“New plenary of the Russian Federation Supreme Court No. 6 on compensation: everything is good, or are there pitfalls?” — Tatiana Tereshchenko for Zakon.ru

In the Resolution No. 6 of 11/06/2020 "On questions of application of the provisions of the Civil Code of the Russian Federation on the termination of the commitments" (Russian Federation Supreme Court decree No. 6) the Plenary of the Russian Federation Supreme Court provided separate explanations regarding compensation, set-off, novation, forgiveness of debt, impossibility of performance, etc.

As usual, any judicial interpretation is a reason to think, but how does the corresponding construction work and what will and will not change?

In this post, I want to comment on the provisions on compensation, which are devoted to paragraphs 2-9 of the PP VS No. 6.

Paragraph 2. Everything and always + point 9.

First. "The rules on compensation do not exclude that works, services or other provision will be performed as compensation (paragraph 1, article 407 and article 421 of the Russian Federation Civil Code)".

This means that the Plenary of the Russian Federation Supreme Court offered the widest possible understanding of the subject of compensation, using the term "property" in a sense almost identical to the objects of civil rights (article 128 of the Civil Code). This is quite possible, given the ambiguity of the term "property" and the principle of dispositive. According to this logic, everything that is considered a counter-grant can be a compensation (article 423 of the Russian Federation Civil Code).

The question is, does this interpretation create a risk of mixing the compensation with the innovation?

Traditionally, in practice and in doctrine with the "moderate" interpretation of the text of article 409 of the Civil Code ("payment of funds and transfer of other property") subject to compensation recognized a variety of things and rights, in particular, (in)divisible, (not)movable, (not)consumed), the title of the thing without transfer of the item itself, the share in ownership right on a thing different tradable property rights share in the trust company, the right to claim against a third party, the exclusive rights to the intellectual property. With this approach, the difference between the compensation (replacement of performance) and innovation (replacement of an existing obligation with a new obligation – Civil Code, paragraph 1 of article 414) was quite clear and corresponded to the differences in legal structures.

According to the current article 409 of the Russian Federation Civil Code, the legal effect of the indemnity does not occur until the performance is transferred (the concept of the indemnity as a real contract). On the contrary, the legal effect of innovation occurs already by virtue of the conclusion of an agreement (the concept of innovation as a consensual contract). Simply put, the process of creating/acquiring any property to be provided as compensation by the parties is not regulated. Innovation, on the contrary, implies the emergence of independent rights and obligations for the purpose of fulfilling a new obligation.

Clarification from the Plenary of the Russian Federation Supreme Court, it would seem more accurate if the subject of compensation was not specified just "work," "provision of services" (this terminology suggests the emergence of a lasting commitment), and providing the result of works and services (emphasis on all).

You can, of course, recall the previous wording of Civil Code article 409 prior to the amendments to the civil code by Federal law of 8.03.2015 No. 42-FZ, in relation to which in practice of the SCA RF formed approach to settlement and release as consensual transaction that transform a previous commitment in optional and gives the debtor the opportunity to choose which version to provide (item 1 of the Information letter of the SCA Presidium dated 21.12.2005 №102). Also look at item 3 of the Russian Federation Supreme Court decree No. 6 and suspect the Russian Supreme Court of trying to point out that there are no strict and insurmountable boundaries between consensual and real transactions, especially when viewed through the prism of optional and alternative obligations.

At the same time, it is not a question of whether the Russian Federation Supreme Court is right or wrong, but of whether its explanations are accurate, clear and exclude mixing of different constructions.

Thus, since an incorrect phrase may well change the meaning of the agreements (we were thinking about a setback, but concluded an innovation, and vice versa), it is better to check the terminology once again when making an agreement on termination of the obligation, so that the understanding of the parties about how and how the former obligation is terminated coincides.

The full text of the publication can be found here