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The Financial club. Conditional deposit (escrow): new entity or function of named contractual types?

17 April 2019
Round table

Event Description

On April 17, 2019, International and Comparative Law Research Center held the next roundtable of Financial club on the topic "Conditional deposit (escrow): new entity or function of named contractual types?". The event was attended by members of the scientific community, law firms, and commercial banks:

  • Maksim Bashkatov, the head and the moderator of the Financial Club;
  • Rimma Chichakyan, Ph.D. researcher at the University of Turin;
  • Artem Karapetov, Doctor of Law, Director of “M-Logos” Law Institute, Professor of Higher School of Economics, Chief Editor of the “Bulletin of Economic Justice” journal;
  • Maxim Rasputin, Counsel at Ivanyan & Partners Law firm;
  • Sergey Sarbash, Doctor of Laws, former judge of the Supreme Commercial Court of the Russian Federation, member of the Council for the Codification and Enhancement of Civil Legislation under the President of the Russian Federation;
  • Tatyana Zhandarova, the head of the department in a commercial bank.

Maksim Bashkatov welcomed the guests and announced the first subject devoted to the nature of escrow.

Participants discussed features of the escrow agreement and criteria of its difference from the contract of bailment, the commission agreement, trust and with the letter of credit. The possibility to qualify the escrow as mixed was discussed separately.

Artyom Karapetov pointed on lack of fiduciary models in Russian law, which are traditionally applied in Germany, the USA, England, and France legal systems to manage escrow. Professor emphasized that the escrow creates a unique legal effect in Russian law which allows eliminating the risk of esсrow agent insolvency. That distinguishes it from the commission agreement, contracts of bailment and other agreements. At the same time, the lawyer expressed an opinion about the impossibility to deny common features of conditional deposit and other models.

Sergey Sarbash paid attention to the signs of secured transaction in an escrow and compared it with the letter of credit. He assumed that escrow is possible both on the model of other agreements and as independent contractual type. He pointed that conditional deposit assumes the tripartite nature of interaction while in the commission agreement there are special relations between the consignee and the commitment.

Tatyana Zhandarova added that the escrow is the long-awaited innovation in the Russian legislation. She is sure that the model of the contract of conditional deposit is good, and the possibility of using the mechanism will increase Russia's investment attractiveness.

Rimma Chichakyan analyzed the legal nature of escrow cited as an example foreign laws approach (the USA, England, France, Canada, and Germany).

Sergey Sarbash emphasized that participants revealed a set of identical elements of conditional deposit and other Russian contractual models during the discussion. But to ground escrow features through other types of contracts is quite problematic because of unique features of conditional deposit.  

Maxim Bashkatov suggested discussing an issue of appurtenance of escrow to the primary obligation and a possibility of providing future obligations with the help of conditional deposit.

Maxim Rasputin assumed that there are no problems with securing future obligations with the escrow. Artyom Karapetov agreed with him and added, that under Russian law escrow should be considered independent on the main liability. According to his position, automatic invalidation of escrow in discharging of the main commitment violates the rights of an escrow agent. For termination of the conditional deposit, it is necessary to apply Art. 451 of the Russian Civil Code.

Sergey Sarbash is convinced that escrow is the additional, service contract which serves basic interest out of the conditional deposit, therefore the appurtenance has to be assumed.

Participants discussed an appurtenance of an escrow taking in a context of changes in the legislation on participation in shared-equity construction.

Maxim Bashkatov began a discussion about the transfer of title under the escrow.

Sergey Sarbash expressed doubt about the validity of mandatory allocation transfer of title in the Civil code. He pointed to legislator inconsistency within in the usual sale agreements contractors can provide independently a term about transition.

Tatyana Zhandarova noted that in this case, the legislator went on the way of regulation of a deposit of the notary.

Participants of a roundtable discussed options of alternative regulation of the transfer of title. Speakers drew a conclusion that the legislator had no obvious reasons to forbid dispositive regulation.

The last question which was raised before completion of a meeting concerned of recognition of an escrow as coverage of obligations. The general opinion was about the presence of coverage traits that, but the issue should be discussed particularly at the next roundtables devoted to conditional deposit.

Maxim Bashkatov thanked the audience and participants for discussion and invited to continue it within the following roundtable.

 

The Financial club is the new project of International and Comparative Law Research Center in collaboration with the Department of Civil Law of the MSU Law faculty and the “Statut” law school. Foreign and Russian experience in financial transactions regulations in the comparative legal context, trends of global and domestic judicial practice as well as various scientific publications and regulatory legal acts projects on the topic are discussed at the Club’s meetings.

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