Settlement agreements: we conclude correctly
Statistics from the Judicial Department of the Supreme Court show that parties to arbitration proceedings still rarely resort to settlement agreements. In 2021, arbitration courts of first instance approved only 31,059 such agreements - this is 7% of the total number of disputes considered.
In an appeal, the parties can also agree to a settlement, but they do so even more reluctantly: the courts approved agreements only 1,642 times in 12 months. With a total number of cases considered on appeal, which amounted to 323,802, only 0.5% of disputes (or every 200th dispute) in an appeal end in reconciliation of the parties.
Interesting cases from the practice of the Armed Forces
In case No. A40-66788/2016, the economic board prohibited a settlement agreement concluded during the period of suspicion of the debtor’s transactions made with preference. In addition, in this dispute, the creditors also pointed to the signs of preference contained in the settlement agreement - satisfaction of the company’s claims to the company by offsetting counter-similar claims of the company to the company. The Supreme Court decided that this was a sufficient reason to send the case for a new trial.
Top 5 settlement agreements
Sometimes the parties request a settlement agreement directly from the Supreme Court. For example, this happened in the “Far Steppe” case. In the proceedings on subsidiary liability, three authorities admitted that Dalnaya Steppe was driven to bankruptcy by the organizations that controlled it - HSBC Bank (RR) LLC and HSBC Management (Guernsey) Limited. The courts, at the request of the bankruptcy trustee, decided to recover 1.25 billion rubles from them. tax debts that the debtor has not paid (case No. A22-941/2006). When the dispute reached the Supreme Court, the parties asked the court to approve the settlement agreement, but were refused. The economic board explained that the parties did not name the “real goals” of the document. The judges were also not satisfied with the clause that prohibits the parties from further challenging the circumstances established by the arbitration courts in this case.
Why are settlement agreements unpopular?
One of the significant factors influencing the statistics of concluding settlement agreements is the factor of the mentality of Russian citizens, believes Ivan Veselov, partner in the dispute resolution practice of Bryan Cave Leighton Paisner (Russia) LLP Bryan Cave Leighton Paisner (Russia) LLP Federal rating. foreign trade group/Customs law and currency regulation group PPP/Infrastructure projects group Land law/Commercial real estate/Construction group Intellectual property (including disputes) group Compliance group Corporate law/Mergers and acquisitions group International arbitration group Tax consulting and disputes (Tax disputes) group Natural resources/Energy group TMT (telecommunications, media and technology) group Transport law group Pharmaceuticals and healthcare group Financial/Banking law group Digital economy group Antitrust law (including disputes) group Arbitration proceedings (major disputes - high market) group International litigation group Tax consulting and disputes (Tax consulting) group Labor and migration law (including disputes) group Family and inheritance law group Criminal law group Private wealth management group Bankruptcy (including disputes) 3rd place By revenue 3rd place By number of lawyers 5th place By revenue per lawyer (more than 30 lawyers) Company profile. In his opinion, difficulties arise at the level of admitting one’s own mistakes and lack of desire to make any concessions with the counterparty. “The rather harsh conditions for doing business in Russia give rise to widespread distrust and the perception of the counterparty not as a partner, but as an opponent,” Veselov is sure.
Lawyer in corporate and arbitration practice Kachkin and Partners Kachkin and Partners Federal rating. PPP group/Infrastructure projects group Land law/Commercial real estate/Construction Company profile Alexey Eliseenko is sure: the reason for the low popularity of settlement agreements in the arbitration process is that, as a rule, those disputes that are characterized by a high degree of conflict intensity reach the judicial stage, when it is quite difficult for the opposing sides to find common ground. “Disputes where the parties can potentially reach an agreement are usually resolved at the pre-trial stage to avoid time and legal costs,” he explained.
In general, Russia has a huge deficit of trust, and it is the deficit of trust that leads to high levels of conflict in society, to distrust between its participants. This is one of the reasons for such a huge number of disputes in the courts, says Sergei Saveliev, partner at Saveliev, Batanov & Partners Saveliev, Batanov & Partners Federal Rating. group Arbitration proceedings (major disputes - high market) group Bankruptcy (including disputes) Company profile.
And for this same reason - distrust of everyone and everything - the participants in disputes are in no hurry to negotiate and conclude settlement agreements. Unfortunately, often our opponent is a terrorist with whom we cannot negotiate.
Sergey Savelyev
Evgenia Chervets, lawyer and project manager Regionservice Regionservice Federal rating. the Criminal Law group, the Environmental Law group, the Arbitration Proceedings group (major disputes - high market), is also convinced that in Russia there is no social and legal tradition of seeking compromise and mutual concessions. Other reasons for the low popularity of “peaceful” cases include the lack of sufficient economic incentives for reconciliation and the rapid (relative to other jurisdictions) trial process in Russian state courts. In addition, the parties rarely assess the risk of loss, long-term conduct of the case, loss of partnerships or reputation in monetary terms and do not take this assessment into account when deciding to use alternative methods of dispute resolution, the expert is sure.
What matters are difficult to “put up with”?
The easiest way is to conclude settlement agreements on commercial disputes between private entities, says Oleg Buiko, senior lawyer at Egorov, Puginsky, Afanasyev and Partners Egorov, Puginsky, Afanasyev and Partners Federal Rating. group Antitrust law (including disputes) group Arbitration proceedings (major disputes - high market) group Compliance group Corporate law/Mergers and acquisitions group International litigation group International arbitration group Maritime law group Dispute resolution in courts of general jurisdiction group Capital markets group Family and inheritance law group Insurance law group Labor and migration law (including disputes) group Criminal law group Private capital management group Pharmaceuticals and healthcare group Financial/Banking law group Environmental law group Bankruptcy (including disputes) group Foreign trade activities/Customs law and currency regulation group PPP/Infrastructure projects group Land law/Commercial real estate/Construction group Intellectual property (including disputes) group Tax consulting and disputes (Tax consulting) group Tax consulting and disputes (Tax disputes) group Natural resources/Energy group TMT (telecommunications, media and technology) group Transport law group Digital Economy 1st place By revenue 1st place By revenue per lawyer (more than 30 lawyers) 1st place By number of lawyers Company profile. The task becomes significantly more complicated if there is a public law element in the dispute: a government body or a company with state participation. “Even if the long process of agreeing on a “peace” with all controlling persons is crowned with success, the court may still consider the agreement to violate public interests,” he emphasized.
This is confirmed by statistics from the Court of Justice: the vast majority of settlement agreements are concluded by the parties in civil law disputes. For example, in cases of recovery from a counterparty of payment under an agreement. In such disputes, the parties made peace in 95% of all cases where a “peace settlement” was concluded. In bankruptcy cases, such agreements are found much less frequently - only 1275 times. In administrative disputes in 2018, the parties “reconciled” 268 times, that is, agreements in this category of cases account for less than 1% of the total.
The simpler the dispute, the greater the likelihood of concluding a settlement agreement: the parties to the dispute understand in advance the outcome of the case and the costs associated with the proceedings, and they can use simple calculations to calculate the economic feasibility of concluding a settlement agreement.
Ivan Veselov, partner in the dispute resolution practice of Bryan Cave Leighton Paisner (Russia) LLP Bryan Cave Leighton Paisner (Russia) LLP Federal rating. foreign trade group/Customs law and currency regulation group PPP/Infrastructure projects group Land law/Commercial real estate/Construction group Intellectual property (including disputes) group Compliance group Corporate law/Mergers and acquisitions group International arbitration group Tax consulting and disputes (Tax disputes) group Natural resources/Energy group TMT (telecommunications, media and technology) group Transport law group Pharmaceuticals and healthcare group Financial/Banking law group Digital economy group Antitrust law (including disputes) group Arbitration proceedings (major disputes - high market) group International litigation group Tax consulting and disputes (Tax consulting) group Labor and migration law (including disputes) group Family and inheritance law group Criminal law group Private wealth management group Bankruptcy (including disputes) 3rd place By revenue 3rd place By number of lawyers 5th place By revenue per lawyer (more than 30 lawyers) Company profile
According to Alexey Eliseenko, it is quite difficult to conclude a settlement agreement in complex legal disputes. These include, for example, complex corporate conflicts, when the dispute reaches a high degree of escalation and the parties initiate a number of parallel trials.
Lawyer S&K Vertical S&K Vertical Federal rating. group Family and inheritance law group Private wealth management group Arbitration proceedings (major disputes - high market) group Bankruptcy (including disputes) group Corporate law/Mergers and acquisitions 18th place By revenue 25-27th place By number of lawyers 6th place By revenue per lawyer (more than 30 lawyers ) Alina Khammatova confirms the statistics: in her opinion, it is now difficult to settle for bankruptcy. The problem, according to her, lies in the complex subject of proof when approving an agreement: it is necessary to establish the absence of violations by its terms of both the rights of direct participants in a specific isolated dispute and the interests of all creditors in the bankruptcy case.
Why do the courts refuse to approve the agreement?
The law prescribes two prohibitions regarding the terms of the settlement agreement: they must not contradict the law and the terms must not violate the rights of third parties, recalls Sergei Savelyev. He also warns that under these two prohibitions, the courts can artificially tighten the apparently quite harmless terms of the agreement.
“For example, it is still technically difficult to “close” with one settlement agreement a set of interrelated and parallel proceedings inherent in a corporate conflict,” explains the expert.
The most pressing and “research-wise” interesting problem is the impossibility in our legal order of concluding an agreement to waive the right to initiate new legal disputes or an agreement to refrain from filing lawsuits.
There is a point of view (in my opinion, not entirely balanced) that such agreements contradict the constitutional provisions on the right to judicial protection, and therefore are void.
Evgenia Chervets, lawyer Regionservice Regionservice Federal rating. group Criminal law group Environmental law group Arbitration proceedings (major disputes - high market)
Ivan Veselov notes: judicial practice rejects the possibility of concluding a settlement agreement regarding several disputes. The court will refuse to approve such a settlement agreement, since the current procedural legislation allows the conclusion of a “settlement” exclusively in relation to one case.
“In some cases, courts refuse to approve settlement agreements, which are actually a combination of two documents. For example, recognition of debt and a settlement agreement,” warns Yuri Vorobyov, partner at Pepelyaev Group Pepelyaev Group Federal Rating. group Foreign trade activities/Customs law and currency regulation group Tax consulting and disputes (Tax consulting) group Tax consulting and disputes (Tax disputes) group Labor and migration law (including disputes) group Digital economy group Antimonopoly law (including disputes) group Land law/Commercial real estate/Construction group Intellectual property (including disputes) group Compliance group Natural resources/Energy group Pharmaceuticals and healthcare group Environmental law group Bankruptcy (including disputes) group Corporate law/Mergers and acquisitions group Family and inheritance law TMT group (telecommunications, media and technology ) group Financial/Banking Law group Arbitration proceedings (major disputes - high market) group Dispute resolution in courts of general jurisdiction.
Oleg Buyko advises not to include suspensive or severable conditions in the settlement agreement, and also not to regulate issues not directly related to the subject of the dispute.
Legal advice: how to conclude a settlement agreement
Despite the fact that a number of restrictions still exist, Sergei Savelyev notes that in recent years the courts have become “extremely liberal” to any terms of settlement agreements and try not to interfere with the agreements of the parties.
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According to Evgenia Chervets, the main thing when concluding a settlement agreement is to come to an agreement with your opponent and decide that the dispute will be resolved peacefully, to realize the profitability and effectiveness of such a decision. “In such negotiations, there is no need to try to “punish” someone - in such cases, I recommend thinking only about protecting your rights and being focused on the future, and not on reflecting on past relationships that led to a dispute,” the expert advised.
“It is necessary to take into account factors related to the nature of the dispute, the possibilities of the negotiating position and the opponent’s disposition to truly resolve the dispute on the basis of mutually beneficial cooperation,” agrees Ivan Veselov.
And drawing up the text of a settlement agreement is often a matter of legal technique, Chervets believes. Savelyev adds that the settlement agreement must be structured by a team with the participation of a strong proceduralist, because this is not a simple transaction, but a transaction with a special and complicated procedure for approval by the court.
Veselov reminds that a settlement agreement is a civil transaction. This means that the rules of both procedural and civil law apply to it. Because of this, the relevant legal provisions should be taken into account when concluding a settlement agreement. For example, to a settlement agreement in a case to which a business company is a party, the rules on the procedure for carrying out major transactions and interested party transactions are applied. “It is also necessary to take into account the general rules of civil law on contracts,” he recommends.
Alexey Eliseenko advises, when preparing the text of the document, to clearly and unambiguously formulate the terms of the settlement agreement, while avoiding suspensive and other conditions that create uncertainty regarding the scope of the obligations of the parties to the settlement agreement.
All agreements must have clear deadlines and establish the consequences of non-fulfillment of the settlement agreement, because it can be enforced by contacting the bailiff service. The agreement must contain clear characteristics so that a third party, the FSSP, can enforce them.
Yuri Vorobyov, partner of Pepelyaev Group Pepelyaev Group Federal rating. group Foreign trade activities/Customs law and currency regulation group Tax consulting and disputes (Tax consulting) group Tax consulting and disputes (Tax disputes) group Labor and migration law (including disputes) group Digital economy group Antimonopoly law (including disputes) group Land law/Commercial real estate/Construction group Intellectual property (including disputes) group Compliance group Natural resources/Energy group Pharmaceuticals and healthcare group Environmental law group Bankruptcy (including disputes) group Corporate law/Mergers and acquisitions group Family and inheritance law TMT group (telecommunications, media and technology ) group Financial/Banking law group Arbitration proceedings (major disputes - high market) group Dispute resolution in courts of general jurisdiction
For the court, the agreement should be as simple and understandable as possible, agrees Oleg Buiko. If the agreement contains non-standard structures, you need to provide the court with written explanations about the reasons for their inclusion in the agreement, and also be ready to adjust the terms of the agreement directly at the court hearing in accordance with the court’s comments.
How will the institution of settlement agreements develop?
The State Duma is currently considering a whole package of bills aimed at improving conciliation procedures. The reform of the institute was initiated by the Supreme Court at the beginning of 2021.
According to the Supreme Court, the courts should more actively assist the parties in reconciliation. The bill proposes to use the conciliation procedure at any stage of the process at the request of a party or at the suggestion of the court. In addition, the bill clearly states the principles of conciliation procedures: voluntariness, cooperation, equality, confidentiality.
The document emphasizes that the court will not force the parties to reconcile, but will only invite them to try to resolve the dispute themselves, assessing all the advantages of this method. The developers of the document also propose to provide financial incentives to the participants in the process who have agreed to make peace by concluding a settlement agreement: we are talking about changing the amount of the state fee, which is returned to the plaintiff upon signing the settlement, abandoning the claim, or recognizing the claim by the defendant. Now it is 50%. The draft proposes to return 70% if reconciliation occurred before the decision was made by the first instance, 50% at the appeal stage and 30% when it came to cassation and supervision.
The bill was introduced into the State Duma 14 months ago, but since then it has passed only one reading - in June 2021. The further fate of the bill is unknown - the fact that it was “forgotten” for almost a year does not mean that it will not be adopted at all. For example, one of the main bills adopted by the State Duma in 2021, on counting time in pre-trial detention centers, was introduced back in 2008; it passed its first reading seven years after that, and became law only 10 years later.
Bill No. 421600-7 “On amendments to certain legislative acts of the Russian Federation in connection with the improvement of conciliation procedures.”
Who has the right to challenge
All parties to the case and third parties have the right to appeal the agreement. In connection with the voluntary procedure for concluding a settlement, judicial practice defines only two cases when the applicant manages to terminate the settlement agreement:
- if the MC infringes on the rights of third parties (children, other owners of common real estate), the person whose rights are violated directly appeals the decision;
- if the terms of the MC turn out to be unenforceable, the defendant submits an application.
