The Supreme Court will decide whether the authorities can terminate the agreement with the contractor if the requirements of the law change

The Supreme Court of the Russian Federation will decide whether the authority can terminate the agreement with the contractor if the requirements of the law change. We are talking about contracts for the evacuation and storage of vehicles. These functions are assigned to regional authorities, but they may involve contractors. The Ministry of Transport of the Krasnodar Territory has concluded an open-ended contract with an individual entrepreneur. But then regulations appeared that limited the period to five years and required tendering. The individual entrepreneur refused to change or terminate the contract, the courts supported him. Following a complaint from the authorities, the case was transferred to the Economic Collegium of the Supreme Court. Lawyers say that it is necessary to take into account the nature of the contract and the vesting of the executor with the functions of authorities.

The Supreme Court of the Russian Federation (SC) will consider the case on the possibility of terminating a government contract if the conditions for its conclusion have changed by law. In 2015, the Ministry of Transport of the Krasnodar Territory signed open-ended agreements with individual entrepreneur (IP) Roman Ilyin on organizing the movement of detained vehicles to a special parking lot, their storage and return. Such evacuation of vehicles is provided in case of a number of violations of the rules of operation, use and control of a vehicle (for example, stopping or parking in the wrong place).

In March 2019, changes were made to the regional law, according to which contracts for special parking should be concluded for a maximum of five years and only based on the results of bidding (auction to reduce the price). After this, the local FAS department issued a warning to the Ministry of Transport in July 2020, seeing signs of a violation of the law in the current situation. In connection with the change in the law and in order to avoid further claims, the Ministry of Transport invited Roman Ilyin to reconsider the terms of the contracts or terminate them, but the individual entrepreneur refused.

In September 2022, the ministry filed a lawsuit to terminate the contracts, but the courts sided with the individual entrepreneur, deciding that since the contracts were concluded before the amendments, which do not have retroactive effect, the contracts do not need to be adjusted. The courts also did not see any grounds for terminating the contracts, since the individual entrepreneur did not violate his obligations. In addition, the plaintiff missed the three-year statute of limitations after the amendments entered into force.

Krasnodar authorities filed a complaint with the Supreme Court, arguing that contracts with individual entrepreneurs should be qualified as contracts for the provision of gratuitous services that can be terminated unilaterally by notifying the counterparty. Despite the absence of such a notification to Roman Ilyin, the ministry believes that going to court “unambiguously indicated the intention.” The interests of the entrepreneur will not suffer when the contracts are terminated, since “he is not deprived of the opportunity to take part in the auction” on an equal basis with others. Officials rejected the argument that the statute of limitations had passed, considering it possible to cancel open-ended contracts at any time.

Based on these arguments, the case was transferred to the Economic Collegium of the Supreme Court, the hearing was scheduled for April 17. There is no uniform practice in such cases; they have not been considered by the Supreme Court, clarifies antimonopoly lawyer Natalya Pantyukhina.

“The dispute is interesting because the Supreme Court will formulate a legal approach to the issues of termination of contracts, taking into account changes in the legal requirements for their conclusion,” says Mikhail German, partner at the Varshavsky and Partners law firm. They, in his words, “are typical specifically for the regions, since such issues are largely resolved at the federal level.”

In addition, “it is interesting how the board will evaluate the argument about the expression of the will of the party to terminate the contract” if a notice of refusal was not sent to the contractor, but a claim was filed, emphasizes Orchards partner Alexey Stankevich: “This approach invites the courts to understand the basis of the dispute more broadly and approach resolution of claims as a means of resolving disagreements between the parties as a whole.”

Mr. Stankevich notes that, according to Art. 422 of the Civil Code of the Russian Federation (Civil Code), a change in the law in the absence of a clause on the retroactive effect of the amendments does not affect the terms of previously concluded contracts. According to Mikhail German, this is an omission of the regional legislator – when changing the law, it was necessary to “give the new norms a retrospective nature” or clarify the conditions for changing or terminating already signed contracts in order to avoid disputes.

According to lawyers, most such situations are not resolved through negotiations and end up in court. The essence of the Ministry of Transport’s proposals to individual entrepreneurs “probably boiled down to terminating contractual relations for some compensation and freeing up hands for an auction under the new law,” believes Natalya Pantyukhina.

The reluctance of individual entrepreneurs to terminate the contract is understandable; “often for small entrepreneurs such a contract is one of the main sources of income,” explains Mr. German. Moreover, the contractor understands that “when bidding, his chances of re-concluding the contract are greatly reduced,” since competitors can offer a lower price, the lawyer clarifies.

According to Alexey Stankevich, if we consider the concluded contract as an agreement for the provision of services, then, as a general rule, the customer can refuse the contract unilaterally with the condition of “paying the contractor for the actual expenses incurred.” In addition, Mr. German believes, the authority could ask for termination of the contract under Art. 451 of the Civil Code “in connection with a significant change in the circumstances from which the parties proceeded when concluding the contract,” namely legal regulation.

According to Natalya Pantyukhina, it is important what exactly the contract was concluded about, and “if the contract actually transfers the functions of an authority, in this case public interest prevails over purely civil relations,” that is, “the process of selecting a contractor must be transparent.” This presupposes holding a tender, adds Ms. Pantyukhina, but concluding such a contract “without a deadline and without a competitive procedure is incorrect,” so the dispute must be resolved “mainly based on these premises,” and “the Supreme Court must determine whether the operators of special parking lots perform public functions.”

Anna Zanina, Jan Nazarenko