A dispute
with a counterparty
settled out of court

A company concluded a supply contract and transferred a prepayment. The supplier shipped part of the goods but never delivered the rest. In reply to letters and calls, it said that the delivery was delayed, but gave no dates and did not offer to return the money for the goods not delivered.

The head of the company wanted to go to court straight away. But before choosing a course of action, it was necessary to establish what the documents confirmed: what delivery date had been agreed, how much had been paid and shipped, and whether the contract provided for a contractual penalty and set out a procedure for resolving disputes.

If the seller has received a prepayment and has not transferred the goods on time, the buyer is entitled to demand the transfer of the goods paid for or the return of the money (Article 487(3) of the Russian Civil Code). This is a rule on contracts of sale, and it applies to supply contracts unless the specific rules provide otherwise (Article 454(5) of the Russian Civil Code).

First, the documents were gathered: the contract with its specifications, payment orders, delivery notes, and correspondence by email and in messaging apps. A single table was drawn up showing what had been paid for, what had been received and when the rest of the delivery should have arrived. The correspondence included letters in which the supplier itself acknowledged the delay.

Next, a claim letter was prepared. In addition to the return of the prepayment, a contractual penalty or interest on that amount may be claimed, depending on the terms of the contract (Article 487(4) of the Russian Civil Code, Article 395 of the Russian Civil Code). The claim letter included:

The claim letter was sent to the supplier’s address in the Unified State Register of Legal Entities, and a copy was sent to the email address given in the contract. A letter is deemed delivered even when the addressee has not received it for reasons within its own control (Article 165.1 of the Russian Civil Code).

Within the time allowed for a reply, the supplier got in touch. It did not dispute the debt, but cited a shortage of working capital and offered to repay the money in instalments. The negotiations concerned the timing, the size of the payments and the consequences of late payment. Whether to agree to instalments was for the client to decide, after comparing this option with how long court proceedings and enforcement of the judgment would take.

The arrangement was not left as a spoken understanding: the parties signed an agreement on the procedure for repaying the debt. The law allows parties to determine such terms themselves (Article 421 of the Russian Civil Code). If such an agreement amends the contract, as a general rule it is made in the same form as the contract itself (Article 452(1) of the Russian Civil Code). The agreement included:

Actions by a debtor that show acknowledgement of the debt interrupt the limitation period: after the interruption, it starts to run afresh (Article 203 of the Russian Civil Code). And the amount of the debt is now recorded in a document signed by the supplier itself – this will be useful if the schedule is not kept.

The dispute was settled without going to court. The parties set out the procedure for returning the prepayment, and the client retained the right to sue if the supplier does not perform the agreement.

Disputes in the commercial court over the recovery of money under a contract are subject to a mandatory pre-action claim procedure: a lawsuit may be filed once 30 calendar days have passed since the claim letter was sent, unless the law or the contract sets a different time limit or procedure (Article 4(5) of the Russian Commercial Procedure Code).

In other commercial disputes, a claim letter is mandatory only if the law or the contract so provides. If a mandatory procedure has not been followed, the court will return the statement of claim or leave the claim without consideration – and time will be lost.

Negotiations and a counterparty’s promises do not in themselves stop the limitation period from running. The general limitation period is three years (Article 196(1) of the Russian Civil Code), so it is best not to delay the claim letter, even if the counterparty promises to sort everything out.

Oral promises are hard to prove. New deadlines, amounts and the consequences of late payment are best put in writing, in a separate agreement signed by authorised persons. A reconciliation statement is also useful, but it is no substitute for an agreement on a payment schedule.