27.08.2020 — Supreme Court Limited Freedom of Contract in Limitation of Liability Clauses
In one recent case the Supreme Court found that a customer’s limitation of liability clause cannot affect willful breaches of the contract. The Supreme Court reversed the lower courts’ judgments, which rejected the contractor’s claim to recover interest for late payment under Article 395 of the Russian Civil Code, although liability of the customer for payment delay was fully excluded by the contract.
The Supreme Court concluded that a contract may not contain a clause on total exclusion of liability of a customer for the breach of its obligations (including late payment). Interest under Article 395 of the Russian Civil Code in case of late payment may in principle be excluded in a contract, but such exclusion would not apply in cases where the late payment is intentional.
In the case considered by the Supreme Court, the construction contract stipulated that in case of late payment the contractor was not entitled to claim interest from the customer under any circumstances. According to the Supreme Court, the contractual clause on total exclusion of liability must be considered void (if the obligor is totally relieved of any liability) or must be construed in conjunction with the provisions of Article 401(4) of the Russian Civil Code as not extending to the cases of willful breaches. At the same time, the willful character of a breach is presumed, therefore the obligor bears the burden of proving that the breach was not intentional (see Ruling of the Supreme Court dated 14.07.2020 No. 306-ЭС20-2351 on case No. А65-11516/2019).
The Supreme Court came to a similar conclusion earlier in disputes over the terms of a bank guarantee (see Ruling of the Supreme Court dated 11.06.2020 No. 305-ЭС19-25839 on case No. А40-231971/2018).