the grounds for challenging decisions of general meetings of shareholders, boards of directors, and other corporate bodies.

The grounds for invalidation include: the decision was adopted in violation of the law or the company’s charter; the decision violates the rights and legitimate interests of the shareholder; the shareholder did not participate in the vote or voted against the decision; and the decision was adopted outside the competence of the corporate body. The court must consider whether the violation was material: minor procedural irregularities that did not affect the outcome of the vote are not grounds for invalidation.

The limitation period for challenging corporate decisions is three months from the date on which the shareholder knew or should have known of the decision, but in any event not later than six months from the date of the decision. The court may refuse to invalidate the decision where: the shareholder’s vote could not have affected the outcome; the violation is not material; and the decision does not cause the shareholder losses.

Exclusion of a Participant

The exclusion of a participant (isklyuchenie uchastnika) from a limited liability company (OOO) is a distinctive remedy in Russian corporate law. Article 10 of the Federal Law on Limited Liability Companies (No. 14-FZ) permits a court to exclude a participant whose actions make the company’s activities impossible or significantly impede them. The remedy is available only for OOO, not for joint-stock companies, reflecting the close personal character of the OOO relationship.

The grounds for exclusion include: gross violation of the participant’s obligations to the company; actions that prevent the company from achieving its business objectives; actions that cause material harm to the company; and systematic obstruction of corporate decision-making. The participant whose exclusion is sought is entitled to the actual value of their participatory interest, determined on the basis of the company’s net assets.

The Supreme Court has emphasised that exclusion is an exceptional remedy, to be applied only where the continued participation of the excluded participant is incompatible with the company’s functioning. The exclusion remedy has been controversial, with critics arguing that it provides insufficient protection for minority participants.

Specific Performance

Russian corporate law recognises the remedy of specific performance (prisuzhdenie k ispolneniyu obyazannosti v nature) in appropriate cases. A court may order a corporate body: to convene a general meeting of shareholders; to include an item on the agenda of a meeting; to provide access to corporate documents; or to register a transfer of shares.

Specific performance is available where: the obligation is clearly defined; the defendant has failed to perform the obligation; and the performance is still possible. The court may impose a judicial fine (astrent) for delay in performance. The provision for specific performance of corporate obligations supplements the usual remedy of damages and provides effective protection for shareholders’ rights.

Interim Measures

Interim measures (obespechitelnye mery) are of particular importance in corporate disputes. The APK RF permits the court to order: the seizure of shares or participatory interests; the prohibition of the general meeting from making certain decisions; the suspension of the operation of a contested decision; the prohibition of the registration authority from making entries in the Unified State Register of Legal Entities; and the appointment of a temporary manager.

The court must balance the need for protection of the applicant’s rights against the risk of harm to the company and other shareholders. Interim measures are available where: the applicant demonstrates that the absence of measures would make it impossible or difficult to enforce the court’s decision; the measures are proportionate to the claim; and the measures do not prejudice the interests of third parties. The court may require the applicant to provide security for potential losses caused by interim measures.

Costs and Litigation Funding

The general rule in Russian corporate litigation is that the losing party bears the costs of the prevailing party, including state duties, legal fees, and expert costs. The court may reduce the amount of recoverable legal fees where they are excessive. The state duty for corporate disputes is calculated as a percentage of the claim value, with a maximum of 200,000 RUB for property claims.

Litigation funding by third parties is not expressly regulated by Russian law but is permitted in practice. The Constitutional Court has recognised the right of parties to engage legal representation on a contingency fee basis, provided the fee arrangement does not violate the ethical rules of the legal profession. Third-party funding of corporate disputes, particularly in shareholder litigation, has become increasingly common in Russian practice.