CIS Legal Update - September 2013: The Supreme Arbitrazh Court Provides Case Studies on Defending Property Rights

by Dechert LLP

In defending their property rights in the Russian Federation (the “RF”), plaintiffs sometimes fail to either establish the appropriate legal means to pursue a claim in court or correctly identify the defendant. In an attempt to clarify the process by which property rights are defended in court, the Supreme Arbitrazh (Commercial) Court of the Russian Federation (the “SAC”) on March 12, 2013 published on its website Information Letter No. 153, dated January 15, 2013, on the “Review of Court Practice in relation to Certain Issues of Protecting Property Rights against Violations which are not Connected with the Deprivation of Ownership” (the “Information Letter”). The Information Letter, which draws from certain disputes presented before the Russian arbitrazh (commercial) courts, contains a number of case studies that provide some guidance on how plaintiffs should go about defending their property rights in a legally sound manner.  

The SAC reviewed the following significant case studies in the Information Letter:

  • The expiration of the statute of limitations does not preclude a plaintiff from filing a claim in defense of its property rights (i.e. so called negatory actions). The Information Letter cites two cases in which the courts dismissed the arguments of defendants who justified their refusal to dismantle their construction projects – which were installed in violation of the plaintiffs’ property rights (namely – ownership and easement rights) – with the fact that the construction took place more than three years before the claims were brought to court.
  • An owner does not need to actually have full possession of a property in order to have a claim sustained with respect to a violation of property rights. The Information Letter cites a case in which the owner (the lessor) of a maritime terminal won a lawsuit against a third party who had installed equipment on the owner’s property with the consent of the lessee. The fact that the property was leased to another party did not preclude the owner from having his claim sustained.
  • An owner can be held liable to third parties for damages associated with the dismantling of equipment installed by the lessee, despite the fact that the installation of this equipment constituted a breach of the lease agreement. In the relevant case, a court ruled that the owner was entitled to receive reimbursement from the lessee for costs connected with dismantling the equipment.
  • A customer, who contracted a third party to install a fiber-optic cable, was found liable to dismantle this cable (as it was installed without the owner’s consent). The claim was sustained despite the fact that the cable was not installed by the defendant but by a third party (the contractor), and was installed to serve public interests.   
  • The absence of state registration of property rights to a building does not prevent the building’s owner from filing a lawsuit defending his property rights. It should be noted that in the aforementioned case, the owner (plaintiff) was indeed entitled to register its ownership rights to the building, as it had been built in accordance with relevant construction regulations and, thus, could not be declared an unauthorized construction object.
  • The court dismissed a lawsuit filed by a land owner (the plaintiff) who sought to oblige the owner of an adjacent plot (the defendant) to halt the construction of a large shopping centre. The plaintiff filed the claim, on the basis that it could not construct a building on his own plot according to his desired dimensions due to construction regulations that require that buildings be kept a certain distance apart. However, the court found that the defendant’s shopping center was being built in accordance with its relevant construction permit and that the plaintiff had the opportunity to erect buildings of other dimensions on his site. Taking this into account, the court ruled that the impossibility of constructing a building of a certain or desired dimension does not constitute a legitimate claim.

However, in another, unrelated case, the owner of a land plot and the building located within in it succeeded in obtaining a judgment to halt the construction of facilities on an adjacent land plot. The plaintiff was able to provide solid evidence attesting to the fact that the construction in the adjacent plot could result in the collapse of a building located on the plaintiff’s plot.

  • The new owner of a land plot may not be denied from filing a claim seeking to dismantle construction initiated under the previous owner. The fact that the previous owner did not protest against erecting a construction object on the land plot does not constitute a legitimate ground for denying the new owner from filing a claim seeking its dismantlement, given that the new owner did not give consent for the construction. 

The SAC’s positions, outlined in the Information Letter, should help to provide more effective and predictable resolutions of disputes in the sphere of defending property rights. However, even the above analysis shows that many important issues remain fact-specific and will need to be resolved at the court’s discretion (e.g. the issue of suspending construction based on a construction permit).

*This article was also written by Elizaveta Molosnova, a paralegal in the Moscow office.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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