The most important secret – Newspaper Kommersant No. 213 (7414) dated 11/17/2022

The Supreme Court of the Russian Federation (SC) issued a decision giving priority to attorney-client privilege over the interests of creditors and protecting the right of the debtor company and its employees to access to justice. The Economic Collegium recognized that in order to confirm the fact of the provision of legal assistance, it is impossible to require disclosure of the details of the lawyer’s consultations with clients and the strategy of legal protection. Lawyers welcome the decision, but see in it the support of the legal community only.

On November 14, the Supreme Court published a decision defending the payment of lawyers by bankrupt companies. The position was expressed in the bankruptcy case of Hochtief Development Russland LLC (HDR, a subsidiary of the German Hochtief AG), where creditors disputed the debtor’s payments for lawyers’ services, but the Supreme Court rejected their claims.

We are talking about payments under agreements concluded by the KhDR in 2014–2015 with Sergey Volzhenkin and Yuri Pugach to assist the company and its employees in the framework of a criminal case initiated at the request of IK Pulkovskaia (IKP, a structure of the St. Petersburg car dealer Evgeny Voitenkov). The company in 2015 paid lawyers 5.48 million rubles. and 2.48 million rubles. respectively.

According to the prosecution, the head and two other employees of the KhDR “created only the appearance of the proper execution of work on the transaction with the ICP.” In June 2017, the court found three HDR employees guilty of falsifying documents and attempted fraudulent theft of €4 million. In July 2018, the HDR went bankrupt.

Evgeny Voitenkov and Olymp FS LLC, as creditors of the bankrupt, challenged the payments to lawyers. The Arbitration Court of St. Petersburg satisfied the claim, obliging to return the money to the bankruptcy estate. The appeal supported the decision, and the cassation reduced the amount recovered from Sergey Volzhenkin to 2.2 million rubles. According to the cassation, the fact of providing services for 4.68 million rubles. not confirmed.

The KhDR complained to the Supreme Court, and the case was referred to the Economic Collegium, which canceled the decisions of the courts and rejected the claim of the creditors. In March, in the bankruptcy case of the KhDR, the economic board considered another issue, also related to the costs of legal assistance. Then the Supreme Court recognized the right of the debtor to hire and pay for a lawyer, including for its employees who face criminal liability, emphasizing that this in itself does not harm creditors (see Kommersant of March 22). But in practice, the problem remained, and the courts continued to collect from lawyers the money they received for providing services to enterprises that had debts. Now the situation must change.

In the new resolution, the board confirmed the March position and brought new arguments protecting the bankrupt’s right to the services of lawyers. Thus, since the disputed HDR payments were made more than a year before the initiation of bankruptcy, they can only be challenged if the goal is to harm creditors, and if the lawyers knew about it. But the lawyers are not affiliated with the company and had nothing to do with the illegal actions of the employees who were charged in the criminal case.

In addition, a lawyer is not obliged to check the property status of the client organization and should not be afraid to provide assistance to legal entities that have debts, otherwise this “blocks the very possibility of proper access to justice,” the Supreme Court noted.

The indication of the cassation on the need for the lawyer to disclose the content of consultations with the client, the Supreme Court, was considered a violation of the rule on attorney-client secrecy. The actions of a lawyer “are an integral part of the process of providing legal assistance and do not require special registration by any special protocols, acts, etc.,” the board emphasized. In addition, the plaintiffs did not prove that the cost of legal services was overpriced “in relation to the prices of other lawyers of the same level of professionalism and reputation.”

Bartolius Managing Partner Julius Tai calls the decision “wise and long-awaited”, noting that the council of the Moscow Bar Association “a couple of years ago applied to the Supreme Court with a request to resolve the issue of protecting the rights of lawyers”. Anton Krasnikov, a partner at Sotheby’s law firm, notes that the decision “is of great importance for the legal community, which will be able to conclude legal assistance agreements with greater confidence.” Julius Tai emphasizes that “there should be no stigmatization of pre-bankrupt firms.” In fact, the collegium recognized that in the case of a company’s standard actions to attract an unaffiliated lawyer, payment for his services, made earlier than a year before the bankruptcy case, cannot be invalidated, Mr. Krasnikov believes.

At the same time, the lawyer of the Anatoly Sobchak Baltic Bar Association, Elena Mende, sees the risk of abuse by the debtor through the execution of fictitious contracts for legal assistance “precisely because it is allowed not to disclose the content of the services provided due to attorney-client privilege.” But Mr. Tai believes that this will not be a mass problem, since “from the totality of the lawyer’s actions and documents, it is always clear whether the work was done or invented,” and participation in the proceedings is recorded in the protocol of interrogation and judicial acts.

Anton Krasnikov adds that the decision establishes privileges specifically for lawyers: “Fulfillment of obligations by ordinary lawyers is not protected by attorney-client privilege, and the position of the Supreme Court contributes to the formation of a lawyer’s monopoly in the legal services market.” According to Mr. Tai, a number of the Supreme Court’s conclusions can be extended to lawyers without a lawyer status, making it a necessary condition for the cancellation of payment for legal services to establish the defendant’s bad faith and the absence of the actual provision of services to them.

Anna Zanina, Ekaterina Volkova