The question of the admissibility of charging interest on a penalty

In the issue of the journal "Bulletin of the Federal Arbitration Court of the North Caucasus District" (No. 2 (16) 2014) there was published an article by Konstantin Serdyukov, the head of the private law practice of National Law Company “Mitra”.

Analysis of the practice of arbitration courts applying the norms of Art. 395 of the Civil Code of the Russian Federation, which provides for the payment of interest for the use of other people's money, makes it possible to single out two tendencies: the desire of participants in civil turnover to protect their property interests by charging such interest on the amount of penalties recovered or to be recovered, and the courts establishing a sustainable practice of refusing such claims. At the same time, the argumentation of judicial acts on refusing to collect interest accrued on the forfeit amounts can hardly be recognized as convincing. In this regard, it seems relevant to study the question of the validity of this approach.

Explaining the provisions of paragraph 1 of Art. 395 Civil Code, the highest courts indicate that this provision provides for the consequences of non-fulfillment or delay in the performance of the monetary obligation, i.е. obligation, by virtue of which the debtor is obliged to pay money. Therefore, the norms of Art. 395 of the Civil Code do not apply to the relations of the parties, if they are not connected with the use of money as a means of payment, means of repayment of the monetary debt, including liabilities where the money is used not as a means of repayment of the money debt (joint Resolution of the Plenums of the Supreme Court and the Supreme Arbitration Court RF of 08.10.1998 No. 13/14 "On the practice of applying the provisions of the Civil Code of the Russian Federation on interest for the use of someone else's money" (hereinafter - Resolution No. 13/14)).

APPLICATION OF JUDICIAL ACTS FOR REFUSAL IN DIFFERENT PERCENTAGES ACCRUED TO THE AMOUNT OF INSTABILITY, BUT LIKELY MAY BE RECOGNIZED BY CONVINCING

Thus, one of the conditions determining the admissibility of charging interest on a penalty is the recognition of the relationship for the payment of a penalty monetary obligation. Starting from this provision, courts often refuse to satisfy the requirement to charge interest on the penalty on the grounds that it is not a monetary obligation but represents a way to ensure the fulfillment of obligations.

Meanwhile, such an argument seems unconvincing. The fact is that the very unstable attitude (as well as the debtor's obligation to pay it) can`t be a way of ensuring the fulfillment of the obligation, since the ratio for payment of a penalty arises only with a violation of the basic obligation, then, when there is nothing to provide. In this regard, we should agree with the assertion that the security function is performed by the penalty arising from the penalty agreement or the rule of law that establishes a lawful penalty, the threat of payment of a penalty, and not actually the ratio for the payment of a penalty.

Obligatory nature of the relationship to pay a penalty at first glance is not in doubt, since in this respect, one subject has the obligation to pay a penalty, and the other has the right to demand payment. In judicial practice, this relationship is also recognized as an obligation. In particular, the mandatory nature of the relationship for payment of penalties is emphasized by the Presidium of the Supreme Arbitration Court Russian Federation in reviews of the practice of applying art. 141 and Chapter 24 of the Civil Code.

However, the qualification of the relationship for the payment of a penalty as a liability can`t be considered indisputable. Of the art. 307 Civil Code of the legal characteristic of the obligation relationship, it follows that one of the features of the obligation is the certainty of the action that the debtor is obliged to commit, or from which it should abstain. In this connection, the literature emphasizes that the content of the obligation is always determined, starting from the moment of its occurrence. On the contrary, the content of the relations of reparation and compensation, including the relationship on the payment of a penalty, is not at all throughout its existence can be recognized as certain.

 Indeed, at the time when the faulty debtor becomes liable for payment of a penalty, the amount of this obligation can`t be regarded as certain for the reason that the penalty payable, if it is manifestly disproportionate to the consequences of a breach of an obligation, can be reduced by the court on the basis of Art. 333 CC. In addition, by virtue of paragraph 1 of Art. 404 Civil Code the court can reduce the penalty in the event that the breach of the obligation is due to the fault of both parties.

Thus, the ratio of payment of a penalty becomes mandatory only at the moment when its amount is unquestionably determined.

Certainty of the amount of forfeit can be achieved either by a court decision or by agreement of the parties. It is the judicial act on the recovery of a penalty or the actions of the parties, indicating that they have agreed on the subject the payment of the amount (for example, the recognition by the debtor of the creditor's claim, the signing by the parties of the act of reconciliation of mutual settlements), entail the transformation of the ratio of payment of a penalty to a monetary obligation. In this regard, the refusal to satisfy the requirement for the accrual of Art. 395 Civil Code of interest for the use of other people's funds on the amount of the penalty not confirmed by the court or by agreement of the parties, motivated by the fact that the monetary obligation to pay the forfeit didn`t arise, seems quite justified.

ATTITUDE RELEVANT TO COMPLY WITH A FAILURE TO OBTAIN THE OBLIGATORY CHARACTER AT ONLY THE MOMENT WHEN THEIR SUM

This approach is fairly applied by the courts and in other cases of uncertainty of the amount payable, for which interest is claimed. In particular, courts refuse to collect interest under art. 395 CC for violation of the lessor's obligation to compensate the tenant for the value of inseparable improvements, with reference to the fact that prior to the determination by the parties or the court of the cost of improvements, the monetary obligation of the lessor did not arise. Conversely, in cases where the court places an obligation on the side to compensate for damage in money or the obligation to pay monetary compensation is established by agreement of the parties, the higher judicial instances indicate the appearance on the beneficiary's side of a pecuniary obligation to pay a sum specified by the court or agreement of the parties, the delay in the performance of which is the basis for charging for this amount of interest stipulated in Art. 395 Civil Code (clause 23 of Resolution No. 13/14). In a number of decisions of the Presidium of the Supreme Arbitration Court of the Russian Federation, the approach is broadly formulated: in the event of non-enforcement of a judicial act providing for the collection of a monetary sum, the interest provided for in Art. 395 Civil Code.

The monetary nature of the relationship to pay a forfeit can hardly be questioned. It is due to the legal definition of forfeit as the amount of money established by law or the contract, which the debtor is obliged to pay to the creditor in case of non-fulfillment or improper performance of the obligation (clause 1, Article 330 of the Civil Code). However, in the legal literature an opinion is expressed about the admissibility of the existence of a so-called commodity (real, non-monetary) penalty. Without going into the discussion, we should note that we are closer to the approach according to which such a legal design is an independent way of ensuring the fulfillment of an obligation in the law and should not be considered a penalty in the sense of Art. 330 Civil Code.

Another reason for refusing to meet the requirement to charge interest on the penalty is often a reference to the fact that the obligation to pay a penalty is an accessory (additional) obligation, the accrual of interest on which the law does not provide.

This motivation also seems unconvincing. The classic manifestations of accessory security obligations are the accessory occurrence, the accessory volume of the requirement; accessory to following the main requirement; accessory termination; accessory in terms of the possibility of enforcement. Apparently, such a manifestation of the accessory nature of the obligation, as the inadmissibility of calculating interest in the event of a debtor's malfunction in an additional obligation, does not stand out as a doctrine. In civil law, there is no prohibition on calculating interest in case of violation of an accessory monetary obligation. Article 395 of the Civil Code provides for a general rule that for the use of other people's money, interest is payable on the amount of these funds and does not contain exceptions for cases of the use of funds as a result of the delay in the performance of ancillary obligations.

Materials were taken from "Vestnik of the Federal Arbitration Court of the North Caucasus District."