Debt Recovery and Guarantee Retention Release under a Construction Contract

Case Profile

The Background

Our Client (the Contractor) and the Customer entered into construction contract No. 43P/09 on September 16, 2013. Under the contract, the Contractor undertook to perform electrical installation works for the renovation of non-residential premises located at Varshavskoye Shosse, 9, bldg. 1, Moscow, while the Customer agreed to accept and pay for the completed works.

The works, totaling 6,372,009.89 RUB, were fully completed and accepted via completion certificates without any deficiencies or objections. However, the payment was only partial: the Customer transferred 6,212,709.64 RUB, withholding 2.5% of the total cost (159,300.25 RUB) as a guarantee retention.

According to the contract terms, the guarantee retention period was set at 24 months from the signing date of the final completion certificate (December 26, 2013). Consequently, the obligation to release and return the withheld amount matured on December 28, 2015.

The Contractor sent a formal pre-trial demand requesting the return of the guarantee retention, which the Customer ignored. Since pre-trial negotiations yielded no results, the Contractor filed a lawsuit with the Moscow Arbitration Court to recover the debt, legal representation fees, and court costs.

Client Risks

The main risk for the Contractor was the potential loss of the 2.5% guarantee retention, despite having fully and properly performed all contractual obligations.

The return of the funds depended on the Customer’s discretion, as the contract formally tied the release to the expiration of the warranty period and the absence of claims. Crucially, the parties had not agreed upon a template or form for the "warranty operation acceptance certificate," creating additional legal ambiguity.

There was a high risk that the Customer would continue to evade payment, and the court might rule that the payment obligation had not yet matured due to the lack of this formal document. This exposed the Contractor to financial losses on legitimately earned revenue.

Our Strategy & Legal Support

KDpartners lawyers conducted a comprehensive legal analysis of the contract terms and established that the withheld amount was overdue for return upon the expiration of the warranty period, rendering the Customer's refusal completely baseless.

To support the claim, we presented the following evidence to the court:

• The construction contract and signed completion certificates without any remarks;
• Cost and works valuation certificates indicating the 2.5% guarantee deduction;
• Payment orders confirming that the main portion of the contract value had been paid;
• The Contractor's formal pre-trial demand with proof of delivery to the Customer.

The litigation strategy relied heavily on Articles 309 and 310 of the Civil Code of the Russian Federation regarding the proper performance of obligations and the inadmissibility of unilateral modification. Additionally, we cited Article 724 of the Civil Code to define the commencement of the warranty period from the date of work acceptance.

We argued that the absence of a mutually agreed "warranty operation acceptance certificate" did not affect the obligation to return the retention, as the works were accepted in full and no quality claims had been made by the Customer during the entire 24-month warranty period.

The Outcome

The Moscow Arbitration Court ruled entirely in favor of our Client. The court ordered the recovery of the following from the Defendant (the Customer):

• 159,300.25 RUB — principal debt under the construction contract;
• 15,000.00 RUB — legal representation fees;
• 5,779.00 RUB — state court filing fee.

The court recognized that the Contractor had properly performed the works and demonstrated that there were no legal grounds to keep the guarantee retention after the warranty period had expired. The decision was made under simplified proceedings and was subject to immediate enforcement.