On 14 January 2014, the Presidium of the Russian Supreme Commercial Court (hereinafter - SCC) published the Informational letter dated 10 December 2013 No. 162 on Review of case law on implementation of articles 178 and 179 of the Civil Code by commercial courts.
The SCC clarifies provisions of Art. 178, 179 of the Civil Code and sets out case law on implementation of the articles both before and after adoption of the respective amendments to the Civil Code (effective as of 1 September 2013).
- A technical mistake which has entailed conclusion of a contract at the value of 2 rubles, instead of 2 million rubles, constitutes essential delusion and constitutes a ground for recognition of the contract as null and void upon the claim of the victim.
- Conclusion of a contract with a company having the same name as the company which a claimant intended to conclude deal with, but a different state registry number can qualify as a mistake of fact. Unfortunately, the SCC didn’t clarify how does that correlate with the fact that the claimant acting in capacity of an entrepreneur is supposed to bear the risks of a business turnover. Most likely, fraud of the contracting party or inadvertence of the claimant took place in the particular case tried by the court.
A contract with a licensed goods importer may be deemed invalid based on a claimant’s delusion as to the importer’s authority to import the licensed products (when in fact such authority did not exist).
- A delusion as to the consequences of a deal shall not be regarded as the delusion as to the nature of the deal.
- In case the claimant has repeatedly entered into a transaction the features of which have been allegedly misunderstood, a court shall reject the claim, because such repetition shows that the claimant has agreed and recognize these features.
- A claimant’s inadvertence could prevent invalidation of a transaction as affected by the delusion.
- A claimant can choose one of the alternative remedies upon revealing fraud: either to refuse to perform a contract (Art. 475 of the Civil Code) or to claim for its invalidation.
- A claimant may refer to intentional non-disclosure of relevant information by its counterparty (which constitutes fraudulent action) even if a disputed contract was concluded before 1 September 2013.
Non-disclosure of information about operating a vessel by a foreign crew is not a circumstance which the defendant acting in good faith had to inform an insurer about in the course of ordinary business practice.
- If an appraiser overestimated the purchased assets, a claimant may challenge a transaction unless a seller who had hired the appraiser proves that he didn’t know about fraud. Thus, a presumption of collusion between the appraiser and seller is hereby introduced. The defendant (seller) bears the burden of proving the opposite.
- Providing a counterparty with a false contact information (address, phone number) cannot significantly influence parties’ intention to conclude a contract and cannot entail its invalidity.
- A company can challenge any transaction performed by its director in collusion or by means of ill-intentioned agreement with an opposite party either by virtue of Art.179 of the Civil Code or para.2 Art.174 of the Civil Code. Transactions entered into before 01 September 2013 can be challenged by means of Art.179 of the Civil Code as well.
- Coincidence of unfavorable circumstances for a borrower (car accident, impending insolvency), excessive interest rate (100%) and short term of repayment (1 year) shall be deemed as strong evidence of a oppressive contract.
- In order to challenge a transaction affected by fraud, coercion, threat or an ill intentioned agreement a claimant is not required to prove its disadvantageous character or other unfavorable outcome.
- Use of violence can be proved not merely by the criminal proceedings in a criminal case. Refusal to initiate a criminal case or its dismissal does not impede a transaction invalidation.
- Letters and testimony can be used to prove that a transaction was affected by threat and that constitutes a sufficient ground for its invalidation. In such a claim, a claimant is also entitled to recover its expenses for body-guard services.
- A threat of performing legal actions (submitting a complaint to the public prosecutor office, bringing a lawsuit) may be considered as a ground for a transaction invalidation if the transaction performance was affected by threat.
The clarifications will secure uniformity in applying articles 178 and 179 of the Civil Code, and offer new opportunities for their application when challenging transactions entered into before 1 September 2013.