Courts will be allowed to terminate contracts retroactively due to sanctions

Russian courts will have the right to determine date of termination or change of obligations of the parties to the contracts. Such an amendment was developed by the Ministry of Justice, on January 16 it was approved by a government commission, writes RBC.

Now the obligations of the parties are changed or terminated upon the conclusion of a new agreement, which fixes the date of the revision or termination of the previous agreement. Including there may indicate the past date. When applying to the court, the obligations are considered modified or terminated after the entry into force of the court decision.

According to the Ministry of Justice, the amendment should protect businesses that could not fulfill contracts due to sanctions imposed for the war in Ukraine. The department considers this a “significant change in circumstances” that could not have been foreseen. Such a concept is in the Civil Code.

The explanatory note gives an example when two Russian organizations entered into an agreement on the installation of equipment, but the obligations were not fulfilled because the foreign company (counterparty) refused to supply it. The parties could not come to a new agreement and went to court.

However, the court decision does not exempt from liability for the violation of obligations that has already taken place. Thus, an organization that has not fulfilled the terms of the contract will be obliged to pay a penalty for the period from the moment the circumstances change until the entry into force of the decision. If the amendment is accepted, the court will be able to change or terminate the contract retroactively, setting the “necessary” date.

The amendment should be considered at a government meeting, after which the bill will be sent to the State Duma. If adopted, the new approach can only be applied to cases opened after the entry into force of the law, the Ministry of Justice noted.

The norm is clearly being developed for companies affected by sanctions, says Rimma Malinskaya, partner in the MEF LEGAL commercial dispute practice. In her opinion, the law will help those who could not fulfill the contract on time or for whom it became economically unprofitable due to excessively increased transport costs and the departure of foreign suppliers.

However, she believes that the norm will become grounds for abuse. In particular, the party that violated the contract will have the opportunity not to rush to resolve the dispute, realizing that in the future the court will release it from liability retroactively.

In March 2022, a draft law was submitted to the State Duma allowing businesses to terminate or freeze a contract if they are unable to fulfill their obligations due to sanctions. Its author was Pavel Krasheninnikov, head of the Committee on State Building and Legislation. According to the deputy, the amendments should support Russian business in the face of Western restrictions, reducing the number of controversial and intractable situations, including those threatening bankruptcy. However, the bill has not yet been considered even in the first reading.


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