ART DE LEX lawyers successfully defended a client in a decision that is important for the commercial rental market
What initiative can parties take to terminate a contract? Aside from the unilateral termination of a contract, can there be an invitation to negotiate the termination of a relationship? In case number A40-77100/15, the answer to this question cost RUB 450 million, the penalty either party was to pay for early termination.
In 2012, the Nvision Group rented 5.7 thousand square meters in the Kvartal City 535 office building in Moscow. Two years later, the tenant proposed “to consider the possibility of holding negotiations on the early termination of the contract,” and after two weeks, it sent signed supplemental agreements of termination. Kvartal City 535 approved and registered the document, and it stopped the rent. According to one of the terms of the additional agreement, from the moment of signing the act of acceptance of the premises, “the parties have no complaints with each other.”
The plaintiff, Kvartal City 535, did not sign and went to court to collect RUB 450 million. The plaintiff calculated the amount, based on the contractual formula that provided for the remittance of all lease payments not received until the middle of 2017. The plaintiff was convinced that the penalty was a fee for terminating the contract, which the defendant, who had initiated the action, had to pay.
The judge of the Moscow City Arbitration Court, Elena Mikhailova, took a different interpretation of the agreement. According to her, the Nvision Group did not initiate the termination of the contract. The tenant only offered to discuss the possibility of the contract’s early termination. Mikhailova decided that ending the contract was the result of action on both sides, so the penalty should be denied.
Wide and narrow interpretations
Kvartal City 535 filed a complaint against this decision, and on December 9, the troika of the Ninth Arbitration Appeals Court, under the chairmanship of Alexander Tikhonov, considered the case. A lawyer of the lessor said that the court of first instance had interpreted the contract too narrowly. “Termination at the initiative of the parties” may not be only unilateral but also bilateral, the lawyer said. He also complained that the court also had misapplied Article 431 of the Civil Code. This article states that the interpretation of a contract may take into account the conduct of the parties, and according to the representative of Kvartal City 535, the defendant agreed with the plaintiff in the interpretation of the fine. The lawyer revealed that, in 2013, the landlord partly terminated the contract because he had deprived the defendant of the premises and had paid compensation for this. The representative of Kvartal City 535 also pointed out that his client did not endorse the act of acceptance of the premises, and it is only after signing the additional agreement that the document providing that the parties have no claims against each other comes into force.
It is a common practice that, if the lease unreasonably refuses to sign such an act, it is considered as signed, according to the representative of the defendant, Arthur Zurabyan at ART DE LEX. He had a different version of what had happened between the parties in 2013. The landlord said that he would have to provide less space, and the tenant agreed, on condition that he receive compensation of RUB 18 million, the cost of repair to these areas. Kvartal City 535 offered no money in connection with the termination of the contract, and based on the contractual formula, Zurabyan said that he would have had to pay more than RUB 300 million. According to his colleague, Evgeny Shcheglov, at Delcredere, the court that interpreted the initiative too narrowly, but the landlord’s lawyers interpreted it too broadly.
“Initiative is an initiative!” said another lawyer of Kvartal City 535, who did not give his name.
“Why don’t you take the Russian Dictionary by Ozhegov?” said Chairman Tikhonov.
“In fact, the amount in 2013 is a reduction of the fine,” the lawyer continued. “This time, the parties have not agreed on the amount of compensation, so the plaintiff filed a lawsuit.”
“That is not true,” someone whispered from among the defendants.
The troika appeal upheld the court of first instance. The outcome of the dispute is obvious. The document cancelled the contract because it said that all claims are absent, according to Anton Babenko, a partner of Padva and Epstein, In his view, the plaintiff’'s chances were small, judging by the decision of the court of first instance. The parties’ submissions and evidence are described rather sparingly, but the court paid the greatest attention to the interpretation of the disputed concept. Babenko reflected, “I wonder what the higher authorities will decide.”
