Court Practice on Penalty

 

On 22 December 2011 a Plenary Session of the Supreme Commercial Court approved Resolution No. 81 “On Certain Aspects of the Application of Article 333 of the Russian Civil Code.

According to Article 333 of the Civil Code, a court may decrease the amount of penalty (neustoyka) if it is obviously incommensurate with the consequences of violation of obligation. The Resolution clarifies a number of issues related to the application of this article, in particular:

  • The penalty may be decreased only if the debtor requests it (i.e., the court may not do it on its own initiative);
  • The debtor must prove that the amount of penalty is incommensurate with the consequences of violation of obligation, and its references to bad financial standing, counterparties’ defaults and the like are not sufficient on their own;,/li>
  • A contractual arrangement excluding application of Article 333 or providing for a maximum/minimum threshold of penalty does not prevent its being reduced based on this article;
  • As a rule (to be skipped in exceptional cases), courts should not decrease the penalty below twice the bank rate of the Central Bank which applied at the time of violation;
  • The debtor who voluntarily paid the penalty to the creditor may not claim its reduction based on Article 333 thereafter.

The Resolution is mandatory for lower commercial courts when considering similar issues.

For further information please contact Igor Ostapets, Grigory Chernyshov or Irina Dmitrieva in the Moscow office of White & Case, tel + 7 495 787 3000 .

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