By virtue of the principle of freedom of contract (Article 421 of the Civil Code of the Russian Federation), a settlement agreement may contain any conditions not contrary to the law or other legal acts. At the same time, the APC RF establishes an exhaustive list of grounds, in the presence of which the arbitration court refuses to approve a settlement agreement, namely:

  • conflict of the settlement agreement with the law;
  • infringement by the settlement agreement of the rights and legitimate interests of other persons.[1]

When considering the issue of approval of the settlement agreement, the arbitration court has the right to propose to the parties to exclude from the settlement agreement certain terms that contradict the law or violate the rights and legitimate interests of other persons. At the same time, the arbitral tribunal shall not have the right to approve the settlement agreement in part, change or exclude from it any terms agreed by the parties.[2]

Consequently, the inclusion by the parties to the amicable settlement agreement of terms contrary to the law or violating the rights and legitimate interests of other persons entails the arbitration court’s ruling to refuse to approve the amicable settlement agreement.[3]

A settlement agreement not approved by the arbitration court does not create legal consequences in the case, as it expresses only the parties’ intention to conclude it, which is not realized in the manner established by the APC RF.[4].

Given that the APC RF contains an exhaustive list of grounds for refusal to approve a settlement agreement, any condition of the settlement agreement recognized by the arbitration court as inadmissible should be considered as contrary to the law or violating the rights and legitimate interests of other persons.

The analysis of court practice allows us to highlight the most typical cases when arbitration courts refuse to approve amicable agreements due to non-compliance with the above requirements to their content.

1. Inclusion in the settlement agreement of conditions beyond the subject matter of the dispute

The parties may agree on the inclusion in a settlement agreement of provisions that have not been the subject of court proceedings, but only on condition that such provisions are related to the claimed claims. [5] For example, the parties may include in the settlement agreement a condition that the defendant undertakes to pay the debt not only for the period stated in the statement of claim, but also for another period that was not the subject of the court proceedings.[6] Such a provision of the settlement agreement is related to the stated claims, and therefore may be included in the settlement agreement.

If in the settlement agreement the parties resolve issues that are not related to the subject matter of the dispute and are not related to the plaintiff’s claims, the arbitration court will refuse to approve the settlement agreement. For example, in a case concerning the invalidation of an agreement on the termination of a lease agreement for land plots and the application of the consequences of its invalidity, arbitration courts of all instances that considered the case recognized the terms of the amicable agreement on the renewal of the terminated lease agreement, the exclusion of a part of the land plots from the agreement, and the plaintiff’s obligation to pay unjust enrichment for the actual use of the land plots as being beyond the scope of the claimed claims and unrelated to the claimed claims.
Arbitration courts also refuse to approve amicable agreements that contain terms regarding the rights and obligations of the parties that are the subject of other arbitration disputes. According to the position of the Arbitration Court of the North-Western District, with which the Supreme Court of the Russian Federation agreed, the current procedural legislation allows for the conclusion of an amicable agreement only in relation to one case (all or part of the claims asserted in its framework), therefore, the approval of an amicable agreement relating to the rights and obligations of the parties to contracts that are considered in other arbitration cases is inadmissible.[8]

2. Inclusion of suspensive conditions in the settlement agreement

The settlement agreement must meet the criterion of enforceability. The terms of the settlement agreement must be clear, precise and definite so that there are no ambiguities and disputes over its content during its execution, and the settlement agreement itself must be enforceable, taking into account the rules on enforcement of judicial acts.[9]

Inclusion of suspensive conditions in a settlement agreement is a particular case of non-compliance with the enforceability criterion. Thus, the Supreme Court of the Russian Federation supported the conclusion of the Arbitration Court of the Moscow District that it is inadmissible to include in the text of a settlement agreement the features of a transaction under a condition (Art. 157 of the Civil Code of the Russian Federation), as it is not known whether the relevant condition will occur, which casts doubt on the actual execution of the settlement agreement.[10] The same position is formulated in the ruling of the Arbitration Court of the Urals District.[11] The same position is formulated in the ruling of the Arbitration Court of the Urals District.

A settlement agreement may not be concluded under the condition that one of the parties performs any act, may not contain options for its execution and must in principle be enforceable.[12]

3. Inclusion of a waiver of claim in a settlement agreement

Partial or full waiver of the claim is an independent result of reconciliation of the parties, in addition to the settlement agreement (Article 138.6 of the APC RF). In this regard, the settlement agreement cannot contain only a waiver of claim, as in such a case there is a substitution of one method of dispute settlement for another. According to the position of the Supreme Court of the Russian Federation, a settlement agreement providing for only a complete waiver of the plaintiff’s claim is contrary to the requirements of the law, as well as the meaning and objectives of the settlement agreement. The actions of the parties to submit to the court for approval of such a settlement agreement substitute a unilateral dispositive action of the plaintiff to abandon the claim.[13]

At the same time, the inclusion in the settlement agreement of a condition on the plaintiff’s full or partial waiver of the claimed claims is not in itself a ground for refusal to approve it by the arbitral tribunal.[14] Waiver of claim may be one of the legal elements of the settlement agreement directly related to the settlement of the dispute. In this case, the waiver of the claim must be conditioned by the presence in the settlement agreement of provisions explaining such a waiver. Thus, when concluding a settlement agreement, the parties are entitled to provide for a condition of full or partial waiver of the claim as an element of mutual concessions.

4. Inclusion in the settlement agreement of a condition on refusal to file new claims in the future

Conclusion of a settlement agreement entails the final termination of a civil-law dispute. In this regard, the subsequent raising of new claims in court from the same legal relationship is not allowed (regardless of whether such a claim arose from the main or additional obligation).[15]

Consequently, the parties may record in the settlement agreement a waiver of future filing of new claims directly or indirectly related to the dispute under consideration, including claims for payment of fines, penalties, damages, etc.[16]

At the same time, the parties to the settlement agreement should avoid using too general wording on the waiver of future “any other claims” or “all other claims”, which may be interpreted as a waiver of future claims to the court, both related to the subject matter of the claim and unrelated (arising from other legal relations). Arbitration courts assess such terms of the settlement agreement as restricting access to justice by waiving the right to judicial protection, which directly contradicts part 3 of Article 4 of the APC RF.[17]

In addition, arbitration courts consider it impossible to waive future claims that have not yet arisen at the time of approval of the settlement agreement and qualify this as an illegal waiver of the right to appeal to the court, while the right to judicial protection is guaranteed by Article 11 of the Civil Code of the Russian Federation.[18]

5. Inclusion in a settlement agreement of conditions on recognizing a transaction or part of a transaction as invalid

The Civil Code of the Russian Federation does not contain norms that would allow participants of civil legal relations to recognize voidable transactions concluded by them. By virtue of Article 166 of the Civil Code of the Russian Federation a voidable transaction may be recognized void only by a court on the grounds established by law. In this regard, transactions may not be invalidated by a settlement agreement.[19]

According to the position of the Presidium of the Supreme Arbitration Court of the Russian Federation, granting the parties to the dispute the right to independently, through the conclusion of an amicable settlement agreement to recognize a voidable transaction contradicts paragraph 1 of Article 118 of the Constitution of the Russian Federation, as well as Art. 1 of the APC RF. 1 of the APC RF.[20] A similar position was formulated by the Supreme Court of the Russian Federation regarding the impossibility to recognize in the text of the amicable settlement agreement as invalid the disputed clauses of the contract.[21].

It is also inadmissible for a settlement agreement to recognize contested transactions as valid, while these transactions have already been recognized by the court as invalid and the consequences of their invalidity have been applied.[22].

6. Inclusion in an amicable settlement agreement of conditions that qualify it as a major transaction or a related-party transaction

The rules on the procedure for major transactions and interested party transactions (Chapters X and XI of the Law on Joint-Stock Companies, Articles 45 and 46 of the Law on Limited Liability Companies) shall be applied to the amicable settlement agreement to which a business company is a party.[23]

When approving a settlement agreement, the arbitration court verifies compliance with the procedure for concluding a transaction (settlement agreement), taking into account the requirements of the legislation on joint stock companies or limited liability companies; establishes the presence or absence in the settlement agreement of signs of a major transaction; verifies whether the major transaction complies with the procedure for its execution; verifies whether the contested transaction complies with the procedure for the execution of interested-party transactions.[24]

Clarification of these circumstances is essential to establish whether the settlement agreement violates the rights and legitimate interests of third parties.

Taking into account the provisions of para. 2 of Art. 166 of the Civil Code of the RF arbitration court has no right to recognize a voidable transaction on its own initiative, and, therefore, has no right to refuse to approve a settlement agreement under the pretext of violation of the legislation on major transactions or related-party transactions, except in cases where there is an obvious abuse, in which we can talk about the nullity of the transaction (in particular, on the basis of Articles 10 and 168 of the Civil Code of the RF). [25] At the same time, the arbitration court, having established the presence of signs of a major transaction or related-party transaction, is not deprived of the opportunity to involve in the case as third parties, not asserting independent claims regarding the subject matter of the dispute, participants or shareholders of legal entities (parties to the dispute who have submitted to the court a settlement agreement), to find out their will regarding the submitted settlement agreement and to determine whether such settlement agreement does not violate the rights of third parties. [26]

Conclusion of an amicable agreement in violation of the relevant rules of approval may entail revision of the judicial act that approved the amicable agreement on newly discovered circumstances on the basis of an application of a participant or shareholder of a business company who did not participate in the consideration of the case where such an agreement was concluded.[27]

Thus, if a settlement agreement includes conditions that qualify it as a major transaction or a related-party transaction, the settlement agreement must be approved in accordance with the procedure provided for by the legislation on joint stock companies or limited liability companies.

Recommendations

When concluding a settlement agreement, the parties should take into account the following:

  • including in the amicable agreement provisions that have not been the subject of court proceedings, it should be made sure that such provisions are related to the claimed claims;
  • it is inadmissible to include in an amicable settlement agreement terms that define the rights and obligations of the parties, which are considered in the framework of other court disputes;
  • it is inadmissible to include in the amicable settlement agreement deferred conditions and (or) variants of ways of execution of the amicable settlement agreement;
  • it is inadmissible to conclude a settlement agreement containing only a plaintiff’s waiver of the claim;
  • waiver of future claims is possible only in respect of claims related to the subject matter of the dispute;
  • waiver of future claims that have not yet arisen at the time of approval of the settlement agreement is qualified as illegal;
  • it is inadmissible for a settlement agreement to invalidate a transaction or part of a transaction;
  • if there are signs of a major transaction or a related-party transaction, the settlement agreement is subject to approval in accordance with the procedure provided for by the legislation on joint-stock companies or limited liability companies.

[1] Part 6 of Article 141 of the Arbitration Procedural Code of the Russian Federation.

[2] Part 8 of Article 141 of the Arbitration Procedural Code of the Russian Federation.
[3] Part 9 of Article 141 of the Arbitration Procedural Code of the Russian Federation.

[4] Resolution of the Presidium of the Supreme Arbitration Court of the Russian Federation of 08.09.2009, No. 17447/08 in case No. A56-45577/2007.

[5] Paragraph 2 of paragraph 13 of the Resolution of the Plenum of the Supreme Arbitration Court of the Russian Federation of 18.07.2014, No. 50 “On reconciliation of parties in arbitration proceedings”.

[6] Ruling of the Arbitration Court of the North-Western District of 11.10.2023, No. F07-14100/2023 in case No. A56-96516/2022.

[7] Ruling of the Arbitration Court of the Volga District of 13.04.2023, No. F06-1869/2023 in case No. A72-8503/2021.

[8] Ruling of the Arbitration Court of the North-Western District of 13.11.2014 in case No. A56-22138/2014, Decision of the Supreme Court of the Russian Federation of 24.02.2015 No. 307-ES15-337 in case No. A56-22138/2014.

[9] Paragraph 3 of paragraph 13 of the Resolution of the Plenum of the Supreme Arbitration Court of the Russian Federation of 18.07.2014, No. 50 “On conciliation of parties in arbitration proceedings”.

[10] Decision of the Supreme Court of the Russian Federation of 29.02.2016 in case No. A40-18733/15.

[11] Ruling of the Arbitration Court of the Ural District of 28.06.2023, No. F09-3220/23 in case No. A76-52268/2020.

[12] Ruling of the Moscow District Arbitration Court of 03.03.2023, No. F05-1881/2023 in case No. A40-211402/2021.

[13] Definition of the Supreme Court of the Russian Federation of 15.06.2023, No. 305-ES23-8775 in case No. A40-211402/2021.

[14] Paragraph 20 of the Resolution of the Plenum of the Supreme Arbitration Court of the Russian Federation of 18.07.2014, No. 50 “On reconciliation of parties in arbitration proceedings.”

[15] Paragraph 20 of the Resolution of the Plenum of the Supreme Arbitration Court of the Russian Federation of 18.07.2014, No. 50 “On reconciliation of parties in arbitration proceedings.”

[16] Resolution of the Arbitration Court of the Moscow District of 07.07.2022, No. F05-10622/2022 in case No. A41-22250/2020, Resolution of the Arbitration Court of the Moscow District of 13.12.2022. No. F05-30692/2022 on case No. A40-61975/2022, Resolution of the Arbitration Court of the Volga District dated 24.03.2022 No. F06-15516/2022 on case No. A55-38105/2019, Resolution of the Arbitration Court of the Urals District dated 04.08.2021 No. F09-2480/17 on case No. A60-14919/2016.

[17] Ruling of the Arbitration Court of the Ural District of 28.06.2023, No. F09-3220/23 in case No. A76-52268/2020.

[18] Ruling of the Ninth Arbitration Court of Appeal of 22.06.2023, No. 09AP-35901/2023 in case No. A40-4821/2023.

[19] Ruling of the Arbitration Court of the West Siberian District of 10.02.2020, No. F04-7796/2020 in case No. A03-1501/2017.

[20] Resolution of the Presidium of the Supreme Arbitration Court of the Russian Federation of 10.09.2013, No. 4392/13 in case No. A65-12338/2012.

[21] Decision of the Supreme Court of the Russian Federation of 18.03.2016, No. 307-ES15-19161(2) in case No. A56-3647/2015.

[22] Ruling of the Arbitration Court of the Volga District of 30.08.2023, No. F06-15761/2022 in case No. A06-2917/2020.

[23] Paragraph 6 of the Resolution of the Plenum of the Supreme Court of the Russian Federation No. 27 of 26.06.2018 “On challenging major transactions and related-party transactions.”

[24] Resolution of the Arbitration Court of the Central District dated 05.05.2023 No. F10-1253/2023 in case No. A08-4307/2020, Resolution of the Arbitration Court of the West Siberian District dated 10.11.2023 No. F04-798/2023 in case No. A03-6148/2021.

[25] Subparagraph 3 of paragraph 10 of the Resolution of the Plenum of the Supreme Arbitration Court of the Russian Federation No. 28 of 16.05.2014 “On Certain Issues Related to Challenging Major Transactions and Related-Party Transactions”.

[26] Ruling of the Arbitration Court of the Urals District of 27.02.2023 No. F09-10346/22 on case No. A60-54522/2021.

[27] Subparagraph 3 of paragraph 10 of the Resolution of the Plenum of the Supreme Arbitration Court of the Russian Federation No. 28 of 16.05.2014 “On Certain Issues Related to Challenging Major and Interested-Party Transactions”.

Court practice Court proceedings