In Lee v. Lukshin (Case No. А12-6860/2013, February 20, 2014), the plaintiff, a minority shareholder (holding 16.59% shares) of OJSC “Meat Plant Filonovskiy” (the Company) successfully pursued a derivative action for damages against the former general director (the Executive) of the Company, who was convicted under Article 291(2) of the Criminal Code in an earlier criminal trial for making a bribe.

In the wake of the Executive’s conviction the Company was fined and paid 1,000,000 Rubles (approx. US$28,000) for committing an administrative offence, namely “conferring an unlawful benefit on behalf of a legal entity” under Article 19.28 of the Code of Administrative Offences of the Russian Federation.

The claimant argued that the illegal actions of the Executive caused damages to the Company in the amount of the administrative fine. The court agreed and awarded damages to the Company equal to the amount of the fine. The court reasoned that by committing a crime the defendant acted in bad faith and unreasonably which resulted in losses to the Company in the amount of the administrative fine. The court supported its conclusion based on Clause 4 of the Resolution of the Plenary Session of the Supreme Commercial Court of the Russian Federation No. 62 dated 30 July 2013 “On Certain Matters of Compensation of Losses by Members of a Company’s Governing Bodies” (the Resolution) which provides that:

  • a reasonable executive shall ensure that the company fulfills its public law obligations; and
  • if a company breaches its public law obligations due to an executive’s bad faith and/or unreasonable actions or omissions which result in losses by the company, such losses may be recovered from the director.

While the court’s conclusion seems inescapable, to our knowledge this is the first case in Russia where an individual, in addition to being convicted criminally for committing bribery, was also held civilly liable to pay damages to his employer in the amount of administrative fines imposed on the company. It is notable that the action was a derivative action initiated by a minority investor.

While the case does not constitute precedence under Russian civil procedure, we believe that it would be exceedingly difficult for a court in Russia to reach a different conclusion in light of the Resolution underpinning the decision which does have precedential effect.