Russian Federation: Execution And Interpretation Of Agreements– Recommendations Of The Supreme Court Of The Russian Federation Of 25 December 2018

Last Updated: 14 March 2019
Article by Thomas Mundry and Asia Takhtaeva

On 25 December 2018 the Plenum of the Supreme Court of the Russian Federation ("Plenum") has adopted recommendations for the court practice on the execution and interpretation of agreements. It is evidence of a great progress of the Russian court system that, regarding the interpretation of agreements, the recommendations emphasize to identify the will of the parties, rather than to rely on the wording of the agreements.

The recommendations of the Plenum contain also important clarifications regarding the legal concept of "warranty of circumstances" which is comparable to the English law concept of "representations and warranties" and is meanwhile often used in business transactions which are governed by Russian laws. Other noteworthy statements concern the preliminary agreement, the framework agreement and the public agreement, all of which are legal tools often used in Russia related business transactions. Recommendations consolidate the already established court practice on some issues, as well as clarify issues that cause difficulties and contradictions in court. All recommendations of the Plenum contribute to a further increase of legal certainty for foreign investors. Below we have summarized the most important recommendations.

1. Warranty of Circumstances

Agreements often contain clauses in which a party ("Warrantor") grants to the other party an explicit warranty ("Warranty") on circumstances which are relevant to to the conclusion, performance or termination of the agreement. A Warranty may be granted also by a third party which has a lawful interest in the respective agreement. If an event is, at the same time, a breach of a Warranty and a breach of another obligation under the agreement, the consequences for both, the breach of the Warranty (compensation for damages, payment of penalties (if agreed) or termination of agreement) and for the breach of the other obligation apply simultaneously. Therefore:

  • If, under a Warranty, a seller has provided to a buyer information on characteristics of the goods with which similar goods mostly do not comply and such information turns out as untrue, along with the rules on liability for untrue Warranty, also the provisions on the quality of the goods apply,
  • The same is true if under an agreement on the sale of shares in a joint stock company or a limited liability company the seller provides information regarding the characteristics of the company and the stock of its assets,
  • If the Warranty does not directly concern the item of the agreement, but other relevant circumstances (e.g. the financial standing of the Warrantor or a third person, the existence of licenses, the structure of corporate control, the absence of indications for the qualification of the agreement as a significant transaction, requiring corporate approval, or the absence of a conflict of interests etc.), along with the rules on liability for untrue Warranty, also the general provisions on the breach of obligations under the agreement apply.

The following is said regarding the subjective prerequisites of the parties:

  • If the Warrantor carries out entrepreneurial activity, or the Warranty is granted under a shareholders' agreement or an agreement on the sale of shares in a joint stock company or a limited liability company, in the event of untruth of the Warranty, the Warrantor bears liability irrespective of its fault (unless otherwise agreed by the respective parties).
  • It will be assumed that the other party has trusted in the truth of the Warranty.
  • Regarding a relief from, or a reduction of its liability, the Warrantor may not refer to negligence of the other party (i.e. because it has not itself revealed the untruth of the Warranty).

2. Interpretation and Qualification of Agreements

Regarding interpretation and qualification of agreements, the Recommendations attach importance on upholding the respective agreement and identifying the will of the parties, rather than on sticking at the wording of the agreement:

  • The determination of the legal type of an agreement should be made on the basis of characteristics of the agreement provided by the law and the essence of the legal provisions concerning the respective type, independently from the title of the agreement and the wording used for the designation of its parties and the description of the actions for the performance of the obligations under the agreement.
  • Interpretation should avoid that any party gains an advantage from its unlawful or unfaithful behavior and should not lead to an understanding which the parties obviously have not meant.
  • A clause may be interpreted by comparing it with the other clauses and the concept of the agreement as a whole. A court should focus on the systematic connections of a clause and in consideration of the fact that all clauses are agreed parts of one agreement.
  • Interpretation should be conducted in consideration of the aim of the agreement and the essence of the laws which apply to the respective type of the agreement.
  • If validity or conclusion of an agreement is in dispute, the court should assume the validity or conclusion as long as there is no evidence for the contrary. If a clause allows several alternatives of interpretation priority should be given to an alternative which would lead to the lawfulness or the conclusion of the agreement.
  • Unclearness of provisions of an agreement will be at the expense of the party which has drafted the agreement. It will be assumed that such party professionally carries out the activity, within the sphere of which the agreement has been concluded (e.g. the bank regarding a credit agreement, the leasing company regarding a financial lease agreement or the insurance company regarding an insurance agreement etc.).

3. Lack of Registration of Real Estate Lease Agreement

Agreements on the lease of real estate with a term of one year or more are subject to registration in the Russian real estate register EGRN. Regarding the consequences of the lack of registration, the following was set out:

  • The rights and obligations provided in the lease agreement apply to both parties. In particular, the parties are obliged to arrange for the registration of the lease agreement.
  • The lease agreement entails no legal consequences to third parties which do not know and must not know of the existence of the lease agreement.

In the light of the above, in the event of a change of the owner of the real estate, the rights and obligations under the unregistered lease agreement will not be transferred to the new owner if he does not know and must not know of the existence of the lease agreement.

4. Preliminary Agreement 

4.1 Requirements to Contents

A preliminary agreement is an agreement under which the parties assume the obligation to enter into an agreement (main agreement), on the terms and conditions agreed upon in the preliminary agreement.

In order to recognize a preliminary agreement as concluded it is sufficient that it describes the item of the main agreement or provides for conditions which enable its determination. The lack of other essential conditions, on its own, is not a reason for considering the preliminary agreement as not concluded. So, if a preliminary agreement on the lease of a building does not contain a clause on the amount of the rental payments, the agreement is concluded. The parties may agree on the rental payments in the main agreement and, if they do not, may turn to the competent court.

A preliminary agreement or a main agreement may be entered into even if, upon signing of the respective agreement, the principle obligation under the main agreement (e.g. the handing of goods or the rendering of services) cannot be fulfilled. In particular, a sale and purchase agreement or a preliminary agreement may be entered into if the purchase item will be created, registered or acquired by the seller in future.

The Plenum has pointed out that an agreement titled by the parties as a "preliminary agreement" which provides for the entering into an agreement on the sale of a future item has to be requalified as the (main) sale and purchase agreement, if it provides for the buyer's obligation, prior to the entering into the main agreement, to pay the purchase price or a substantial part thereof. In our view, the recommended requalification does not apply if the parties of a preliminary agreement have agreed that the future buyer is obliged to provide to the future seller a security payment for the performance of its obligation to enter into the main agreement, which later will be set off against the purchase price.

4.2 Enforcement of Obligation to Enter into Main Agreement

If one of the parties fails to comply with its obligation to enter into the main agreement, then such party may be enforced thereto by a competent court. The Plenum explained that this option is available only for the party of the preliminary agreement that took steps toward the conclusion of the main agreement within the time limit set by the preliminary agreement. A claim with the demand to conclude the main agreement may be submitted to the court only within six months after the expiry of the term for its conclusion.

4.3 Security for Performance of Obligations

The Plenum refers to the deposit (zadatok") (Deposit"), a special type of money deposit, which may be used for securing the parties' obligations to enter into the main agreement. It mentions that, if the Deposit had to be provided by the party being obliged to make payment under the main agreement, after its signing, the Deposit will be set off against the payment obligation. If the Deposit had to be provided by a party not being obliged to make payment under the main agreement, after its signing, the Deposit, in general, must be reimbursed to such party.

However, in many preliminary agreements, the Deposit is not used as security as the party which has received a Deposit, in the event of not performing its obligation to enter into the main agreement, is obliged to pay to the other party the double amount of the Deposit. Often the parties prefer to agree on a money deposit which they design independently from the legal provisions on the Deposit.

5. Framework Agreements

Parties of a longer business relationship often enter into a framework agreement which provides for general conditions of the cooperation, e.g. organizational, marketing and financial conditions. Specific conditions will be later agreed in agreements, or applications or other statements. E.g. framework agreements may govern the supply of goods through a longer term. Such framework agreements often contain general provisions on the price for certain goods, the delivery conditions, liability of the parties and the legal venue. The concrete purchases are subject to concrete agreements which provide for the quantity of the goods and the calculation of the purchase price.

The Plenum mentioned that the general conditions of the framework agreement should be considered parts of agreements which comply with the intentions of the parties expressed in the framework agreement, unless otherwise agreed by the parties or following from the essence of the respective obligations. A reference in the agreements to the framework agreement is not necessary.

6. Public Agreement – Applicability of Benefits to Businesses

The Plenum has recommended to apply the benefits of the concept of the public contract ("Public Contract") also to businesses (i.e. legal entities and individual entrepreneurs). The recommendation is, in particular, important for investors desiring to enter into agreements with public utility providers as such public utility providers are obliged to enter into a service agreement with the investor and are limited in applying different prices from the investors.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Sign Up
Gain free access to lawyers expertise from more than 250 countries.
 
Email Address
Company Name
Password
Confirm Password
Country
Position
Industry
Mondaq Newsalert
Select Topics
Select Regions
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions