This client alert sets out some key statements given by the RF Supreme Arbitrazh Court in its recent Resolution No. 42 "On Several Issues of Settlement of Disputes Related to the Suretyship", dated 12 July 2012.

  1. A suretyship agreement shall not be deemed invalid due to the failure by its parties to detail all of the specifics of the underlying obligation being secured by the suretyship agreement (e.g. the interest rate from the underlying loan agreement), provided, however, that (i) the secured obligation is identified in sufficient detail in order for a court to be able to determine which obligation is secured by the suretyship, or (ii) the suretyship agreement refers to the underlying obligation containing the respective terms and conditions. However, if the suretyship agreement is intended to secure a loan agreement, but the description of the secured obligations in the suretyship agreement does not include the obligation of the debtor to pay interest on the loan, then the obligation of the debtor to pay interest on the loan shall not be secured by the suretyship agreement.
  2. Generally speaking, if the underlying obligation is amended (e.g. if there is an increase in the interest rate in the underlying loan agreement) without the consent of the surety, then the liability of the surety shall be limited to the initially agreed extent, regardless of the amendment. An important point here is that the suretyship agreement will not be invalidated by the amendment to the underlying obligation.
  3. An important new exception to the rule in the foregoing paragraph is that it is nowdefinitely possible for the surety to provide its advance consent to any increase in the debtor's liability under the underlying obligation, provided that clear limits are specified in the suretyship agreement (e.g. the suretyship agreement sets out themaximumincrease in the interest rate in the underlying loan agreement which the surety is willing to support under the suretyship agreement). If limits are not specified in the suretyship agreement, then the liability of the surety shall be limited to the initially agreed extent, regardless of the amendment.
  4. If, contrary to the underlying debtor's wishes, a suretyship agreement is entered into between a creditor and a surety, and such action could cause unfavourable consequences for the underlying debtor, a courtmay subsequently refuse to permit any subrogation rights in favour of the surety.
  5. If the suretyship agreement does not provide for its term but provides that it remains in effect until the underlying obligation is performed in full, such agreement shall be deemed to terminate on the one-year anniversary of the due date of the underlying obligation.
  6. If the surety and the debtor have joint and several liability (which is presumed for suretyships), the creditor shall be entitled tomake a demand under the suretyship agreement, whether or not the creditor has claimed from the debtor to fulfil the underlying obligation before claiming from the surety under the suretyship agreement.
  7. If the underlying obligation is secured bymore than one suretyship agreement, the performance by a single surety of the underlying obligation shall entitle that surety to be subrogated to the creditor and have transferred to it all of the creditor's rights in respect of the underlying obligation, and the benefit of any security.
  8. It is permissible for a suretyship agreement to only be enforceable upon the occurrence of specific events. For example, a suretyship agreementmay provide that the surety is liable for performance of the underlying obligation only if the underlying debtor is declared bankrupt.
  9. A reorganisation of the underlying debtor shall not terminate the suretyship agreement.
  10. Any termination or invalidation of the agreement on issuance of suretyship (i.e. the agreement between the debtor and the surety) shall not necessarily result in termination of the suretyship agreement. In addition, if the suretyship was issued due to the existence of joint economic or commercial interests between the debtor and the surety, but such interest ceases to exist, this shall not necessarily result in termination of the suretyship agreement.
  11. Any fundamental change to the governing law and/or dispute resolution provisions in the underlying obligation (e.g. change of jurisdiction of Russian state arbitrazh (commercial) court to jurisdiction of arbitral institution or foreign court)may be grounds for termination of the suretyship agreement, provided that the surety is able to demonstrate that a violation of its rights has occurred as a result of such change.
  12. The execution of a suretyship agreement by an individual entrepreneur without the consent of his/her spouse shall not be grounds for invalidation of the suretyship agreement.