Breach of contract or refusal to perform

When is it legal to unilaterally terminate a contract?

A unilateral refusal to fulfill obligations is possible if there are grounds provided for by law, another legal act or agreement, in accordance with Articles 310, 328, 450.1, 451, 709, 717, 782 of the Civil Code of the Russian Federation, etc. The possibility of refusal depends on the status of the parties and the need to justify the reasons.

There is an unmotivated (with explanation of reasons) and a motivated (without explanation of reasons) refusal.

Lawful unmotivated refusal: Refusal of a lease agreement for an indefinite period (clause 2, Article 610 of the Civil Code of the Russian Federation); Refusal by the customer of a contract for the provision of paid services with reimbursement of the contractor's expenses (clause 1, Article 782 of the Civil Code of the Russian Federation); Refusal of a contract for work with payment for work performed and damages (Article 717 of the Civil Code of the Russian Federation); etc.

Contractual unmotivated refusal: may be specified in the agreement between entrepreneurs (clause 2 of Article 310 of the Civil Code of the Russian Federation). If there is only one party entrepreneur, the right to refuse is granted to its counterparty.

Reasoned refusal: Failure to fulfill a counter obligation or its obvious impossibility (clause 2 of Article 328 of the Civil Code of the Russian Federation), material breach of contract (Article 450 of the Civil Code of the Russian Federation), i.e. often when the counterparty breaks the contract; Other circumstances: For example, refusal of a contract due to a significant increase in price (clause 5 of Article 709 of the Civil Code of the Russian Federation), some other changes in circumstances (Article 451 of the Civil Code of the Russian Federation); But refusal is impossible if the party has previously confirmed the validity of the contract (clause 5 of Article 450.1 of the Civil Code of the Russian Federation).

The above lists are not exhaustive. It is also impossible to refuse an already executed contract!

When is it illegal to unilaterally refuse to perform a contract?

In all other cases, i.e. except for cases where it is legal. Art. 309 of the Civil Code of the Russian Federation generally obliges to fulfill one's obligations. If a contract is concluded, the parties are obliged to comply with it. Typical situations of contract failure:

1. Violation of deadlines:

• The supplier failed to deliver within the specified time frame, the contractor failed to complete the work on time, or the service was not rendered within the agreed time frame.

2. Poor quality workmanship:

• The delivered goods or completed work do not meet the requirements of the contract, technical specifications or quality standards.

3. Unilateral refusal without grounds:

• A party terminates the performance of the contract without notifying the counterparty and without citing legal grounds or terms of the contract.

4. Non-payment or partial payment:

• The customer refuses to pay for completed work, delivered goods or rendered services, citing alleged violations.

5. Failure to fulfill reciprocal obligations:

• For example, the customer did not provide materials, access to the site or approvals, which prevents the contractor from fulfilling the contract.

Consequences of breach of contract or refusal to perform:

Failure to comply with a contract or unjustified refusal to perform it entails the following legal consequences (non-exhaustive list):

1. Recovery of damages:

• In accordance with Article 393 of the Civil Code of the Russian Federation, the party that suffered from the breach of contract has the right to demand compensation for damages, including actual damages (expenses incurred) and lost profits (lost income).

• To recover damages, it is necessary to prove the fact of the violation, the amount of damages, the cause-and-effect relationship and the guilt of the debtor.

2. Collection of penalties:

• If the contract or law provides for a penalty (fine, penalty), the creditor has the right to collect it on the basis of Article 330 of the Civil Code of the Russian Federation. To do this, it is sufficient to prove the fact of violation and the presence of a penalty condition.

• The court may reduce the penalty if it is disproportionate to the consequences of the violation (Article 333 of the Civil Code of the Russian Federation).

3. Termination of the contract:

• In case of a material breach, the contract may be terminated at the initiative of one of the parties (Articles 450, 450.1 of the Civil Code of the Russian Federation), in court or out of court.

• Termination entails the return of what has been performed (for example, the return of an advance payment or property).

4. Fulfilment of an obligation in kind:

• The creditor may demand actual performance of the obligation on the basis of Article 308.3 of the Civil Code of the Russian Federation, if this is possible and not related to the personal relations of the parties.

5. Inclusion in the register of unscrupulous suppliers (RNP):

• In the event of a failure of a government contract, the contractor or supplier may be included in the RNP in accordance with Article 104 of Federal Law No. 44-FZ, which limits participation in government procurement for two years.

Legal mechanisms of protection

In the event of a breach of contract or refusal to perform, the injured party may use the following protection mechanisms (this is not an exhaustive list):

1. Pre-trial settlement:

• Submitting a claim: The party sends a written claim indicating the violations, requirements (for example, to fulfill an obligation, pay a penalty) and the deadlines for their fulfillment. The claim procedure is mandatory if it is provided for by the contract or law (for example, Article 95 of Federal Law No. 44-FZ).

• Negotiation: The parties may conduct negotiations to resolve the dispute or conclude an additional agreement.

• Mediation: Involvement of an independent mediator to resolve the conflict, if provided for in the contract or agreed upon by the parties.

2. Trial:

• Filing a claim in an arbitration court (for disputes between legal entities or individual entrepreneurs) or a court of general jurisdiction (for disputes involving individuals).

• The main requirements are: recovery of damages, penalties, fulfillment of the obligation in kind, termination of the contract or recognition of the refusal as invalid.

• The plaintiff must prove the existence of an obligation, the fact of a violation, the amount of damages, or the existence of a penalty clause.

3. Security measures:

• The court may seize the debtor’s property or funds, prohibit registration actions or suspend the contract to prevent damage (Article 90 of the Arbitration Procedure Code of the Russian Federation).

4. Appeal to the FAS:

• In the event of a government contract failure and the threat of inclusion in the RNP, the contractor may contact the Federal Antimonopoly Service to challenge the customer’s decision.

5. Arbitration (arbitration court):

• If the contract provides for an arbitration clause, the dispute is referred to an arbitration court. This is possible if there is an agreement between the parties and the conditions for the transfer of the dispute are met.

Legal support

To effectively protect your rights in the event of a breach of contract or refusal to perform, it is recommended to engage a lawyer specializing in contractual disputes. Legal support includes:

• Analysis of the situation and the contract: Assessment of the legal position, identification of violations and grounds for claims.

• Preparation of documents: Drafting claims, statements of claim, and petitions for interim measures.

• Collection of evidence: Preparation of reports, correspondence, expert opinions and other documents confirming the position of the party.

• Representation in court or FAS: Protection of interests in judicial and administrative procedures.