Supreme Court adheres to the principle of freedom of contract in currency disputes. Comment by Julia Andreeva for

18 May 2017

Fluctuating exchange rates is a painful topic in recovering debts. Someone will definitely be in the black. And, perhaps, unjustifiably. The Supreme Court adheres to the principle of freedom of contract and develops it in its practice. Recently it was done by the economic chamber in the dispute between the bank and the guarantor. Conclusions of the "troyka", as well as the opinion of lawyers are both provided by "".

Ivan Rykov, senior partner of the law firm Rykov Group, has enumerated the following main problems for courts emerging out of the rate dynamics:

- how to determine the currency of payment when rendering a judgment,

- how to count a penalty for a currency obligation,

- what to do with the arrest on the debtor's money, when the amount of recovery is given in foreign currency, and the recovery is made against a ruble account.

One way or another, these issues are now settled by judicial practice (see, in particular, Information Letters of Supreme Commercial Court No. 70, No. 163). However, there are still some gaps. For example, in 2016 the Plenary Session of the Supreme Court have excluded from the final version of the decision of "On some issues of application of general provisions of the Civil Code on obligations" the provision on the operation of the currency clause after the termination of the contract. This rule allowed to collect money in the current currency even after the termination of the transaction.

This issue remained open, but in the winter of this year in the Review of Practice the Supreme Court has put an end to another urgent problem. They explained that the risk of exchange rate fluctuations is to be taken by the foreign currency borrower. This logic in the current month has been continued by the Chamber on Economic Disputes of the Supreme Court. It also made a dictum as to one more particular aspect of currency disputes - when the interests of the creditor and the guarantor collide during the bankruptcy of the main debtor (A40-231538/2015).

The difference can be different

Alfa-Bank issued a loan to the company "Ltech" in euros. The guarantor was company Lifting Technologies Region. She also undertook to pay in foreign currency. Then "Ltech" was declared bankrupt. The bank's loan claim were included in the register, but in rubles (7.6 million rubles). In the law on bankruptcy there are special rules on the procedure for transferring foreign currency into rubles (Paragraph 4, Clause 1, Article 4). Guided by them, the bank has fixed the foreign currency debt at the rate as of introduction of the observation.

But in parallel, Alfa-Bank went to court to demand a loan from a guarantor. The courts satisfied its claim, but then certain disagreements. The debt was collected in rubles, not as requested by the plaintiff - in euros. The logic of the courts was that the guarantor's liability was limited to the amount in the register of claims of the bankrupt borrower "Ltech" (that is, 7.6 million rubles). The opposite, as noted by the appeal, "puts the guarantor in a knowingly disadvantageous position in relation to the principal borrower."

The Chamber of the Supreme Court on economic disputes categorically disagreed with this. In its decision there is the following conclusion:

... the definition of monetary claims against the debtor in the ruble equivalent in the register of creditors' claims does not change the guarantor's obligations and does not put it in a disadvantageous position vis-à-vis the principal borrower, taking into account that the exchange rate difference can take both negative and positive values.

The change by the courts in the currency of the payment of the guarantor (established by the contract) contradicts the meaning of the security obligation, stated the "troyka" and sent the dispute for a new consideration. The chamber interpreted the rules of bankruptcy law (that the obligations of the debtor shall be fixed in rubles) as special only for the debtor, but not for the guarantor, comments Artyom Kukin, partner at Infralex.

Theoretically, a new examination of the case may give the guarantor an advantage if the exchange rate against the ruble decreases. Although a sharp drop in foreign currency happens rarely, lawyers admit. But, even so, they support the position of the Supreme Court.

Yes, economically, such a decision may not seem quite fair, says Olga Yasko, partner of KPMG's legal practice in Russia and the CIS: "After satisfying the creditor's requirements, the guarantor will be involved in the bankruptcy process and will be able to claim only the amount that was fixed by the court at the date of introduction of the procedure Insolvency ". However, as pointed out by the economic chamber, it is necessary to take into account the reverse situation - when the currency rate falls and the fixed debt in the register will be greater. Putting such a risk on a guarantor is not an exclusive feature of the Russian law and order. This trend is typical for many European jurisdictions, Yasko draws attention.

"If we theoretically imagine that no bankruptcy process of the borrower was initiated, then, consequently, the bank could claim more", - supports the Supreme Court decision Julia Andreeva, head of projects at S&K Vertical Law Firm. That is, she says, that the lower courts effectively set the fate of the amount of the guarantor's debt subject to recovery as under a condition.

Towards the freedom

The problem of dealing with currency reservations is related to the application of the principle of freedom of contract, says Artem Kukin. In his opinion, now the Supreme Court uses it more and more widely. This manifests itself not only in disputes over lease relations, but also in the affairs of currency mortgages and microloans at high interest rates. A vivid example of the latter is where the Supreme Court supported the condition of the loan agreement that the interest rate was 730% per annum. See "700 per cent Interest Per Annum and the Freedom of Contract: Microcrediting Market in Russia"

Now in the judicial practice the following criterion has been outlined: courts assess the currency clauses proceeding from the principle of freedom of contract standpoint, Kukin sums up. See "FTS, FAS, Currency Disclaimer and Bankruptcies: Lawyers Discussed Litigation 2016" The invalidity of a transaction may entail only, for example, a significant breach by a bank of the obligation to inform the client of the risks associated with the conclusion of a transaction. "However, this may relate rather to complex transactions, the essence of which is poorly understood by a non-professional participant," Kukin notes.

By Alina Mikhalyova


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