In this article, we will explain what we believe ambiguous term provisions may be read by a court not in favor of either party and what we believe is the best way to supplement such provisions.
Indicative time limits
Including a provision on an indicative term, it should be remembered that such a term is not a limit, often the courts believe that the term is not defined at all and Article 314 of the Civil Code of the Russian Federation applies. It is necessary to send a demand to the counterparty to fulfill the contract with such wording and only after 7 days it will be possible to calculate the penalty.
In the case below the approximate term was 2 months from the date of prepayment. The buyer did not demand the goods until six months after the prepayment. The court said that four months after the deposit and before the demand for performance could not be liquidated damages because the time limit was not defined. Also in another case, the term was defined as «± 45 days», the court considered the term not agreed and referred to Article 314 of the Civil Code of the Russian Federation, indicating that the stitching will occur seven days after the issuance of the demand for execution.
— The Decree of the Twentieth AAC of 25.01.2024 in case No. A62-10294/2022
— The Decree of the North-Western District Court of 26.01.2024 in case No. A56-31371/2022
The majority of courts believe that the seven-day period should be counted in calendar days.
— Eleventh AAC of 21.11.2023 in case No. A65-7415/2022
— Third AAC of 28.08.2023 in case No. A33-23134/2022
— Decision of the Moscow Region AAC of 14.03.2024 in case № A41-99993/2023
But if seven days fell on long holidays, the court may side with the contractor, justifying it by long non-working days.
— The Decree of the Twelfth AAC of 07.12.2021 № A57-13201/2021
— Decree of the Thirteenth AAC of 21.07.2023 in case No. A42-1496/2023
Time zone
We recommend to remember that the calculation of the time zone (in transactions with counterparties from another time zone) may be regulated by law — for example, rail transportation is assigned to the time zone of Moscow. Courts argue that this is a defense against abuse.
In the absence of exceptions, the courts will look at the place of conclusion of the contract, but not, for example, the place of unloading the goods.
— Decision of the Moscow City Court of Arbitration of 21.12.2023 in case No. A40-226529/2023
In the case below, the contract was concluded in Ekaterinburg, the Supplier was located in Kemerovo and the Buyer in Moscow.
— Decision of the Seventh AAC of 30.01.2024 in case No. A02-680/2023
In the decision of the Supreme Court below, the dispute was about the determination of the time of settlement under the contract for the sale of electricity. The Supreme Court pointed out that in the absence of a definition of time in the contract — the buyer would not have accepted in negotiations disadvantageous to himself, and also pointed out that the appeal and cassation groundlessly accepted the argument that Moscow time — the usual practice of such transactions.
— Decision of the Supreme Court of 24.01.2024 in case No. A57-12089/2022
Dependence of the payment term on the actions of third parties
Often the inclusion of third-party actions in the payment term, for example, payment terms after resale, may entail risks due to different understanding of the term clause by the courts.
Thus, the Supreme Court explicitly allows this type of legal relationship, and the majority of courts also support the view that the term has been agreed and that premature demand is inadmissible. Also, the courts may require confirmation that the Buyer does not avoid the sale of goods (in the case of payment after resale).
— Ruling of the Ninth AAC of 29.02.2024 in case No. A40-202115/2023
However, some courts interpret such a provision of the contract is not as inevitable and apply Art. 314 of the Civil Code of the RF and the seven-day term.
— Decree of the Central District Court of 20.12.2023 in case No. A83-26649/2022, AS Volgo-Vyatsky District Court of 12.04.2023 in case No. A38-5816/2021