Comparative legal study of the application of a civil penalty as an interim measure in Russia and foreign countries

Vronskaya Mariya Vladimirovna PhD in Law Associate Professor at the Department of Private Law of Vladivostok State University of Economics and Service  690014, Russia, Vladivostok, Primorsky Krai, 42 Balyaeva str., sq. 119 m.vronskaya@mail.ru Other publications by this author

The analysis of the legal nature of the penalty, the study of statistical data on its distribution in Russia, as well as the study of the position of higher courts on the issue of its legal nature allowed us to conclude that in Russia the penalty is a widely used legal institution aimed primarily at ensuring the fulfillment of contractual obligations and encouraging counterparties to behave appropriately. The dominant position of the security function of the penalty in our country among its other functions (punitive, compensatory) is noted by experts. Some of them are even inclined to see in the other two functions of the penalty peculiar manifestations of its security function. The institution of a penalty in the civil law of Russia has always been given a lot of attention. O. G. Alekseeva, E. R. Aminov, M. V. Bando , K.A. Grave , V.K. Reicher , M.Ya. Parchment and others were among the first to raise the topic of penalties in their works. From the point of view of B.M. Gongalo and V.K. Reicher, "any penalty has a punitive nature, since it is collected regardless of the presence of losses, and any one, independently or in combination with other measures, serves to ensure the fulfillment of the main obligation" ^[1],[2].

As practice shows, the penalty as an interim measure is in demand not only in Russia, but also in most developed countries, which use it both as an interim measure and as a measure of civil liability. Thus, the appeal to foreign legislation made it possible to point out the rules on the penalty as a way to ensure the fulfillment of obligations in the civil legislation of Austria, Germany, France, Belgium, Luxembourg, Spain, Greece, the Netherlands, Portugal, the Czech Republic, Israel, China, India, etc. The civil codes of these countries contain rules on the penalty as about the interim measure (see, for example: 1336 of the Austrian Civil Code, Articles 339-345 of the German Civil Code, Articles 1229 and 1152 of the French Civil Code, the same articles of the Belgian Civil Code, Article 1152 of the Spanish Civil Code, paragraph 2 of Article 405 of the Greek Civil Code, Articles 1382-1384 of the Italian Civil Code, etc.).

In order to determine the similarity and difference in the regulation of penalties in Russia and abroad, it is important to note the characteristic features of the penalty under the Civil Code of the Russian Federation, which are indicated by domestic civilists. Thus, M.I. Braginsky, V.V. Vitryansky ^{[3, p. 684]}, O.S. Ioffe ^[4] note the following features of a penalty as an interim measure:

1) the information of the counterparties at the time of conclusion of the agreement on the amount of liability that will occur in case of non-fulfillment (improper fulfillment) of the obligation;

2) the possibility of collecting a penalty for the very fact of violation of the obligation assumed by the party under the terms of the contract, in the absence of losses;

3) determination of the amount of the penalty (the conditions for it) at the discretion of the counterparties (the exception is a legal penalty);

4) there is no need for the creditor to prove the fact itself, as well as the amount of losses caused by non-fulfillment (improper fulfillment) of the obligation.

Clarification of the peculiarities in the approach to the legal regulation of a penalty as an interim measure in Russia is greatly facilitated by its comparison in relation to the sanctions function (compensation for losses due to non-fulfillment or improper fulfillment of obligations) regulated by Article 393 of the Civil Code of the Russian Federation.

It is important to note that in Russia the security value of the penalty in relation to damages is of an additional nature, which is manifested by a number of characteristic features:

1) in contrast to the recovery of losses, which is possible only if there are any in reality, as well as from the receipt of lost profits (as a type of loss), which is possible only if the creditor has taken appropriate measures to obtain it, a penalty in Russia is collected regardless of whether the creditor has suffered losses or not. To do this, it is enough to send a claim to the debtor about the need to pay a penalty, as well as to accompany this claim with an indication of actual non-performance or improper performance of the obligation, referring at the same time to the sanction that the parties have established in the contract;

2) if the amount of losses is subject to determination only after non-fulfillment (improper fulfillment) of the obligation has taken place, then the penalty (its size and the grounds for recovery) by the counterparties is stipulated in advance, which increases the risks of adverse consequences for the debtor in the form of property losses. The creditor has the right to collect a penalty at any time, for this it is not necessary to wait for losses to occur and it is not necessary to determine their specific size.

Comparing the norms of the Civil Code of the Russian Federation and Section VI of the French Civil Code ^[5] (hereinafter referred to as the FGC), it should immediately be noted the difference between the wording of the Civil Code of the Russian Federation and the FGC, reflecting the concept of a penalty as an interim measure. The French legislator, unlike the Russian one, understands it as a condition of the contract. At the same time, Article 1226 of the Federal Tax Code contains a "punitive clause", which obliges the debtor in case of violation of contractual conditions in order to ensure the obligation to perform certain actions. This difference between French and Russian civil legislation is indicated by N.A. Sanisalova ^{[2, p. 154]}, who notes that the penalty under the FGC is nothing more than a contractual condition. A characteristic feature of the FGC is that the debtor is obliged to pay it only if he is responsible for the violation committed according to the rules on the grounds of liability. The main purpose of the penalty in France is to release the creditor from the need to prove the amount of losses caused to him as a result of non–fulfillment of obligations, and in Russia – to encourage the parties to properly fulfill obligations, and in case of their violation - to make up for the creditor's property losses, regardless of the amount of losses (in this sense, the norms of the Federal Tax Code and the Civil Code of the Russian Federation are different). The fact that "the penalty clause, based on the terminology of the French legislator, acts as a special way of compensating losses" (Article 1229 of the Federal Tax Code)" is indicated in his fundamental work "General Theory of Obligations" by the French civil scientist E. Godeme ^{[6, p. 114]}.

            The difference between Russian and French civil legislation in the regulation of a penalty as an interim measure is indicated by the ratio of the penalty and the losses incurred by any of the parties to the contract, the procedure for their recovery. In this regard, it is worth noting that the French legislator attaches to the penalty the value of losses calculated in advance in a fixed sum of money (Article 1152 of the Federal Tax Code), that is, the penalty, as such, is used in France instead of losses, serves as a way of compensating them, that is, according to the Federal Tax Code, the amount of losses caused by non-fulfillment or improper fulfillment of obligations is determined in advance by the penalty. According to the approach of the French legislator, enshrined in articles 1142, 1146-1155 and 1611 of the Federal Tax Code, the presence of losses is always the basis for their recovery from the debtor. Enforcement of the obligation in this case does not matter. This statement follows from the norm of Article 1142 of the Federal Tax Code, which determines that "any obligation to do or not to do something is fraught with damages if the debtor does not fulfill this obligation." In other words, in France, the recovery of damages and the initial performance of the obligation in kind are not mutually conditioned.

In Russia, unlike France, losses are paid only if they are not covered by a penalty (Part 1 of Article 394 of the Civil Code of the Russian Federation), that is, according to the general rules, a penalty in Russia is of a set-off nature (a set-off penalty), while an exceptional penalty excluding compensation for losses is rarely used in practice. In addition, under the terms of the contract, according to the Civil Code of the Russian Federation, it may be provided for the payment of damages in full in excess of the penalty or the opportunity to pay a penalty or losses (paragraph 2 of Part 1 of Article 394 of the Civil Code of the Russian Federation).

Comparing the norms on increasing (decreasing) the size of the penalty under the Federal Tax Code and the Civil Code of the Russian Federation, it should also be noted a significant difference, which consists in the possibility provided by the domestic legislator to increase the size of the legal penalty by agreement of the parties, if this is not prohibited by law (paragraph 2 of Article 332 of the Civil Code of the Russian Federation). In France, the law does not provide for such a rule. Comparing the norms of the Federal Tax Code and the Civil Code of the Russian Federation, we also note that in Russia the court can only reduce the amount of the penalty. In this matter, the Russian courts are given a lot of discretion. This, in particular, was pointed out by the European Court of Human Rights in the ECHR Ruling of 13.05.2008 "The Galich case against the Russian Federation".

Comparing the approach of the domestic and foreign legislator to the regulation of the penalty as an interim measure, we note a significant difference, which is that the domestic legislator allows the parties to increase the legal penalty independently, if the law does not prohibit it (Part 2 of Article 332 of the Civil Code of the Russian Federation), and, for example, the French refers this issue exclusively to the competence of the court, where the creditor will have to justify such a decision, provide appropriate evidence, on the basis of which the court will be convinced that the amount of losses is significantly higher than the amount of the penalty ^{[2, p.155]}. It is possible to reduce the legal penalty in both countries only at the request of the debtor and after the relevant court decision.

A distinctive feature of the FGC is that it contains a norm that allows the court, in the absence of losses, to assign a symbolic amount to the debtor to pay the creditor, even in the amount of one euro, as a penalty, taking advantage of the opportunity to reduce it ^{[7, p. 535]}. For comparison: in Russian practice, there are cases when all courts, including the Supreme Court of the Russian Federation (hereinafter referred to as the Supreme Court of the Russian Federation), allow to recover a penalty in the amount of 100 percent of the contract value, without any losses from the party collecting the penalty (Ruling of the Supreme Court of the Russian Federation dated 08.12.2021 in case No. A76-716/2021) .

The analysis also showed that in foreign practice there is a widespread approach according to which the penalty is reduced at the request of the debtor. This approach is accepted by the French and Dutch legislators, who reduce the penalty at the request of the debtor in case of a clear excess of its size, if "justice clearly requires it" (Article 6:94 of the Civil Code of the Netherlands) ^[8].

Based on the approach of the courts of Great Britain and on the norms of English law, the fixed amount paid in case of non-fulfillment of the terms of the contract should be determined as losses agreed in advance by the parties, or as a fine. At the same time, the court has the right to ignore a fixed amount if it is recognized as a penalty. In this case, the "rule against penalty" works - a special form of implementation of the right in English courts. Unlike Russian courts, in the UK, the court, first of all, finds out whether the parties could have foreseen the consequences of non-fulfillment of the obligation and to what extent they could have foreseen it at the time of the conclusion of the agreement. Only on this basis, the court will determine the proportionality of the penalty and the consequences of non-fulfillment of the obligation. Note that such a rule does not apply in Russia. The Russian Civil Code of the Russian Federation in the form in which this rule is enshrined in the legislation of Great Britain and other foreign countries, as well as in the text of Article 74 of the Vienna Convention of 1980 ^[8], does not establish. In Russia, when making any decision, the courts assess a specific situation solely on the basis of facts, without finding out whether the counterparties foresaw the consequences of the breach of obligation at the time of the conclusion of the agreement or not. The Russian court determines the proportionality of the penalty to such consequences based on the circumstances that have already happened, on the proportionality criteria recommended by the highest judicial instances, as well as based on its own assessment of the specific situation. This is one of the key differences in the approach of domestic and foreign law enforcement officers to assessing the adequacy of the penalty condition and resolving disputes about reducing its size.

From our point of view, the most reasonable approach is the approach of the Russian legislator, who makes a decision based on the facts, and not an assessment of the situation from the perspective of its possible foresight by the parties at the time of signing the contract. The reason why the rule on foreseeing the consequences of non-fulfillment of obligations and possible losses is not applied in Russian courts, the civil law doctrine of Russia sees that "you can never foresee anything for sure" ^{[9, p. 169]}, and therefore judicial discretion in this matter is hardly justified.

Based on the above, there are three key differences in the regulation of the penalty as an interim measure in Russia and France:

- firstly, initially in France, the penalty replaces the compensation of losses that were caused to the creditor as a result of non-fulfillment of obligations ("penalty – solid losses"). In France, the penalty is applied instead of losses, and not in addition to them (or in excess of them), as allowed by Article 394 of the Civil Code of the Russian Federation. In this regard, there is every reason to believe that in our country the position of the creditor is much more advantageous, because the law allows him, in case of violation of the obligation, to recover from the debtor not only a penalty, but also losses in excess of the penalty, that is, known restrictions and rules on the exceptional nature of the penalty, unlike paragraph 1 of Article 1152 of the Federal Tax Code of the Russian Law does not install. It follows from this that the Civil Code of the Russian Federation, unlike the FGC, provides for greater variability in the behavior of counterparties under the contract in case of non-fulfillment (improper fulfillment) of obligations, which is determined by the specific situation. At the same time, both in Russia and in France, the lender does not need to prove the amount of losses in order to recover a penalty, which is its advantage;

- secondly, the debtor who has paid the amount agreed upon by the parties under the terms of the contract (compensation for losses caused) is exempt from paying the penalty under the FGC, the creditor no longer has the right to demand it. Accordingly, the payment of the penalty makes it impossible for the debtor to fulfill the main obligation, excluding cases of late fulfillment of the obligation (Article 1229 of the Federal Tax Code). In Russia, this situation is regulated somewhat differently. According to Article 396 of the Civil Code of the Russian Federation, neither the payment of a penalty nor compensation for losses release the debtor from fulfilling the main obligation in kind (by performing exactly those actions that, in accordance with the assumed obligation, are subject to the debtor), unless an agreement or law establishes otherwise. This is the general concept of fulfillment of obligations from the position of the Civil Code of the Russian Federation: a debtor who has improperly fulfilled an obligation cannot be released from liability and is obliged to correct the situation by paying both the penalty provided for by the agreement and to compensate for losses. A debtor who has failed to fulfill an obligation, even in any part of it, is also obliged to compensate for losses. Thus, from the point of view of B.M. Gongalo, in a market economy, "the balance of interests of the parties is preserved", and the creditor has the opportunity to get "an analogue of execution and does not lose anything" ^{[1, p. 243]};

- thirdly, despite the importance of the security function of the penalty, noted by the French doctrine, the penalty under the FGC is, first of all, a way of compensating losses, while in Russia the legislator focuses on the security nature of the penalty, this is indicated by the fact that the norm on it is contained in Chapter 23 of the Civil Code of the Russian Federation "Ways to ensure the fulfillment of obligations", and this clearly indicates the special attention of the domestic legislator to the security function of the penalty and allows us to determine as its main goal – to encourage counterparties to properly fulfill the obligation, and in case of its violation – to compensate for the property losses of the creditor, regardless of the losses caused.

The procedure for collecting penalties and losses in Russia and Germany has significant differences. An analysis of the norms of the German Civil Code (hereinafter referred to as the GSU) ^[10] showed that if losses are caused in an amount exceeding the penalty, then the creditor can make a corresponding claim and recover a penalty equal to the minimum amount of losses, and then add the difference. At the same time, the State State University, unlike Russian (and French) legislation, does not give the court the right to collect a penalty on its own initiative. Earlier it was noted that in Russia, the court cannot initiate a reduction of the penalty only if it was formed as a result of non-fulfillment of an obligation by a commercial organization or an individual entrepreneur. If these entities themselves do not take the initiative and do not put forward such a demand, the court will not do this itself, but will collect a penalty in the amount in which it was originally stated in the agreement, despite the fact that it may be more than the amount of the debt. In all other cases, the Russian legislator gives the court the right to take the initiative in reducing the penalty, but at the same time it is necessary to prove its obvious disproportionality to the consequences that non-fulfillment (improper fulfillment) of the obligation entailed. This, in particular, is indicated in paragraph 71 of the Resolution of the Plenum of the Supreme Court of the Russian Federation No. 7 dated 03/24/2016.

A characteristic difference between Russian and German legislation is the prohibition established by Article 348 of the State State University regarding the possibility of reducing the penalty between entrepreneurs. However, to circumvent this legislative prohibition in practice allows the fact of a clear ("terrible) penalty established by the court, which goes against the norm of Article 242 of the State State University, proclaiming the principle of good faith of the parties. With reference to this rule, German courts in some cases revise the amount of the penalty ^{[11, p. 16]}.

A distinctive feature of German legislation is the obligation of the creditor to secure in writing the right allowing him to collect a penalty if the parties initially provided for a condition for it in case of delay in the performance of the obligation or its improper performance, but at the same time the obligation, although violated, was still fulfilled, and the creditor accepted such its performance. If the specified right is not fixed in writing, then the creditor will not be able to file a claim for the recovery of a penalty in case of defective performance of the obligation.

The study of foreign practice of reducing contractual penalties allows us to note the accumulated experience of the United States in this matter, where, however, as in the UK, the court, based on the results of the case, makes a decision not to reduce or increase the amount of the penalty, as is done, for example, in France or Germany, but about its invalidity. At the same time, the position of the American courts on the issue of invalidation of the penalty is particularly loyal (the invalidity of the penalty is recognized in the United States in no more than 5% of cases) ^{[12, p.145]}. The fact is that the American doctrine, as well as law enforcement practice, are based on the priority of the principle of freedom of contract, proclaims its inviolability. According to S.V. Pakhman's research, American courts very rarely recognize the invalidity of the contractual condition on the penalty, and reduce it extremely rarely, only in the presence of "obvious unreasonableness", which the counterparties found when determining the amount of the penalty ^{[12, p.146]}. It is hardly possible to see a similar trend in Russia. For Russian courts, the reduction of contractual penalties is a common practice.

On the one hand, experts explain this approach by the fact that penalties many times exceeding the permissible limits are established today in a huge number of contracts ^{[13, p. 275]}. According to the materials of judicial practice, there are cases when counterparties prescribe several penalties in one agreement at once, which they plan to collect sequentially in case of default. There are situations when, at the time of the court's decision to recover the penalty, its amount is more than 2 thousand percent of the amount of the main obligation. In such cases, the application of the norm of Article 333 of the Civil Code of the Russian Federation is necessary. It is no coincidence that in order to avoid abuse of law, as well as to effectively protect the interests of the weakest party, the rule on reducing the penalty is fixed in the laws of many developed foreign countries, and as a special reservation, which, according to the correct remark of N.A. Sanisalova, "emphasizes the importance of this mechanism for the balanced development of civil relations" ^{[2, p. 154]}. But it is quite another matter when the courts reduce the penalty, clearly violating the freedom of contract. This problem has been repeatedly raised in scientific circles. Its causes are seen by N.A. Sanisalova, R.O. Shimaev ^[10] and other authors in the evaluative nature of the category "disproportionality of consequences" used in paragraph 1 of Article 333 of the Civil Code of the Russian Federation.

Returning to the comparative legal analysis of the institution of a penalty in Russia and abroad, we consider it necessary, in addition to significant differences, to point out certain similarities in the approach to legal regulation and the practice of applying a penalty as an interim measure. Thus, the norms similar to the Civil Code of the Russian Federation contain paragraph 1 of Article 163 of the Swiss Law of Obligations ^{[11, pp. 77-79]}, according to which the penalty chosen by the parties as an interim measure is recovered regardless of the losses caused, and if those exceed its size, the creditor has the right to claim compensation for the difference. That is, in Switzerland, a penalty as a way of securing obligations, as in Russia, is of an additional nature and accompanies compensation for losses. At the same time, a common feature of Russian and German judicial practice is the absence of the creditor's need to prove the amount of losses incurred, as well as the very fact of their presence when exercising the right to collect a penalty for non-performance (improper performance) of an obligation.

The norm, similar in meaning to Article 330 of the Civil Code of the Russian Federation, contains Article 339 of the Civil Code, which establishes the obligation of the debtor who violated his obligations to pay the creditor the amount of money agreed by the parties. The difference lies in the fact that, unlike Article 330 of the Civil Code of the Russian Federation, Article 342 of the State Civil Code provides for the possibility of paying a penalty, both in the form of a monetary amount and in the form of another type of property. What is common to the civil legislation of Russia and Germany is that the courts of both countries are authorized to reduce the penalty "to the appropriate level" if it is disproportionate to the consequences of the violation of the obligation at the request (GSU) or application (Article 333 of the Civil Code of the Russian Federation) of the debtor. In this sense, the norms of Article 343 of the State State University and paragraph 1 of Article 333 of the Civil Code of the Russian Federation are close in meaning. The norms of the civil legislation of Russia and Germany on the procedure for the creditor to present a claim related to the payment of a penalty and the performance of an obligation in kind have a certain similarity. The appeal to the State State Institution, in particular, allows us to trace the dependence of the presentation of these claims on the interest that the penalty initially provided. An analysis of the norms of Articles 340 and paragraph 1 of Article 341 of the State Civil Code allowed us to conclude that if the obligation was not fulfilled at all, and the penalty was provided for in case of default, then the creditor, demanding its recovery, no longer has the right to demand to fulfill the obligation in kind (a similar rule takes place in Article 1229 of the Federal Tax Code). At the same time, if there was an improper performance of the obligation, and a penalty was provided for in case of its non-performance, then the creditor has the right to demand the performance of the obligation in kind in this case ^{[10, pp. 282-283]}.

The approach of the Russian, German and French legislators to regulating the legal consequences of non-performance or improper performance of an obligation (defect of performance, delay) has common features, it should be pointed out its similarity, which is confirmed by the dependence of the right to receive a penalty established in these countries on the fact of non-performance or improper performance of an obligation. The fact that Article 396 of the Civil Code of the Russian Federation does not contain any clarification regarding the grounds for improper performance of the obligation, in our opinion, suggests that both the delay in the performance of the obligation and its defective performance by the debtor entail the same legal consequences. To what has been said, we add that, just as in Russia, in Germany, the obligation to pay a penalty, established by Article 344 of the State Civil Code, has an accessory character in relation to the main obligation, that is, the penalty is designed to guarantee the proper performance of the main obligation. At the same time, modern German law of obligations positions the penalty as "an instrument of pressure on a faulty debtor, as well as as an effective way of compensating the creditor's losses", which largely corresponds to the approach of the domestic doctrine ^{[11, p. 15]}.

Thus, the result of this study may be conclusions justifying its completeness.:

1. Despite the similarity of the institutions of the penalty in the Russian Federation and foreign ones, foreign legislation (unlike the Civil Code of the Russian Federation) prioritizes the function of the penalty as a measure of civil liability aimed at restoring the property status and maintaining the balance of interests of the parties.
2. A clear advantage of the Civil Code of the Russian Federation is its focus on the performance of obligations in kind, in which the penalty only serves as an incentive for the proper performance of the main obligation by the parties, which indicates the dominant position of the security function of the penalty in Russia.
3. In market conditions, we consider the advantage of the Russian approach to the regulation of the penalty as an interim measure to be the right of entrepreneurs who have violated the obligation, upon application, to initiate a reduction of the penalty before the court (Part 1 of Article 333 of the Civil Code of the Russian Federation). At the same time, foreign legislators, on the contrary, tend to prohibit the reduction of penalties to business entities, which is hardly justified in market conditions and may disrupt the balance of interests of the parties.
4. In market conditions, the obvious privilege of the Russian approach is the right of entrepreneurs who have violated the obligation to initiate a reduction of the penalty before the court upon application (Part 1 of Article 333 of the Civil Code of the Russian Federation). Thus, the domestic legislator ensures a balance of interests of the parties. In this sense, we consider the peremptory ban of the German legislator on reducing the penalty to business entities to be untenable, especially since, due to established practice, German courts often bypass the ban on reducing the penalty in case of its obvious overstatement with reference to violation of the principle of good faith of the parties, enshrined in Article 242 of the German Civil Code.
5. An analysis of the practice of applying a penalty as an interim measure and resolving disputes about a penalty by US courts allowed us to conclude that the principle of freedom of contract and the will of the parties are at the forefront of American judges, as the fundamental principles of civil law of any state. It seems that such an approach can be adopted in Russia, where the courts take a slightly different position, reducing the penalty on the debtor's application in the vast majority of cases. It is possible that the establishment in the Civil Code of the Russian Federation of the maximum amount of the penalty to be reduced in accordance with Article 333 of the Civil Code of the Russian Federation, or additional elaboration of the criteria for its reduction by their subsequent consolidation in Article 333 of the Civil Code of the Russian Federation will solve this problem. 
6. From our point of view, the experience of the German legislator in regulating the consequences of a defective (improperly fulfilled) obligation, which, it seems, can be implemented by fixing in the Civil Code of the Russian Federation a written confirmation of the creditor's right to recover a penalty in case of delay of the obligation or its improper performance and acceptance of such performance by the creditor, can be useful. We believe that such a written confirmation can serve as an additional guarantee to ensure the fulfillment of the obligation, as well as a way to protect the interests of the creditor in the event of improper (defective) fulfillment of the obligation by the debtor.