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Review of the Resolution of the Supreme Court Plenum of the Russian Federation dated 22 November 2016 No. 54


22 November 2016 the Supreme Court of the Russian Federation (hereinafter – the “Supreme Court”) adopted Resolution “On some issues due to application of the general provisions of the Civil code of the Russian Federation on obligations and their performance”1 (hereinafter – the “Resolution”). The Resolution is focused on ensuring the uniformity of application practice of  the general provisions of the Civil Code of the Russian Federation (hereinafter – the “Civil Code”) by courts.

The principal approaches to the usage of the general provisions of the Civil Code provided by the Resolution are as set forth below:

  • General provisions on obligations. Pursuant to the Resolution, the Civil Code does not stipulate an exhaustive list of acts, which can be subject matter of obligations. The party under the obligation can be liable for circumstances, occurrence of which is not connected with the behavior of such party. As an example, the Supreme Court sets the situation, when a party is liable for the unauthenticity of the representations on circumstances and is liable for the requisition of goods from the buyer by third parties.
  • Creditors’ agreement on the order of satisfaction of their demands against a debtor. The Supreme Court confirms, that the creditor’s agreement on the order of satisfaction of their demands against a debtor does not result in any obligations for the debtor. Also, the Supreme Court indicates, that a creditor cannot refuse the debtor in acceptance of his performance, referring to the creditors’ agreement.  In case of such refusal, the creditor is considered as failed to accept proper performance offered by the debtor (clause 1 of art. 406 of the Civil Code).

As a general rule, a creditor, who shall transfer the performance granted by the debtor, is not liable to other creditors for non-performance or improper performance of the obligation by the debtor. However, such creditor undertakes to inform on debtor’s delay, to collect all necessary evidence and also transfer the rights under the transaction with the debtor upon creditor’s request. If the debtor has performed the obligation, the creditor will be responsible to other creditors while transfer of the performed for the loss, shortage or damage of property received from the debtor. The expenses due to transfer of the performed to other creditors, are born by the creditor, who shall transfer the debtor’s performance.

  • The right on unilateral refusal to perform an obligation. As a general rule, the right on unilateral refusal to perform an obligation or unilateral change of its terms (hereinafter – “Unilateral refusal”) cannot be stipulated by the contract between entities, that do not carry out an entrepreneurial activity. If at least one party to a contract is a person, carrying out entrepreneurial activity, in such relations the right to Unilateral refusal can only be provided to a person who does not carry out an entrepreneurial activity.

The right on Unilateral refusal can be provided to any party to corporate agreement.

The Supreme Court also points out, that if the right on Unilateral refusal is not stipulated by law or contract, Unilateral refusal, made by one of the parties to a contract, does not entail legal consequences it was supposed to trigger. Legal consequences do not occur in case of violation of the  right on Unilateral refusal implementation breach.

When executing the right on Unilateral refusal a party shall act reasonably and in good faith, taking into account rights and lawful interests of another party (clause 3 art. 307, clause 2 art. 450.1 of the Civil Code). Violation of this duty can entail denial of protection of the right on Unilateral refusal, including possibility of recognition the term granting such right as void.

Execution of the right on Unilateral refusal entails termination of the obligation as a result of contract termination. If for the execution of this right a fee was set, along with the extinguishment of the original obligation, an obligation to pay the prescribed sum of money is arisen.

In case of inadequacy of the fee for executing the right on Unilateral refusal and adverse effects thereto – the court is entitled to withhold the collection of such fee fully or in part.

  • Monetary obligations and foreign currency. Monetary obligation shall be performed in rubles (currency of payment). The collection of monetary resources in foreign currency, serving as and indicated as a payment currency, can be carried out only if the current legislation at the time of court ruling on such collection, allows performance of a monetary obligation in foreign currency. Invalidation in court of an agreement provision regarding foreign currency as payment currency will not invalidate agreement in whole subject that the parties are assumed to have entered into the agreement without such provision (art. 180 of the Civil Code).

In the Resolution the Supreme court confirmed the possibility of simultaneous application of the provisions on lawful use of funds interests’ accrual and also usage of art. 395 of the Civil Code in case of debtor’s delay to pay interests stipulated as a fee for the use of borrowed funds.

  • Uniform claims. The Supreme Court clarifies the order of repayment under a monetary obligation (art. 319 of the Civil Code). First, creditor’s expenses for obtaining performance are repaid, then - interests, which are not a measure of civil liability, afterwards principal sum of the debt is repaid, and as a remainder – interests, which are a measure of civil liability. The order of claims repayment under art. 319 of the Civil Code can be changed upon parties’ agreement. In this case if the debtor does not indicate, in execution of which of the uniform obligations performance was executed – said performance cannot be credited against those uniform claims, limitation of for filing which has expired.

The Supreme Court pinpoints, that an obligation cannot be considered as secured, if it is secured only by the payment of a penalty.

  • Alternative and optional obligations. Pursuant to Resolution an obligation cannot be alternative, if its subject matter is determined, however the creditor has the right to choose a remedy. The consequences of debtor’s choice of one of the alternative duties have retrospective effect – an obligation is considered to have consisted of chosen act (omission) initially. If the the choice of alternative duty was not made within reasonable timeline, the debtor is entitled to demand instructions as to the subject matter of the obligation performance. If such instructions are not received within seven days, the debtor is entitled to perform the obligation upon discretion. Herewith the debtor is not considered to be in delay, if he did not as for instructions on the subject matter of the obligation performance, despite the fact that the performance deadline came.

In the event of the performance impossibility of one of the alternative duties due to a debtor’s fault, when the creditor is entitled to choose – the creditor is entitled at his own discretion to demand either damages caused by impossibility of performance or execution of another act remaining possible. In case of the performance impossibility of one of the alternative duties due to a creditor’s fault, when the debtor is entitled to choose – the debtor is released from the obligation performance.

Unless otherwise provided by law or contract, a creditor shall accept optional performance from a debtor even in case if the debtor delayed performance of the principal obligation.

  • Joint obligations. In case demands to one of the joint debtors are satisfied by the court, but the creditor fails to obtain full performance, such creditor can address same demands to another joint debtor.

Before full satisfaction will be received the creditor is entitled to demand initiation of bankruptcy proceedings of each joint debtor (for instance, principal debtor and guarantor) on the basis of the total amount of indebtedness.

Enforcement proceedings on joint collection in favour of one judgment creditor shall be merged into one consolidated enforcement proceedings, despite the fact that the creditor’s demands to his debtors are satisfied by different court rulings.

Satisfaction of creditor’s demand on joint collection entails termination of the enforcement proceedings (subclause 2 clause 1 art. 47 of the Federal Law “On enforcement proceeding”)2.

  • Performance. In case the right on prior execution is provided by law, such right cannot be limited by parties’ agreement, in particular, payment for such right cannot be provided.

Date of monetary obligation performance (at noncash transactions) will be the moment of crediting funds to a correspondent account of the creditor’s bank. If the debtor and the creditor on this obligation are serviced by the same bank – from the moment of crediting funds to the creditor’s account in such bank.

The Resolution does not provide, that the parties can agree on a different date of monetary obligation performance (although, the Resolution does not prohibit such agreements). We assume, that this issue will be resolved given the provisions of the Resolution of Supreme Commercial Court of the Russian Federation No. 16 “On freedom of contract and its limits”. Said resolution essentially outlines discretionary nature of contract law rules.

Before the Resolution adoption, the  case law provided, that the date of  monetary obligation performance coincides with the  moment of creditting funds to the account regardless of whether the creditor’s bank is different from the debtor’s bank3.

Monetary resources and securities, transferred to the notary deposit, are considered belonging to the creditor from the moment of receipt of said property from the deposit. The notary cannot return the property from the deposit to the debtor if the application of the property receipt is received from the creditor. In case of interest accrual in respect of deposited property,  the right to receive such interest belongs to the recipient of the property.

The Supreme Court stipulates, that as a general rule counter performance  is recognized a performance in any relations, if the obligations performance by one party is predetermined by the performance of another party obligations, regardless of order of fulfillment priority for the obligations provided by the parties.  Further to the above conclusion, performance can be recognized as the counter performance almost in any bilateral contract.

The Supreme Court stresses, that despite  the rule on bearing performance expenses by the debtor, expenses on the acceptance of the performance are born by the creditor. As an example of creditor’s expenses the Resolution sets expenses on mobile communications, sending of documents and using special software. Meanwhile additional expenses connected with the performance acceptance cannot be allocated on the creditor, if they were caused by the debtor’s acts.

***
Hence, the Resolution compiles previous case law conclusions and introduces position on the relatively new institutions of the law such as lawful interests, Unilateral refusal, creditors’ agreement on the order of claim settlement. It is worth mentioning that in the analyzed Resolution the Supreme Court:

  • establishes the observance of parties obligation to act in good faith when establishing, using or enforcing civil rights as well as when performing civil obligations, preventing abuse of the right;
  • further develops the provisions of the Civil Code on order performance of obligations subject to a creditors’ agreement on the order of satisfaction of their demands against a debtor;
  • clarifies that the parties’ agreement may provide for liability of one of the parties for  events beyond such party’s control;
  • establishes that Unilateral refusal to perform an obligation does not entail legal consequences if the right to Unilateral refusal to perform an obligation is not stipulated in legislation or in the agreement of the parties;
  • provides that courts are entitled to refuse in satisfaction of claims for recovery of compensation for executing the right on Unilateral refusal, in case such compensation is inadequate;
  • alters the established court practice with regards to the moment of performance of monetary obligations;
  • supplements and clarifies the provisions of the Civil Code concerning counter performance.

 _____

1The Resolution of the Plenum of the Supreme Court of the Russian Federation dated 22 November 2016  No. 54 “On some questions of application of the general provisions on obligations and their performance of the Civil code of the Russian Federation”
2Federal Law dated  2 October 2007 No. 229-FZ “On enforcement proceeding”
3Ruling of the Federal Commercial Court for Moscow district dated 15.03.2013 in re No. А41-30901/12; Ruling of the Federal Commercial Court for Northwest district dated 16.01.2012 in re No. А66-3748/2011



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