The Enforcement of Shareholder Agreements Under English and Russian Law

Abstract

Private actors in “following” countries usually encounter problems with the enforcement of well-developed and effective “Western-style” contracting techniques. A common response is the structuring of commercial transactions according to foreign law. This pattern of development fully applies to the shareholders agreements of Russian companies. Additional costs related with the use of foreign law and national sovereignty concerns compelled the Russian legislature to introduce rules on shareholders agreements into corporate legislation. Yet, even after the amendments the use of English law by the shareholders of Russian companies remains extensive. A comparative analysis of the new Russian rules on shareholders (stockholders) agreements and the U.K. model shows that both jurisdictions share similar problems regarding the enforcement of these agreements. Therefore, other factors – such as the general mandatory nature of Russian corporate legislation (as opposed to enabling rules), the quality of Russian courts, legal uncertainty, the interests of law firms, and unfavorable court practice on certain contract law concepts – count for private actors in refraining from using Russian law. The paper also uses economic reasoning and the results of the comparative analysis to offer a general framework that can be used for the interpretation of shareholders agreements by the courts.

Keywords: contract enforcement, contractual freedom, corporations, enabling rules, corporate governance, legal transplants, imperative rules, Russia, shareholder agreements