Balancing of forfeit in bankruptcy case.
Case Background:
The Company (customer) and the Company (contractor) entered into a contract of work.
The contract stipulated a penalty in the amount of 0.4 percent of the contract price for each day of delay.
Due to the Contractor’s material breach of the final construction deadline, the Client sent the Contractor a notice to suspend its work and hand over the unfinished construction project to the Client.
This notice, which is in essence a unilateral withdrawal from the contract, was received by the Company.
In order to perform the work not completed by the Company, the client contracted with other organizations.
The Company insisted that the certificate of acceptance of the completed construction project contained information about the completion of construction by a contractor other than the Company. The company did not refute the company’s assertions.
The Company requested that its claim against the Company for a contractual penalty of RUB 1.2 billion be recognized as justified.
With regard to recovery in favor of the Company of RUB 115 mln (value of unpaid by the Company works), the Company requested that the balance of this amount be made up and the outstanding amount of the penalty be included in the claims register.
Positions of the courts:
Courts of three instances included 100 million rubles (forfeit) into the creditor claims register.
Recognizing the claim for liquidated damages as justified in part, the courts found that the contractual condition of determining the liquidated damages for breach of the deadline for performance of works on the basis of the total price of the construction contract contradicted the principle of legal equality, creating unjustified advantages for the creditor, who is due compensation not only for works not performed in time, but also for those works that were properly performed.
The court reduced the remaining penalty on the basis of Art. 333 of the Civil Code
The court rejected the company’s claim of balancing on the ground that it was contrary to the Bankruptcy Law.
Grounds for transfer:
According to the company, agreeing on the full price of the construction contract as the basis for calculating the contractual penalty for failure to meet the final deadline is not contrary to applicable law.
Failure to meet the final construction deadline not only prevents the grid company from developing and extracting profits in accordance with its investment program, but also entails additional load on the existing grid infrastructure, which, in turn, may lead to disruptions in the supply of electricity to a significant number of end users.
The courts did not take into account the legal position set out in the definition of the SCEC of the Supreme Court of the Russian Federation of 22.06.2017 № 305-ES17-624, according to which the charge of forfeit on the total contract price without taking into account partial performance of obligations is allowed, in particular, when it is impossible to use and there is no consumer value for the customer of the part provided to him.
The Company believes that the establishment of the balance of reciprocal grants in the case of insolvency of the contractor does not contradict the rules of Article 61.3 of the Law on Bankruptcy, because in the case of balancing there is no such qualifying feature as receiving by the customer any preference – the total amount of money due to the contractor is reduced by its own improper performance of the main obligation, not the customer. The conclusions of the courts to the contrary contradict the existing court arbitration practice, in particular, the legal position set out in the definition of the SCEC from 29.08.2019 № 305-ES19-10075.
Judge: I.V. Razumov
Date of hearing: 14.07.2022
Source: Determination on transfer dated 02.06.2022 in case A40-69663/2017 (305-ES19-16942 (40)