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COVID-19 – consequences for legal systems

In Russia, a number of strict containment measures have been taken in connection with COVID-19 pandemic. Effectively, the country is in lockdown. Of course, these measures and the pandemic itself have an enormous influence upon other spheres of life: commercial contracts, litigation and judicial process, administrative processes in different authorities, labour relations, etc.

Since the beginning of March 2020, the regulations related to the pandemic have been changing almost daily.

Below is a short overview of how the pandemic influences certain types of relations under Russian law (as of April 1, 2020).

(1) COVID-19 and contractual relations

In cases where commercial obligations cannot be performed due to the containment measures taken (or the pandemic itself – which is less likely to be applicable in practice), a party may refer to the following rules of Russian law:

A. Force majeure

Under the Russian law (art. 401 of the Civil Code), a party may be relieved from the contractual liability if the non-performance has been caused by an extraordinary event or circumstance beyond the control of the parties. The force majeure does not automatically relieve a party from its contractual obligations, but only exempts from the contractual liability (i.e. damages or penalty).

To be excused for the non-performance, a party needs to prove that (a) the circumstances in question are extraordinary and beyond the control of the parties, and (b) that the non-performance of the obligation is a direct result of these circumstances.

The Chamber of Commerce and Industry of the Russian Federation has already stated that the containment measures taken against COVID-19 may be, in certain cases, deemed as such circumstances (not the pandemic itself). Of course, if a contract has been concluded after the start of the pandemic, these circumstances may not necessarily be considered as extraordinary (at least, as the parties might be deemed to have the knowledge and awareness of the risk when entering into the relevant contractual relations).

B. A fundamental change of circumstances (the so-called clausula rebus sic stantibus)

There may be another situation when an obligation has not been performed yet, but the parties foresee that there may be material obstacles to its performance, or the obligation cannot be performed at all without an unreasonable loss for either party. In such a case, an interested party may ask another party to amend or terminate the contract due to the fundamental change of circumstances. If there is no agreement between the parties about it, the dispute may be referred to court (art. 451 of the Russian Civil Code).

These provisions of Russian law are expected to be applied a lot in the current situation of the pandemic – for instance, in tenancy contracts for shopping malls and office buildings (especially for short-term leases).

C. Inability to perform

There is also a separate rule for the cases where a party is unable to perform an obligation due to the circumstances beyond its control – for example, due to the governmental act. In that case, the obligation is terminated as a result of the inability to perform (art. 416-417 of the Russian Civil Code).

(2) Measures taken to achieve “social distancing”

Beginning from the end of January, 2020, the Russian government has started to implement various containment measures gradually:

A. Border controls. Since January, Russia has gradually restricted access through the state borders: initially, for certain regions with high risk of coronavirus infection, and from March 30, 2020, a complete shutdown of the state borders is in place (except certain categories of cargoes and people, like diplomats and truck drivers). From March 27, 2020, international air traffic has been completely stopped.

B. Self-isolation for 14 days for people arriving from abroad. Any person arriving to Russia from abroad is obliged to ensure self-isolation for 14 days following the arrival. The self-isolation means that the person should stay at home (or at a special observatory hospital) and take at least two tests for COVID-19. Sick leave can be obtained for the period of this mandatory self-isolation.

C. Quarantine for patients with COVID-19. Any patient with positive tests for COVID-19 is isolated at a hospital for a minimum of 14 days, with a sick leave issued.

D. Limitations for certain businesses and mass gatherings of people. In most Russian regions, operation of restaurants, fitness centers, hairdressers and similar services has been temporarily banned. Moreover, mass gatherings of people (more than 50 people) is prohibited.

E. Total isolation measures. From March 28, 2020, widespread and very strict isolation measures have been taken throughout the territory of Russia. In practice, (a) most of the companies are closed, except certain industries like infrastructure, state authorities, food supermarkets and shops, pharmacies; (b) people are allowed to leave home only in order to go to work (to the extent allowed), or for emergency medical services, or to buy food or medicines.

The week from March 30 to April 5 is declared as non-working days . However, the same regime will most probably be continued after April 5.

It should also be noted that the measures are changing and being updated every day. Most likely, in the beginning of April, special fines will be adopted for people violating the regimes of isolation, in the amount up to RUB 300,000 (approximately USD 4,000).

(3) Aid packages made available to employees, small businesses, large corporations

Various aid packages are being discussed by the Russian government, although some measures have already been declared by President Putin, namely:

-      increase of some social allowances (e.g., payments for families with children, unemployment benefits);

-      tax deferrals for certain businesses sensible for pandemic (like tourist industry or restaurants);

-      all tax inspections are suspended till May 1, 2020, deadlines for tax reports are also put off; all other state inspections are suspended till December 31, 2020, for small and medium businesses;

-      reduction of social contributions for small and medium businesses;

-      reduction of credit rates for small and medium businesses (in certain cases the credit rates may be partially financed by the government).

However, at the moment, Russian authorities have not implemented aid packages available for all citizens and employees. In most cases, the employer is supposed to pay the wages for the periods of isolation on its own account (except the cases where the employee has obtained the sick leave). As an option, the employer may issue a downtime order and pay 2/3 of the employee’s wages for idle time. 

(4) Legislative changes in view of the Covid-19 pandemic

Certain changes will soon be implemented in other legislative acts in Russia. The most significant changes as of April 1, 2020, are as follows:

A. Extended powers of the Government. The Government of Russia has been provided with additional powers to implement state emergency in the territory of Russia (without proceeding the decision through the parliament).

B. Temporary suspension of insolvency procedures. The Government will be able to implement a temporary suspension of the insolvency procedures, which means that new insolvency procedures cannot be commenced during the period of suspension. During the suspension period, the creditors will also be unable to foreclose the pledge from the debtor, as well as take any other measures of enforcement.

C. Simplified procedures for governmental supplies in the cases of emergency. The state authorities will be entitled to enter into supply contracts without the bargaining procedures or with a simplified procedure, if that is related to the pandemic. Special rules will also apply to state supply contracts in 2020, due to the situation.

D. Deferment of tenancy payments. For tenancy contracts entered into before the start of the pandemic, the tenant will be entitled to a deferment of payments in 2020. In case if the property cannot be used due to the measures taken against the pandemic, the tenant will be entitled to a reduction of tenancy payments.

E. Consumer credit vacations. The borrowers on consumer credits (including those secured with mortgage) will be entitled to a suspension period up to 6 months in cases of reduction on the individual’s monthly income for more than 30 %.

Other changes may be implemented in the nearest future, as the situation is constantly changing.

(5) Operations of the court systems

Special measures have been taken by the Russian court system. Beginning from March 19, 2020, all the court hearings scheduled till April 10, 2020, are postponed (except certain cases related to urgent measures such as custody detention). The parties and other participants are not allowed to visit courts throughout this period. Fortunately, all courts use electronic means of communication (electronic filing of documents, publication of the courts’ acts on the internet). Some courts also implement video conferences for the court hearings.