Why do courts not recognize unilateral refusal, when a company repudiates a contract?

11 November 2024

We want to discuss, why Russian courts take a negative position in situations, where a company unilaterally refuses to fulfill its obligations under a contract.

The main reason of the fact, why courts do not recognize the refusal is that the grounds for the refusal are insignificant. The courts demonstrate the approach: the breach must be material, even if the contract does not expressly say so. The courts take this approach in order to curb the abuse of companies who pick on minor things and try to make it a ground for repudiation of the contract. However, according to practice, such minor violations do not affect the performance of the contract and the result. We assume that withdrawal from a contract is an extreme measure that should be applied in proportion to the breach.

We recommend you assess the risks before you decide to repudiate the contract. Namely, look at whether the grounds you consider to be reasons for repudiation are material breaches. We advise you to look at:

  • repetitiveness of the breach;
  • unrecoverable without substantial costs;
  • loss of economic purpose of the transaction.

Moreover, it is important to pay attention that if you send the other party a notice of rejection, you needn’t to continue working with them. For example, 3 instances noted that despite the buyer's rejection of the contract due to late payment, the buyer still continued to accept the goods. The supplier believed that the situation, which had arisen through his fault, had been resolved and the contract was valid. The Arbitration Court of the Urals District supported the supplier's claim and invalidated the rejection.

In addition, as a unilateral withdrawal from the contract, the courts accept not only a written notice, but also any legal facts demonstrating the termination of the contract, it may be the revocation of a power of attorney or a claim for the return of the advance payment. However, court practice is ambiguous. We suppose that if you want to avoid such problems, it will be better to be forerightand express a desire to withdraw from the contract.

As soon as the party has received a notice of refusal, the contract loses its force. Moreover, the court may consider the contract terminated if the notice came by mail and the person ignored it.

We advise you to keep all evidences of sending notices both by post orby email. Postal services have a useful function for confirming a message. It may be very helpful. In addition, do not forget that chats in messengers can be deleted, so it is better to make a screenshot.

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