In crisis, it is more profitable to pay

Companies and individuals may have to pay double for late performance and ignoring of court judgments during crisis as compared to the situation before it. The respective interest “in the existing economic situation” may be compounded not at the refinancing rate (8,25%) as established by the Civil Code but at the Central Bank key rate (17%). The first judgment of that kind was issued by the court last week.

The judgment by the Court of Arbitration of the Altay Territory dealing with the dispute of PivCom Group LLC, which exacted the debt under a supply agreement from entrepreneur Konstantin Podyapolsky, was published last week. The claim was filed in October, but PivCom corrected the claim by the court session on January 19. When the Central Bank raised the key interest rate to 17% in December, leaving the refinancing rate at 8,25%, the claimant requested exaction of interest from the respondent in the case of non-performance of the court act at the rate of 17%, erroneously using the term “discount rate” instead of “key rate”. However, the court did not pay too much attention to the error. Claiming the “existing economic situation in the country”, the court agreed to adjudge the increased interest from the moment of entry of the judgment into force until the moment of actual debt repayment at the key rate of the Bank of Russia exactly.

Such approach is contrary to Article 395 of the Civil Code of the Russian Federation (CCRF). The Article determines the right to demand interest for the use of alien funds at the discount interest rate of the banks (the refinancing rate) as of the date of filing of the claim or of passing of the judgment (unless otherwise specified by law or contract). The Plenum of the HCA of Russia, on April 14 of 2014, also instructed to use the refinancing rate of the Central Bank for calculating the interest for non-fulfillment of court judgments, while allowing their increase in the case if the parties are able to give substantial grounds for that.

Partner of the Law Firm "YUST" Alexander Bolomatov believes that the court practice may yet change. He is of the opinion that, to the contrary, the interest rate that is closest to bank deposits should be applied. According to Mr. Bolomatov, the other courts may also follow the example of such approach, because “the current economic situation makes many people search for the ways to recover the funds not received on time” and which lost some of the value due to the devaluation of the rouble. A.Bolomatov says: “The application of the CCRF Article is not an end in itself. Rights must be protected and losses compensated. Therefore, the solution that fully restores the claimant’s position, like as if the claimant took the money to the bank and received the income, is the debtor’s proportionate liability”.