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The performance from year to year

Priority of freedom of contract on the agenda of the Supreme Commercial Court

 Objective

Our client, a leading Russian provider of integrated GPS / GLONASS based security services, signed a sales contract: the client bought the business with a view of consolidation with his own assets and subsequent sale of the consolidated company. Under the terms of the contract, our client was granted a payment deferral period of six months, to provide sufficient time to sell the consolidated company. The sale fell through, but the client’s counteragent refused to take back his business, insisting on payment. Importance of the situation was the fact that the client was not interested in the acquisition of business in itself. It was only acquired for the sole purpose of consolidation with the client’s other businesses and subsequent sale of the consolidated group. The counterparty was fully aware of our client’s motives and objectives for the acquisition. Our goal was to achieve compliance to the agreement, ensuring that our client does not need to pay several million dollars for a business that he is no longer interested in. 

Resolution

Basis of the freedom of contract doctrine, we were able to interpret the terms of the contract in the interests of our client. We were able to systematically and clearly convey to the court the business context of the dispute and the importance of the objectives pursued by the parties when entering into the contract. The case was heard by the Presidium of the Supreme Commercial Court of the Russian Federation and has set a precedent. Referring to the principle of freedom of contract, the Presidium for the first time pointed out that agreements must be adhered to in a way that they are fixed in a contract. Parties should not be able to use the discretionary provisions of the law for the violation of their agreement. 

Result

The victory has allowed our client to stay in business, since the payment amount, that was unfairly claimed by the opponent, could have bankrupted our client’s business.

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