Liens.

a. General Discussion.

To obtain a security for the performance of obligations, a creditor may withhold the things subject to transfer to a debtor or another person designated by a debtor (Art. 359 of the RF Civil Code). The right of withholding in Russian law is effectively similar to liens in common law. It applies not only to contractual but also to quasi-contractual obligations.

Withholding is an operative measure, a unilateral action by a creditor to a contract, undertaken to influence other party which is in breach or default to comply with an obligation and to secure creditor’s claim. Such operative measures are customary in Russian legal and business practice and may be employed by a creditor without need for a judicial action.

b. Property Subject to Withholding.

Withholding is effective in respect of things, i.e. real or personal property, but not economic rights. Money is also considered thing under the Russian law (Art. 128 of the RF Civil Code).

The right of withholding arises by operation of the law, but it may be waived by a contract.

Normally the right of withholding (lien) in a particular item secures only claims related to this item, such as claim for payment for the item, claims for costs or losses caused by the item or incurred for its maintenance. An exception is made for claims under commercial contracts where both parties act in the course of entrepreneurial activity. To secure such claims the creditor may exercise the right of withholding in respect of any item in his possession which is subject to transfer to a debtor or another person designated by a debtor. In this case an obligation secured by withholding (lien) does not have to be related to a thing which is subject to lien.

c. Perfection of Right and Realization of Property.

The lien is perfected by the mere fact of possession of an item. The procedure of realization of property subject to lien is generally the same as the one for property subject to pledge. Judicial decision is generally required to satisfy claims secured by withholding (lien) in an item owned by a debtor or third person. Such item is subject to realization using the procedure provided for sale of debtor’s property in satisfaction of a monetary judgment. Under the Russian law a lien holder may not simply assume ownership of the item encumbered by the lien. The item must be sold at the public auction and the lien holder has a priority right to compensation of its claims out of proceeds from sale of the property under encumbrance.