The Supreme Court of the Russian Federation answered a question, whether it is possible to recognize invalid the contract on which obligations are executed

5 December 2018, Wednesday

As a result of the competition with limited participation, a contract for the supply of food was signed. The winner provided timely cash collateral for the execution of the contract, which, due to a technical error, was replaced by a Bank guarantee. The Bank guarantee was provided the day after the signing of the contract by the parties.

The supplier has fully fulfilled its obligations.

One of the participants of the competition, believing that the customer during the competition violated the provisions of the Federal law of April 5, 2013 № 44-FZ "on the contract system in the procurement of goods, works, services for state and municipal needs" (hereinafter– the Law № 44-FZ), filed a lawsuit to invalidate the competition and the contract. He also petitioned for the application of the consequences of the invalidity of the transaction in accordance with article 167 of the Civil code.

The courts of three instances refused to satisfy the participant's claims to invalidate the competition, pointing to the lack of evidence of violations of Law No. 44-FZ, which could affect the results of the competition and the choice of the winner. In addition, the courts of first and appeal instances have refused satisfaction of requirements about recognition of the contract null and void and application of consequences of invalidity of the transaction. They noted that the winner of the competition did not evade the conclusion of the contract and committed actions aimed at providing adequate security.

 At the same time, the court of cassation did not agree with these conclusions and declared the contract invalid.

However, the Supreme Court took its own position on this issue. So, members of Judicial Board on economic disputes noted that the court of cassation instance, canceling partially acts of courts of the first and appeal instance, actually overestimated conclusions that the General rule on insignificance of the signed contract isn't subject to application in the described case. In addition, the judicial act adopted by the court of cassation did not lead to the protection of the rights of the plaintiff, allegedly violated by the concluded contract, which is executed.

Thus, the armed forces determined to reverse the ruling of the cassation court in part satisfaction of requirements about recognition of the contract null and void.

Document: Determination of The judicial Board on economic disputes of the Supreme Court of the Russian Federation of October 18, 2018 № 305-ES18-6679

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