07.04.2023 — State Duma Will Consider Bill Allowing Russian Courts to Adapt or Terminate Contracts Retrospectively

The Russian State Duma, the lower house of the Russian Parliament, has adopted in the first reading a bill that will allow Russian courts to date back court-mandated contract termination or contract adaptation to a past effective date. If adopted, the bill will resolve a number of practical problems. For instance, it will allow courts to release a party from liability for an already committed contract breach by adapting the contract to new circumstances, for example where the breach occurred because a foreign party became unable to supply goods to Russia.

According to the explanatory note to this bill, the bill aims to protect parties who have breached a contractual obligation due to fundamental change of circumstances. Failure to execute works due to lacking supplies from a foreign party is provided as an example.

There are currently many court cases where an official distributor or a subsidiary of a foreign manufacturer fails to supply goods due to foreign sanctions. In these circumstances, the supplier may request a Russian court to adapt or terminate the sales contract due to fundamental change of circumstances based on Article 451 of the Russian Civil Code. Previously, Russian courts were hesitant to apply this Article in such cases. However, over the past year the courts have granted similar claims of suppliers by reference to Article 451 of the Russian Civil Code in a number of cases.

However, as of now, the Russian Civil Code only allows Russian courts to terminate or adapt contracts for the future (with effect on the day when the court judgment enters into force). This makes it impossible to release suppliers from liability for any delay which has already occurred before the court judgment was entered. The bill at hand seeks to resolve this specific problem by expressly allowing Russian courts to amend and terminate contractual obligations retrospectively, eliminating liability for the already committed contract breach.

By now, the bill has been adopted in its first reading by the State Duma (see passport of the bill).