On July 22, 2021, the Constitutional Court of the Russian Federation rendered ruling No.  40-P upholding a legal position that changes existing law enforcement practice. Business entities will now be able to get losses from inflation compensated if court awards are not enforced for a prolonged period. This ruling sets out a timeframe for indexation of awarded amounts and allows companies to use this mechanism without waiting for the adoption of a federal law.

Article 183(1) of the Russian Code of Commercial Procedure currently provides that commercial courts of first instance may, at the claimant’s request, index awarded amounts on the date of enforcement in cases and in the amount provided by federal law or an agreement.

Constitutional Court Ruling No.  40-P dated July 22, 2021 has declared Article 183(1) of the Russian Code of Commercial Procedure unconstitutional as it specifies no criteria to complete the indexation it provides for, and there is no effective legal regulation of the mechanism for indexing the amounts recovered by courts. The Constitutional Court noted that it appears from law enforcement practice that the absence of federal law or contractual conditions providing for such indexation often serves as grounds for not satisfying claims for indexation. So, in such cases, when a court order is enforced late by a debtor, the claimant incurs losses from the depreciation of the awarded amounts.

The Constitutional Court has bound the federal legislator to amend the current legislation, in particular, Article 183(1) of the Russian Code of Commercial Procedure so that commercial courts will be able to index awarded amounts. Until these amendments are introduced, if agreements provide for no conditions and amount for indexing awarded amounts, commercial courts will have to use the consumer price index specified on Rosstat website to index awarded amounts.

The Russian Ministry of Justice has already drawn up a draft federal law to amend Article 183 of the Russian Code of Commercial Procedure. Under the new rules, commercial courts will be able at the claimant’s or debtor’s request to index awarded amounts for the period from the date of court award or the date on which payment must be made as per the award to the date of court award enforcement. In such case, the official consumer price index will be used for such indexation, and the indexation criterion set out by the Constitutional Court ruling will not change.

The parties to an agreement may, at their own discretion, set an indexation rate much greater than the official consumer price index. However, the period of indexation may not be changed by agreement of the parties.

According to the bill, only federal law can provide for a different indexation period. An exception to the general rule for determining the indexation period is made when claiming for budget funds (Article 183(1.1) Russian Code of Commercial Procedure). In such case, indexation will not start before expiration of the deadline for court order enforcement which is three months from the date of receipt of enforcement documents for execution (Article 242.2(6) Budgetary Code of the Russian Federation).

Our recommendations and support

When drafting contracts, we recommend closely reviewing whether indexing using the official consumer price index will cover the company’s losses in case of delay in enforcement of court orders, or whether it would be worth proposing another indexation rate. Should you encounter any difficulties, our financial consultants and lawyers would be happy to help you considering all key risks when concluding contracts.