As we previously informed, on December 29, 2015 the Moscow Commercial Arbitration court recognized the ruble devaluation to be reasonable grounds for amending a lease agreement concluded in foreign currency by satisfying claims of PAO Vympel-Kommunikatsii against PAO Tizpribor (case No.А40-83845/15). 

As expected, on March 28, 2016, the Ninth Commercial Arbitration Court of Appeal cancelled the decision of the first instance court and on March 29 its reasoning was revealed. 

Following the approach established in court practice, the appeals court once again highlighted that currency exchange rate fluctuations do not comprise sufficient grounds pursuant to the law leading to the right to amend a lease agreement through a judicial procedure. When entering into an agreement, the parties should forecast the economic situation and cannot rule out the possibility that the ruble exchange rate will drop dramatically during the term of the agreement. 

Moreover, the appeals court noted that this lease agreement has a provision concerning the possibility to change the rental fee only on the grounds provided by the agreement and by mutual agreement of the parties, but not through a court procedure initiated by a party. 

When making the decision on the landlord’s bad-faith behavior and abuse of its rights, the court of first instance did not specify how this bad faith displayed itself, considering the landlord’s right to expect that the tenant will perform the terms and conditions of the agreement which were mutually agreed by the parties. 

The panel of appellate judges did not recognize the decision of the court of first instance to be reasonable regarding the landlord’s unjustified profit in the form of the rental fee which exceeded the market value. 

The court reasonably noted that freedom of contract allows the parties entering into an agreement to ensure a relevant provision on changing the amount of the rental fee, depending on inflation, currency rate fluctuations and other factors. 

We should note that the Decree of the Ninth Commercial Arbitration Court of Appeal can be disputed within a term of two months. We will inform you on the progress of this case.

Elena Stepanova  Partner                                Moscow   estepanova@cls.ru   Tel.: +7 (495) 970 10 90

Natalya Gegechkory   Associate                Moscow     Tel.: +7 (495) 970 10 90

Additional notes

Should any questions arise in connection with the above or if you need any additional materials, please contact Elena Stepanova or Natalya Gegechkory, Moscow Office of Capital Legal Services.

This Information letter keeps the clients of Capital Legal Services and other interested parties abreast of information that may, to any extent, affect their activity or cater to their particular interests. The opinions and commentaries expressed in this information letter shall not be deemed as legal opinions and do not cancel the need to obtain legal advice or legal opinion on separate issues.