Latest legal developments shall be taken into account upon calculation and payment of interests.
Federal Act No. 315-FZ of July 7, 2016 has introduced amendments to Part 1 of Article 317 of the Civil Code of the Russian Federation. The amendments entered into force on 1 August 2016. Since Article 317.1 has been submitted to the Civil Code of the Russian Federation (hereinafter referred to as the “Article”) its purpose was not clear. Amendments in force from August 1, 2016 made the content of the article increasingly apparent.
Old wording: “Unless otherwise provided by law or contract, a creditor under financial obligation to which business entities are parties will be entitled to receive interest from a debtor on the amount of debt for the period over which the funds have been used. If a contract does not provide for an amount of interest, it should be determined based on the effective refinancing rate of the Central Bank of Russia in the corresponding periods (statutory interest).
Condition of the liability, stipulating for charging of interest on interests is recognized void, except terms of obligation arising from bank deposit contract or contracts related to the implementation of entrepreneurial activity by the parties".
Part 1 of new wording: Where the law or a contract stipulates that interest be charged on the amount of a financial obligation for the period over which funds have been used, the interest rate should be determined based on the effective key rate of the Central Bank of Russia (statutory interest), unless another rate is set by law or the relevant contract.
Previous wording implied that it is applicable to relations, which all commercial organizations, individual entrepreneurs, as well as non-commercial entities deriving an income are subject. Interest accrual on it was possible only in case of money indebtedness, not any consideration which have a monetary value. The Article shall apply to pecuniary obligations stemming only from treaties.
Nonmonetary liabilities of the parties arising from the Contract which have monetary value (e.g. obligation to deliver the goods against an advance received) might crystallize into money liabilities in certain circumstances. In such cases Article 317.1 of the Civil Code of the Russian Federation can only be fully implemented once the liabilities have become monetary.
Under supply agreement the buyer paid an advance for the first consignment, but the good had not been delivered within the stipulated deadline. Hence the buyer rescinded the contract and sued for restitution of the advance payments. Since the claim for return of an advance had been requested, obligation to deliver the goods translated into monetary obligation, which falls within the scope of Art. 317 of the Civil Code of the Russian Federation. In this case, interest accrual was possible for the period from the date the creditor had requested the claim for return of an advance payment.The rate of interest, contained in Art. 317.1 of the Civil Code of the Russian Federation, was a discretionary rule, i.e. was directly applicable to the relations of the parties, if they have not reached an agreement, or have made in their agreement the gap on this issue.
In case of a breach of a monetary obligation interest on Art. 317.1 and 395 of the Civil Code of the Russian federation (interest on wrongfully withheld funds) might be charged simultaneously. This position was supported by most courts. It resulted that obligor had to pay twice an interest for a single violation, as interest was charged on two articles simultaneously.
The effects of changes
Since the entry into force of the new version of the Article, its application is entirely confined to setting the interest rate in the monetary obligation if interest accrual is provided by law or the Contract, but its amount is not stipulated. In this case amount of the interest is defined by the Bank of Russia key rate.
Besides, charging of interest on interests Is recognized void, with limited exceptions, for instance bank deposit contract (this provision was in the previous version).
As seen above, now effect of the Article is clear and unequivocal.
We cannot guarantee that later, with the emergence of jurisprudence development regarding the Article, experts and judges will find no inconsistency regarding the interpretation of the Article, while new version ultimately will not raise so many questions and misunderstanding of experts concerning its application.
In view of the aforesaid we recommend to specify the amount of the interest on monetary obligation, if interest accrual is provided by law or the Contract, as in the absence of such specifying, in compliance with Article 317.1 of the Civil Code of the Russian Federation interest rate will be set in accordance with the Bank of Russia key rate.