English law is often used in international mergers & acquisitions (M&A) transactions in a wide variety of jurisdictions, including Russia and the Commonwealth of Independent States (CIS).
Although Russian corporate law has developed rapidly over the last 20 years, following the collapse of the Soviet regime, the M&A and international finance markets still heavily rely on English law in Russian deals. This is because the Russian Civil Code, which is the main source of the civil and corporate laws in Russia, was originally developed with consumer transactions and business-to-business trading of goods and services in mind. As a result, it is not always compatible with the terms customarily agreed in international corporate and finance transactions, such as warranties and indemnities.
So what are the main reasons for using English law in Russian M&A deals?
Firstly, English law is a common law system, based on a combination of legislation and precedent and unlike the Russian law, it is not set out in a single civil code. This enables English law to be flexible, adaptable and practical when dealing with the developing needs of commerce as technology, evolving markets and new techniques all continue to revolutionise the way companies conduct their business.
Secondly, the principles of English law are clear and well established. Due to its broad parameters, businesses and their advisers have the legal freedom and flexibility to agree to whatever terms they want on their corporate transactions.
Thirdly, English law is less prescriptive than the codified Russian law in interpreting intentions of the parties and in governing relationships between them. This makes it easier for businesses to transact and clearly understand their rights and obligations under the contract.
Fourthly, financing documentation under the English law is well developed and established and historically a number of major banks and financial institutions have insisted on English law when issuing financing documents. In addition, the English language is generally recognised as the main language of international business.
And lastly, another major consideration for the Russian businesses choosing the English law to govern their corporate transactions is that in the event of a dispute, English courts and arbitration tribunals have a strong internationally recognised reputation for dealing with contractual disputes fairly, in a balanced and unbiased manner with the view to reaching unambiguous and predictable outcomes.