Unilateral termination or amendment right
The Supreme Court recently clarified:
- parties' right to terminate a contract unilaterally (ie, the 'right to unilateral refusal of performance' in Russian terminology) or amend a contractual obligation unilaterally; and
- the requirements regarding the fulfilment of payment obligations.(1)
Unilateral termination or amendment right
Permissibility in contracts (particularly shareholder agreements)
A unilateral termination or amendment right can be granted to any party to a contract entered into between undertakings.
In case of an agreement on the exercise of shareholder rights in a Russian limited liability company or joint stock company, a right to terminate the agreement can be agreed even if no shareholder is an undertaking.
Legal consequences of exercise and its limits
The termination or amendment of a contract following the exercise of a unilateral termination or amendment right normally occurs when the other contractual party receives the appropriate notification.
When a unilateral termination or amendment right is exercised, the beneficiary must act reasonably and in good faith, taking the opposing party's rights and statutory interests into consideration.
Monetary payment for exercise of unilateral termination or amendment right
Requirements for permissibility
Exercising a unilateral termination or amendment right can be conditioned by a monetary payment if the unilateral termination or amendment right is provided for by non-mandatory legal provisions or a contract.
If a unilateral termination or amendment right is provided for by mandatory legal provisions, its exercise cannot be conditioned by a specific monetary payment. Examples of this are the right to terminate leases with an indefinite term and the statutory unilateral termination or amendment right in the event of the other contractual party breaching its obligations.
Legal consequences and proportionality requirement
If the exercise of a unilateral termination or amendment right is a condition for a payment, the payment is normally due when the right is exercised.
A court can reject a payment claim if the monetary payment to be made by the beneficiary is disproportionate to the disadvantages which the contractual partner endures as a result of the termination or amendment.
Fulfilment by bank transfer
If a payment is made by bank transfer, fulfilment takes place when the amount of money concerned is credited to the corresponding account at the creditor's bank. If the creditor and debtor have accounts at the same bank, the monetary obligation is normally deemed to be fulfilled when the amount of money concerned is credited to the creditor's account.
The contractual parties can also establish different provisions in the contract. Other rules can also result from applicable law or customary practices.
Roubles or foreign currency to be converted to roubles
The rouble is generally the currency which applies to monetary obligations. However, a contract can provide that a payment which is equivalent to a certain amount in a foreign currency is owed in roubles. In such cases, the amount to be paid in roubles is normally determined on the basis of the official exchange rate quoted by the Central Bank on the payment date.
The conversion rate for a currency or the procedure for determining it can be agreed in the contract.
Interpretation rules in event of uncertainties
The official exchange rate quoted by the Central Bank normally applies to the conversion of currencies that it lists. If the currency is not listed by the Central Bank, the exchange rate is determined based on evidence to be provided by the parties regarding the exchange rates established by the banks of the country concerned and international organisations with regard to:
- the currency in question; and
- one of the currencies listed by the Central Bank.
A foreign currency can be used as a means of payment in cases which are regulated by law. If a foreign currency is agreed in a contract, but the currency in which payments are to be made is not specified, the payment must be made in roubles.
The invalidity of a clause in which a foreign currency has been agreed as the means of payment does not normally lead to the invalidity of the entire contract. In this case, the rouble is deemed to be the agreed currency if payment has yet to take place.
Interest in event of default
Types of interest
The following types of interest can be demanded if a monetary debt is defaulted on:
- agreed interest for the agreed use of amounts of money by the debtor (eg, interest for the receipt of a loan); and
- interest within the scope of civil law liability (in particular, statutory default interest).
Limited permissibility of compound interest
An agreement according to which interest is to be paid on agreed interest is valid only in contracts between undertakings and contracts relating to bank deposits.
However, default interest or contractual penalties can, as a rule, be charged on agreed interest which has not been paid in due time.
Order of fulfilment
Right of debtor to determine order
Payment obligations are fulfilled by an amount that is insufficient to fulfil all payment obligations in the order determined by the debtor on or directly after fulfilment. The debtor and creditor can enter into agreements in this respect.
Order of fulfilment if not determined by debtor
The following rules apply if the debtor has not determined the order of fulfilment:
- Only obligations which have not become statute-barred are fulfilled.
- Obligations whose performance deadline has expired are fulfilled first. The fulfilment of obligations whose performance deadline has expired or has yet to expire are normally fulfilled in accordance with the following rules:
- Unsecured obligations are fulfilled before secured obligations.
- Secured and unsecured obligations with an earlier performance deadline are fulfilled first. If a performance deadline does not exist, the obligations which arose earlier are fulfilled first.
- Several obligations of equal rank are fulfilled proportionally.
Order of fulfilment for principal obligation and further obligations
In the absence of any agreement to the contrary, fulfilment with respect to a specific payment obligation takes place in the following order:
- costs incurred by the creditor for acceptance of the payment;
- agreed interest for the use of the outstanding amounts;
- principal obligations; and
- interest in the context of civil law liability.
For further information on this topic please contact Thomas Mundry at Noerr by telephone (+7 495 799 56 96) or email ([email protected]). The Noerr website can be accessed at www.noerr.com.
(1) Order 54 of November 22 2016 on Several Questions regarding the Application of the General Provisions of the Civil Code of the Russian Federation regarding Obligations and their Fulfilment.