Foreign economic sanctions and early termination of the contract

Foreign economic sanctions and early termination of the contract. Arbitrage practice.

The sanctions restrictions originally imposed by the EU and the US on the Russian Federation in 2014 are constantly being extended and continue to be in force at the present time and are often qualified by arbitration courts as force majeure circumstances.

However, not in every case the consequences of the imposed sanctions may be grounds for early termination of the contract under Art. 451 of the Civil Code of the Russian Federation (due to a significant change in circumstances).

Case plot:

1. VTB Bank filed a lawsuit against the individual entrepreneur with a request to terminate the lease agreement for non-residential premises. The courts granted the bank's claims.

2. Meanwhile, the IP in the cassation appeal indicates that the circumstances indicated by the Bank do not have signs sufficient to terminate the contract on the basis of Article 451 of the Civil Code of the Russian Federation.

3. The sanctions imposed against the bank, which caused significant losses and the closure of the operating office, are not an exceptional circumstance, since the relations of the parties to this dispute have developed on the basis of a lease agreement, which are governed by the Civil Code of the Russian Federation, and changes in the international, economic and political situation cannot affect the legal relations of the parties within the framework of the concluded agreement.

4. Lack of credit and difficult financial situation are not grounds for early termination of the lease due to a significant change in circumstances, even if the tenant has lost the need to use the premises.

5. Being a professional participant in the financial services market, the Bank could not but take into account the risks when concluding a disputed lease agreement, did not include in the agreement a clause on the procedure for terminating the agreement at the request of the tenant in connection with the closure (liquidation) of the branch.

Judicial act: Determination of the Judicial Collegium for Economic Disputes of the Supreme Court of the Russian Federation dated May 23, 2017 No. 301-ES16-18586 in case No. A39-5782 / 2015

Court's findings:

1. These circumstances (the introduction of foreign economic sanctions, the growth of the Central Bank's key rate, the contraction of the borrowing market, the decrease in net profit) cannot be recognized as significant and form the necessary set of conditions for early termination of the lease agreement on the grounds of Article 451 of the Civil Code of the Russian Federation.

2. When deciding to close the operating office located in the disputed premises, the Bank proceeded from the economic feasibility of its activities. Entrepreneurial activity is risky, which the Bank could not but take into account when concluding a lease agreement, being a professional participant in the financial services market. With due diligence, the Bank, entering into contractual relations on its own initiative, should have foreseen the possible economic situation.

3. The introduction of foreign economic sanctions is not referred by the terms of the agreement to the number of circumstances relieving the parties from fulfilling obligations under the lease agreement. The risk of negative consequences for the Bank as a result of such sanctions cannot be assigned to the lessor.

4. There were no grounds for early termination of the disputed lease agreement in accordance with Article 451 of the Civil Code. A different approach in this case would be contrary to the essence of the urgent obligation that arose between the parties in the course of business activities.

Comment:

Article 451 of the Civil Code of the Russian Federation establishes circumstances, the simultaneous presence of which allows the interested party to terminate the contract:

1. At the time of the conclusion of the contract, the parties proceeded from the fact that such a change in circumstances would not occur;

2. The change in circumstances is caused by reasons that the interested party could not overcome after they arose with the degree of care and diligence that was required of it by the nature of the contract and the conditions of turnover;

3. The performance of the contract without changing its terms would so violate the balance of property interests of the parties corresponding to the contract and would entail such damage for the interested party that it would largely lose what it has the right to count on when concluding the contract;

4. It does not follow from the customs or the essence of the contract that the risk of a change in circumstances is borne by the interested party.

Therefore, in the presence of similar circumstances, in order to avoid possible litigation in the future, in the terms of the contract (or additional agreement) in accordance with Art. 421 of the Civil Code of the Russian Federation to include a condition on early termination of the contract at the request of the tenant in connection with the closure of the branch.

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Marina Sorokina