Contract disputes: when the retention of penalties will be recognized as unfair behavior

In March 2021, two construction organizations signed a contract agreement under which the contractor organization was to perform finishing work in a new residential building in Krasnogorsk, Moscow region. The works had to be handed over and paid in stages, minus a reservation in the amount of 5% of the price of the works. The amount of the reservation was to be transferred to the contractor after the completion of the entire scope of work and the signing of the final act under the contract.

Initially, both sides faithfully executed the contract, but in August 2021, problems began. The customer began to pay for the work performed with a delay and in an incomplete volume, so that by September the debt to the contractor amounted to 1.5 million rubles.

The contractor turned to the SC “Yurproekt” for help in resolving the situation. The lawyer of the Collegium, Daria Tretyakova, who has extensive experience in contract disputes in Moscow and the Moscow region, agreed with the contractor on further actions - the preparation of a claim and subsequent appeal to the Arbitration Court of Moscow. At the same time, on the recommendation of a lawyer, 5% (the amount of the reservation) was not included in the composition of the claims, since the final act under the contract was not signed at that time.


Just a few days before the date of the first hearing in the case, a counterclaim was received from the defendant to the plaintiff - about the payment of penalties for violation of the deadline for the completion of work under the contract. At the preliminary court hearing, the defendant stated that he should not repay the debt because:

• he has deducted the penalties accrued by him from the payments due from him, which is expressly permitted by the contract;

• according to the contract, the contractor had to hand over the executive documentation to the customer, and there is no evidence of its transfer.

In response to such arguments of the defendant, the lawyer of the Collegium prepared a number of counterarguments, including:

• based on the general meaning of the contract, the deduction of penalties should be made not from the entire amount of the contract, but from the amount of the reservation. Since within the framework of this process, the plaintiff did not ask to recover the amount of the reservation, nothing can be withheld from the claims;

• sending a claim by the defendant for the recovery of penalties before the date of the court session is an abuse of the right;

• by itself, the signing by the defendant of the COP-2 acts and COP-3 certificates confirms the contractor's fulfillment of all obligations under the contract, including the transfer of executive documentation.

Additionally, the lawyer also pointed out the illegality of the accrual of penalties, since the customer himself committed violations during the transfer of the place of work (construction readiness for finishing work was not provided), and subsequently evaded signing the final act of work.


In making the decision, the court agreed with the arguments about the dishonesty of the defendant's behavior, and also took into account that the amount of the reservation was not included in the claims. The court also pointed out that the defendant did not provide “evidence of the impossibility of using the result of the work performed without executive documentation”, therefore, the argument about non-transfer of executive documentation is unfounded.

Unfortunately, the judge did not consider the merits of the issue of the validity of the recovery of penalties from the contractor, indicating only that it may be the subject of a separate trial.

As a result, thanks to a well-thought-out legal position, the decision of 14.03.2022 from the defendant in favor of the client of the SC “Yurproekt” collected 1.5 million rubles, and also formed a favorable prejudice for further litigation. At the moment, the decision has entered into force.


A number of important conclusions can be drawn from this case, which are applicable to other contract disputes, including:

• sending a counterclaim by the defendant and withholding the amounts of penalties after the initial claim is accepted for court proceedings may be qualified as an abuse of the right;

• by itself, the contractor's failure to fulfill the obligation to transfer the executive documentation is not a reason for non-payment of work. The customer must prove that it is impossible to use the result of the work without this documentation.
  
  

Link to the judicial act on the case

Author

Daria Vladimirovna Tretyakova

Head of representative office in Moscow