Title: On Draft Federal Law 'On Concession Contracts Concluded with Russian and Foreign Investors'
Abstract: In his article the author criticizes the concept of Draft Federal Law “On Concession Contracts Concluded with Russian and Foreign Investors”, which was adopted in the first reading by the State Duma of the Russian Federation at April 3, 1996. It is argued that it does not maintain the necessary balance between private and public interests of the host state and investor and as a result does not provide the proper legal mechanism of the regulation of investment relations. In particular, “the draft law tries to regulate relations which do not belong to civil law relations by their legal nature”. As a result all attempts of regulating the contracts by only civil rules lead to the legal problems under the protection of rights and interests of parties of the contracts.
It is deemed that the complex, private and public, character of the contract requires special federal law lex specialis, which should contain both civil and administrative rules agreed with each other. In case of absence of required norms in the federal law civil legislation ought to be applied unless it contradicts the imperative norms of public law. A similar provision is set in Water Code of the Russian Federation (Article 54) concerning contracts on the use of water resources.
Besides the wrongful concept of the draft law, it also has a set of controversial and unclear provisions. In particular, it is known that a concession contract is a business contract in its nature. That is why it would be wise to incorporate a provision to the draft law that an investor should be an entrepreneur or business company and thus is entitled to undertake business activity.
Articles 22 and 23 of the draft law divide the conditions of the contract into three groups. They are general, additional, and special. However they do not correspond the traditional classification of contractual terms on substantial (essential), usual (customary), and random. That is why the list of essential conditions is clearly defined. They are, first of all: subject of a concession contract; ownership on revenues and production; price of a concession contract (payments to the state); term of a concession contract; investment project (order, terms, conditions, sizes of financing). The taxation of an investor is a key condition of the contract. However there is no rule on the specifics of the tax legal regulation of a concessionaire in Taxation Code of the Russian Federation. It means that any provision of the contract on taxation is considered to contradict to the Code and must not apply.
The draft law has also no rule of international private law on applicable law to the contract. In theory the activity of an investor is performed on the territory of a host state. It means that the contract is closely related to Russia and the Russian Law must apply to the foreign investor if the parties agree otherwise.
According to Article 13 of the draft law the change of the conditions of the contract is permitted only as the parties agree so. However such a provision does not correspond to the other rules law (e.g. concerning a substantial breach of a contract, the substantial change of circumstances, etc.). It s argued that a concession contract should include the list of substantial violations of the contract, which entitle a party to terminating the contract. The list of such breaches may include: an unjustified refusal of an investor from the fulfillment of activity stipulated in the contract; a refusal of an investor from exclusive rights granted by the state; a default of an investor’s activity according to schedules established by the terms of the contract; a delay of activity for more than a defined in the contract term; a substantial breach of the usage of the state’s property (for example, a change of the purpose of the usage); a substantial change of the state’s objects provided by the state to an investor; a trespass to the state's property; a repeated non-payment of taxes and mandatory payments; a transfer of rights to the third persons without the state's consent; another substantial breach of the obligations which is stipulated in the contract as the basis for the termination of the contract (for example, non-presentation of reports by an investor or submission of inadequate information).
There is also a question whether the state has the right to terminate or change the contract in the public interests, if it is not settled in law (including nationalization or requisition). It is necessary to remember that the concession contract is a complex agreement adjusting civil and public relations. In public relations there is no mutual consent and the rights and obligations arise only by the state power. The state here performs internal and external functions and acts on behalf of the nation and in the interests of the nation. For their implementation the state has the administrative authority to make someone unilaterally responsible. Depriving the state from the right to act unilaterally in the concerns of the nation (in administrative relations) limits the state to protect the constitutional formation, rights and freedoms of the people, and to provide public and personal safety as well. Therefore, the state has the right of unilateral changing the terms of the contract or terminating it in the public interests. This is the public law ground. At the same time a private person (foreign investor) is entitled to compensation for such state’s activity. This is the civil law ground.
It is concluded that the draft federal law needs substantial revising. The main disadvantages are supposed to be the underestimation of public law methods in the regulation of concession contracts, inconsistency between the provisions of the draft federal law and current federal laws, first of all the present codes of the Russian Federation, as well as the general character of most provisions of the draft federal law.
Publication Year: 2002
Publication Date: 2002-09-01
Language: en
Type: article
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