Chief financial officer
A new tool called astreinte has recently appeared in Russian compliance practices. The term derives from the French “l’astreinte” and Latin “adstringere” and means “enforcement”. Who can force business partners? What for? And by what methods? Darya Moskvina, Acsour’s Chief Financial Officer, told the “Raschet” magazine about this tool.
Astreinte is a compensation payment for the delay in the execution of a judgment. Such payment, in contrast to court fines, is paid not to the state, but to the person in whose favour the judgment was issued. It turns out that this is a measure of administrative liability that can be applied by judges to speed up the execution of a judgment, as well as to compensate the creditor for waiting too long.
Liability for non-performance of obligations in kind may be established by the court on the basis of clause 1 of article 308.3 of the Civil Code of the Russian Federation. This rule is quite new in Russian law and has been in effect since June 1, 2015. It should be noted that such sanctions have been successfully applied in other countries for a long time, for example, in France this legal institution appeared at the end of the XIX century.
The main special features of astreinte include several characteristics. The major purpose of the astreinte is timely execution of a judgment. Using this tool, the execution of a judgment for the defendant should be more advantageous compared with evasion from it.
Apart from this, astreinte can be imposed only by judges. However, the creditor can influence the amount of the astreinte by justifying its position on the amount offered to them.
The principles for assigning the amount of an astreinte are justice, proportionality, and the prohibition of benefit from unfair practice. Interest on the basis of article 395 of the Civil Code of the Russian Federation is not accrued on this amount. Payment of the astreinte does not release the debtor from fulfilment of the main obligation under the judgment.
In cases where the debtor is unable to execute the judgement within the prescribed time limit for reasons beyond control, it has the right to apply to the court for granting instalment or deferral of execution of the judgement.
At first glance, astreinte should be very useful and effective tool for a creditor. But always there is a fly in the ointment. And in the case of astreinte, its fundamental defect is the vagueness of the criteria for determining the amount of compensation for waiting for the execution of a judicial act on a non-monetary claim. That is, the judges do not have guidelines and clear rules on how and on what scale to determine the amount of astreinte. However, based on the analysis of relevant judicial practice, it is possible to determine some of the amounts that the creditor recovers from the debtor. For convenience, we have shown them in Table 1.
|The debtor did not hand over the automobile||5,000 rubles for each day of non-execution of a judgment||500 rubles||Appellate ruling of the Khabarovsk regional court dated April 15, 2019 in case No. 33-2555/2019|
|The debtor evaded bringing the residential premises to their original condition||300,000 rubles within a month from when the judgement enters into force and 100,000 rubles – on a monthly basis||30,000 rubles and 10,000 rubles, respectively||Appellate ruling of the Perm regional court dated February 27, 2019 in case No. 33-1975/2019|
|The former management of the bankrupt company did not transfer the documents to the bankruptcy manager||100,000 rubles for the first week of non-execution of a judgement, 200,000 rubles for the second week, 300,000 rubles for the third one, etc.||1,000 rubles for each day of non-execution of a judgment||Resolution No. F05-23530/2018 of the Commercial (‘arbitration’) court of the Moscow District dated January 31, 2019|
|The debtor was assigned with the obligation to eliminate the defects of works under the construction contract for overhaul of buildings’ facades free of charge||3,000 rubles for each day of non-execution of a judgment||3,000 rubles for each day of non-execution of a judgment||Resolution No. F03-5256/2018 of the Commercial (‘arbitration’) court of the Far Eastern District dated December 5, 2018|
|The debtor evaded the transfer of a maze of documents — from contracts and orders to staffing charts and certificates of inventory||15,000 rubles for each day of non-execution of a judgment||1,500 rubles for each day of non-execution of a judgment||Resolution No. F01-1267/2019 of the Commercial (‘arbitration’) court of the Volga-Vyatka District dated April 23, 2019|
Some courts also consider it necessary not only to reduce the requested court penalty, but also to limit its amount, which makes the total amount of the court penalty less. As a result, the amounts adjudged in the absolute majority of cases do not meet the purpose of the astreinte, which, let me remind you, is to encourage the debtor to voluntarily fulfil the obligation, i.e., to return property, transfer documents, eliminate defects of works, and not to pay a certain amount to the creditor.
Nevertheless, the popularity of the application of “court penalty” is increasing these days. Let us turn to the most interesting cases in which an astreinte was applied, and analyse the practice of its application.
As I mentioned earlier, often the amount of the astreinte is too small to motivate the debtor to execute the decision of the judges timely. However, there are also opposite cases, such as the decision of the court of the Moscow District in case No. A40-51715/18 (Resolution No. F05-5450/2019 dated May 6, 2019), which imposed a huge amount of court penalty to be recovered on the practice of application of this tool.
The bank, which retained the original writ of execution, was adjudged to pay 31,828,723 rubles weekly until the day of actual execution of the judicial act (which was 1% of the amount to be recovered on the basis of the writ of execution). It is noteworthy that the Supreme Court supported the initial decision of the commercial (‘arbitration’) court (Ruling No. 305-ES19-11632 of the Supreme Court of the Russian Federation dated August 2, 2019 in case No. A40-51715/2018) and refused to transfer the case to the judicial board for economic disputes, since “the courts came to the correct conclusion that the defendant’s unfair and illegal actions in not returning the writ of execution prevent the enforcement of the judicial act, which causes infliction of damage to the plaintiff and its creditors”.
The second interesting case demonstrates the possibility of reducing the astreinte based on the general rules of the Civil Code of the Russian Federation. In case No. A40-66152/2014, the bank’s shareholders (foreign companies) managed to get the court to oblige the credit institution to provide information and certified copies of documents. However, the bank did not execute a judgement for a long time, and therefore the shareholders applied to the judges with a statement for recovery of a significant court penalty. Trial and appellate courts considerably reduced the amount, as a result of which the bank was debited an astreinte in the amount of 63,350,000 rubles in favour of the shareholders.
The bank applied to the court with a statement to reduce the amount of the penalty based on the rate of 3,000 rubles per day. The courts of the first and cassation instances agreed that the court penalty in the amount adjudged does not meet the principles of justice and proportionality and is aimed at deriving profit for foreign companies. In view of this, the courts reduced the amount of the astreinte by more than three times – to 16,792,000 rubles.
In this case, the Supreme Court of the Russian Federation disagreed with the position of the lower-level courts, appealing to the fact that the criterion of proportionality in the case of a court penalty is determined based on the degree of resistance of the debtor in execution of the obligation and, consequently, is adjudged in order to the debtor as soon as possible fulfils the judgment. However, the judges did not provide evidence that the adjudged amount of the penalty contributes to the receipt of unjustified profit by creditors. In addition, the courts did not justify the recovery of a court penalty in the amount of 3,000 rubles per day (Ruling No. 305-ES15-9591 of the Supreme Court of the Russian Federation dated May 5, 2018 in case No. A40-66152/2014).
Nevertheless, the board specified that according to the Civil Code of the Russian Federation, no one has the right to take advantage of their illegal or unfair practice. Based on the general legal principle of proportionality of liability to the consequences of the violation committed, which is peculiar to all types of legal liability, the court has the right to declare the amount of the recovered court penalty as disproportionate and unjust. However, it is important that this conclusion is motivated.
Therefore, the Supreme Court of the Russian Federation potentially admits the possibility of reducing the court penalty with reference to the general rules of the Civil Code of the Russian Federation, that seems reasonable. Acting as a measure of indirect enforcement, the penalty should first of all ensure a reasonable balance of interests of the parties, but not act as a tool of unjustifiable enrichment of the creditor.
Summing up, I would like to note that for a short period of its law enforcement in the Russian reality, astreinte has firmly entered into civil law relations. Of course, it is necessary to work on improving the rules and regulations for the application of astreinte: the current judicial practice has shown that not more than 1000-2000 astreintes are imposed per year. Specialists attribute this to the following reasons: many courts refuse to apply the astreinte or reduce it to an extremely small amount, not wanting to evaluate something beyond the direct subject of the dispute and make a very subjective value of the imposed penalty.
This implies the need of the revision of the Russian equivalent of astreinte in order to bring the practice in application of it in line with the purpose of this legal institution, effective by its nature.