“Company Requests Penalty Reduction. How to Strengthen the Application for Court Approval” — article by Arltan Tserenov and Natalia Demidova for “Corporate Lawyer” Magazine
You'll learn: which arguments work when citing Article 333 of the Civil Code.
If a company faces monetary claims, preparing a strong defense against the plaintiff's arguments isn't enough. Confidence in being right can backfire if the company fails to timely request penalty reduction, leading to full penalty enforcement. Even when certain there's no debt, use a fallback option — immediately request penalty reduction. This doesn't acknowledge debt but mitigates potential negative consequences. In this article, senior attorneys Natalia Demidova and Arltan Tserenov from Prime Advice Law Offices analyze which arguments courts accept and which to avoid. Find a sample motion at the article's end.
File a Separate Motion Instead of Including It in the Response
Requesting penalty reduction in the response to the lawsuit or making an oral motion are common mistakes companies make in litigation. While not legally prohibited, this approach often reduces the court's engagement with the arguments. A separately filed motion has higher approval chances. Simply citing Article 333 of the Civil Code is insufficient nalty reduction, leading to full penalty enforcement. Even when certain there's no debt, use a fallback option — the motion must present specific arguments and factual circumstances. Without this, courts deem the motion improperly filed [A40]. References to "disproportionality" without evidence or criteria also get rejected [A55].
For example, one company's first-instance penalty reduction argument failed because they merely quoted Article 333 in a document request motion without mentioning reduction in the petition or providing justification. They realized the omission only during appeal nalty reduction, leading to full penalty enforcement. Even when certain there's no debt, use a fallback option — too late nalty reduction, leading to full penalty enforcement. Even when certain there's no debt, use a fallback option — resulting in over 500,000 rubles penalty enforcement. Cassation upheld this: the company missed its chance to invoke Article 333 [A56].
Passive Litigation Strategy as Another Mistake. Companies facing penalty claims needn't wait for trial to request reduction. They can proactively file a lawsuit to determine the penalty amount while requesting Article 333 application. Previously, courts often mistakenly dismissed such claims as premature, but the Supreme Court mandated their consideration [A56].
Timing Matters — First Instance Only. The penalty reduction motion must be filed during first-instance proceedings. Miss this window, and reduction becomes legally prohibited [Civil Code]. Courts interpret this strictly — if filing was objectively possible but unused, higher instances won't reconsider.
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A40: Ruling of Moscow District Commercial Court dated 05.12.2024 in case No. A40-78555/2024
A55: Ruling of Volga District Commercial Court dated 04.06.2024 in case No. A55-24083/2022
A56: Ruling of Northwestern District Commercial Court dated 02.12.2024 in case No. A56-102265/2023
SC: Clause 20 of Supreme Court Practice Review No. 3, approved by SC Presidium 25.11.2020
CC: Clause 1 Article 333 of Civil Code