Clarifications of issues concerning the application of administrative liability legislation

Administrative liability in the area of protection of property

The SAC has expanded on its clarification that a person may be held liable for occupying land without authorisation (article 7.1 of the CoAO) if it uses another person’s land plot without a obtaining consent fr om the owner of such land plot or a person authorised by the owner in a manner established by law.

The SAC considers that administrative liability may be imposed if the owner of federal property has not consented to a disposal by it either as a tenant or a subtenant (part 2, article 7.24 of the CoAO).

The actions of persons using water supply wells without a specific licence or in breach of such a licence are, as the SAC has indicted, a basis for holding them liable for an administrative offence (article 7.3 of the CoAO).

The SAC has also indicated that, under article 7.22 of the CoAO, administrative liability may be imposed on persons for breaches of rules for maintaining or repairing residential buildings and/or premises, if such functions have been vested in them. In other words, the management company (and not contractors) will be held liable. A management company is not exempted fr om administrative liability when it does not have sufficient funds to carry out work at the approved price or if the owners of residential premises refuse to provide additional financing. The SAC considers that these administrative breaches are continuing breaches, which means that the limitation period for administrative liability to be imposed runs fr om the day on which a breach is discovered or the last day on which it was committed. This is because management companies’ repair and maintenance obligations in residential buildings are not urgent but must be performed on an ongoing basis.

Administrative liability in construction

The SAC considers that both developers, i.e. clients under a construction contractor agreement, and other persons carrying out construction work (for example, contractors or subcontractors) may have administrative liability imposed on them under part 1 of article 9.5 of the CoAO for carrying out construction work without a permit.

If a capital construction facility is operated without a commissioning permit (if the permit was required for its construction), then it is not just the person who began operating the facility who is administratively liable under part 5 of article 9.5 of the CoAO. Liability extends to all persons who directly operate the capital construction facility. Thus, the group of persons who may have administrative liability imposed on them for this breach can be extended to include contractors and subcontractors.

Unlawful use of a trade mark

The SAC’s Resolution offers detailed regulation on issues concerning administrative liability for unlawful use of a trade mark, service mark and appellation of origin or confusingly similar designations (article 14.10 of the CoAO). The SAC again confirmed that liability under article 14.10 of the CoAO may be applied “only in a case wh ere the subject of the breach contains an unlawful reproduction of a trade mark”. Thus, importing original (i.e. not forged) products into Russia which lawfully bear the trade mark (but imported without the permission of the right’s owner) should not be a ground for administrative liability to be imposed under article 14.10 of the CoAO.

The persons on whom liability may be imposed for this breach are: a person who directly affixes trade marks to the goods; a person importing the goods and who initiates a customs procedure in respect of them implying that the goods will be released into circulation in Russia; a person who exports the goods across the Russian customs border; the person who first places the goods on the market and all subsequent sellers. However, no liability attaches to a person who has acquired, stored and transported goods with no aim of placing them into circulation.

In the case of this breach, guilt may result both from a deliberate action and from carelessness. A legal entity may be considered guilty if: (i) it knew or should have known that it was using a trade mark belonging to another; (ii) it failed to check whether such mark was protected in Russia; and (iii) it did not check whether there was any basis for using it. In the case of an individual entrepreneur, it is sufficient if only the first and last of these conditions are met.

To prove an offence under article14.10 of the CoAO it is necessary to prove that the specific goods do contain an unlawful reproduction of a trade mark. The SAC clarifies that the opinion of the owner of the mark is not an expert opinion and does not in itself confirm the fact of a breach. The key is the issue of whether the user could have assessed that there was similarity with the trade mark, and evidence may include a survey of consumers, and a court may order that such a survey be held. Responsibility for proving the fact falls on the administrative authority which has drafted the record of an administrative offence being committed, and the customs authorities may draft such a record only in respect of goods which are under customs control when being imported into or exported from Russia. The owner of a mark may be involved in a case as a victim with the right to appeal judicial acts in the case.

Competition in bad faith

The SAC has clarified that circulating goods while unlawfully using the results of intellectual activity, including another person’ trade mark, are classed as falling under part 2 of article 14.33 of the CoAO if such actions are an act of competition in bad faith. This entails legal entities being liable to punishment not under article 14.10 of the CoAO but by way of an administrative fine or between 1 per cent and 15 per cent of the infringing party’s proceeds from the sale of the goods, work or services on the market on which the breach was committed, subject to a minimum amount of RUB 100,000. It can therefore be concluded that article 14.33 of the CoAO may be classed as putting into circulation goods on which trade marks are lawfully reproduced but which are placed on the market without the permission of the mark’s owner.

The offences in question apply to different persons – only a person who has first released goods into circulation may be liable under part 2 of article 14.33 of the CoAO. This offence does not simply apply to any person who is unlawfully using the results of intellectual activity.

Not all of the guilty party’s proceeds are taken into consideration for calculating the administrative fine – only the proceeds from the sale of goods made unlawfully using intellectual activity. Moreover, the SAC clarifies that although the legislation does not stipulate that such goods will be confiscated, they may be taken out of circulation and destroyed at the infringer’s expense on the basis of a court decision.

The resolution under discussion makes clear that the Plenum of the SAC does not consider the current law to establish clear criteria which allow specific actions to be classed as acts of competition in bad faith. Nor does the SAC, in its resolution, define any specific criteria. The SAC considers that this particular issue should be resolved “based on the purpose of such actions”. The fact of actions constituting competition in bad faith is evidenced by their being “aimed at obtaining advantages in carrying on business activity and in the volumes of products sold”.

It should be borne in mind that it is the Russian Federal Antimonopoly Service (or its regional subdivisions) which initiate administrative cases under part 2 of article 14.33 of the CoAO. However, the Federal Antimonopoly Service’s senior officers have stated more than once that they consider that the right freely to import goods to which trade marks are lawfully affixed should be granted to all buyers who act in good faith. This is in the interests of fostering competition on the Russian market. We therefore consider that enforcement practice in relation to part 2 of article 14.33 of the CoAO is not likely to increase significantly in the near future.

Administrative liability connected with hiring foreign employees and registering them for immigration purposes

The SAC pointed out that courts should distinguish between the date on which an employment agreement was concluded and the date on which the foreign citizen is obliged to commence his employment duties. Concluding an employment agreement with a foreign citizen or stateless person is not a breach. It is actually allowing a particular foreign citizen or stateless person to perform work or provide services that is a breach if the company does not have permission to hire and use foreign employees and/or the individual does not have a work permit. Parts 1 and 2 of article 18.15 of the CoAO provide for administrative liability in the event of such a breach.

The SAC considers that these administrative breaches are continuing breaches, which means that the lim itation period for administrative liability to be imposed runs from the day on which a breach is discovered or the last day on which it was committed. This is because the employment obligations in question are not urgent but must be performed on an ongoing basis.

As the SAC indicated, an organisation cannot be administratively liable under part 3 of article 18.15 of the CoAO for failing to notify the immigration authority in time that it has hired a foreign citizen or stateless person for employment activity as long as this notification is filed before the authorised body or its officer has uncovered the breach.

Conclusions and recommendations

Because relatively severe penalties are stipulated for committing the above breaches, we suggest below a number of recommendations for legal entities, institutions, their managers and other responsible employees:

• Due care should be taken to document properly relationships connected with land, including registration of lease agreements;

• When concluding a lease or sublease agreement for non-residential premises which are in federal ownership, the parties should ascertain that the owner has consented to the disposal of the property in question and obtain a notarially certified copy of that consent;

• Management companies should indicate in a contract wh ere they assume the functions relating to maintenance and repair of residential buildings and/or premises the rates for performing the work in question, stipulate an internal system for checking performance of the delegated functions and ensure that any breaches are being identified and immediately remedied;

• Construction companies and other contractors or subcontractors should, when concluding agreements for the construction of capital construction facilities, check whether there is a construction permit and should obtain a notarially certified copy of that permit;

• When concluding a lease or sublease agreement, tenants and subtenants need to ensure that there is a commissioning permit for the relevant building and should obtain a notarially certified copy of that permit;

• When goods are put into circulation and while they are in circulation, the ownership of any trade marks should be checked, as well as ensuring that the trade marks are protected in Russia and there is a lawful basis for them to be used;

• A foreign citizen or stateless person should not be employed until their work permit and the company’s permission to hire and use foreign employees have been duly issued;

• An internal check should be carried out to ensure that all notifications have been submitted to the immigration authorities in relation to hiring a foreign citizen or stateless person for employment activity in Russia, and if the check reveals that any notifications have not been filed, they should be forwarded to the immigration authorities as a matter of urgency before the authorities or their officers uncover the breaches in question.

For further details, please contact:

in Moscow – Elena Ovcharova, Head of the Administrative Defence of Business Group, at (495) 967-00-07 or by e-mail;

in St Petersburg - Sergey Spasennov, Partner, Head of St. Petersburg office, at (812) 640-60-10 or by e-mail;Olesya Shestakova, Attorney, at (812) 640-60-10 or by e-mail