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Ruling of the Supreme Court of Russia of 21.01.2015 # 308-ES14-2538 with respect to case # A77-602/2013

The amount of the disputes resolved in court and related to the scope, quality, cost and terms of contracting works is permanently large. Most of them arise out of the relations associated with the works performed for public or municipal needs. In the current economic context, the amount of such disputes will only be increasing. It is not uncommon that the mater in dispute is related to the payment for works performed by the contractor for public or municipal needs with no contract made in accordance with the established practice.

Presidium of the High Arbitration Court in its Ruling of 20.09.2011 # 1302/11 laid down its legal opinion that there are factual contracting relations between the parties in case of the works performed with no contract made and, consequently, the result of the works performed by the contractor, accepted by the customer and having the consumption value shall be subject to payment.

Later on, the Presidium of HAC RF reviewed this position and pointed out in its Rulings of 28.05.2014 # 18045/12 and 04.06.2013 #№ 37/13 that it is not permitted to recover for the benefit of contractors the value of the works performed by them without any public contract, as satisfying such claims would open the door for unfair contractors and public (municipal) sector customers to obtain illegal material benefits by improper means evading the law on public procurement, while no one shall have the right to benefit fr om one’s illegal behavior. The same opinion was reflected in clause 7 of the Explanatory Letter of the Presidium of HAC RF dated 25.02.2014 # 165.

On 14 January 2015, the Judicial Chamber of the Supreme Court of Russia for Economic Disputes heard the case # А77-602/2013 with the similar factual situation.

The dispute occurred between the troops unit and the company disposing solid household waste (SHW) under the public contract. Upon expiry of the contract, the troops unit sent a letter for the company where it asked to keep up with SHW disposal until the new contract is concluded further to the public auction and guaranteed payment for the rendered services on SHW disposal.

Within nearly three months, the company kept on rendering services on SHW disposal, while the troops unit signed the relevant statements without any scope, quality or time claims. However, later it refused to pay for them, referring to lack of contractual relations between the parties in that time, for which reason the company addressed to court with a lawsuit.

The first instance arbitration court sustained the claim of the company, having concluded that, with no contract concluded and in the context of the factual relations established between the parties in connection with SHW disposal, failure of the troops unit to pay resulted in unjust enrichment earned at the cost of the service provider. However, further to the ruling of the court of appeal, upheld by the court of cassation, the said ruling was revoked and the claim dismissed.

When revoking the ruling of the first instance court, the higher courts pointed out with reference to the Rulings of the Presidium of HAC RF of 28.05.2013 # 18045/12 and of 04.06.2013 # 37/13 that the company rendering services without any public (municipal) contract, which was required by law in this case, implies that the company could not have been unaware that it was providing services in the obvious absence of any obligation on the part of the troops unit, while the services provided actually by the company to the troops unit shall not result in any unjust enrichment of the latter.

However, the Supreme Court of Russia disagreed with that.

In pursuance of the approach previously defined by the Presidium of HAC RF as to the settlement of the disputes on payment for the goods, works and services for public (municipal) needs with no public (municipal) contract, the Judicial Chamber of the Supreme Court of Russia for Economic Disputes arrived at the conclusion that the duration and scope of the relations between the parties and other facts of the cases for which such legal opinion was established were essentially different from the facts of the dispute in focus.

Firstly, there were one-time works in disputes previously considered by the Presidium of HAC RF such as minor repairs and maintenance of the building, heating and water disposal systems cleaning, while in the said case there used to be a public contract between the parties, made according to the established procedure and effective up to the disputed period, which was re-concluded with the company by the troops unit after the end of the disputed period, as the representative of the company explained in the courtroom. Moreover, the Judicial Chamber observed that the company ceasing SHW disposal during the disputed period would have failed to satisfy clause 1 section 13 of the Federal Law of 24.06.1998 # 89-FZ “Concerning production and consumption waste” with respect to regular waste removal from the territory of the municipal unit.

Consequently, the said dispute is related to the continuing and regular relations between the company and the troops unit on SHW disposal.

Secondly, the named cases referred to the works that could and should have been postponed until the parties concluded the relevant public contracts in the established manner. Further to the said case files, when keeping up with SHW disposal, the company relied upon inadmissibility of an emergency and shuttering combat readiness of the troops unit. Therefore, the company on a regular basis was carrying on the disputed works that allowed no delay until the public contract is concluded in the established manner.

Finally, due to the fact that under the Federal Law of 30.03.1999 # 52-FZ “Concerning the sanitary and epidemiological welfare of the citizens” ensuring the sanitary and epidemiological welfare of the citizens is deemed to be one of the key conditions for exercise of the constitutional civil rights to health protection and to a healthy environment and that it is required under clause 1 section 22 thereof to dispose, utilize, neutralize, transport, store and dump the production and consumption waste, the Judicial Chamber found that the activities of the company removing SHW from the territory of the troops unit during the disputed period with no public contract were aimed at defending the public interests protected by law.

With regard to the mentioned goal of the company during the disputed period, along with continuing and regular nature of the contractual relations between the company and the troops unit, and the customer having no claims as to the scope and quality of the works preformed, the court of appeal and the district court had no grounds, according to the Supreme Court of Russia, to apply to the claim brought by the company such legal opinion that it is not permitted to recover as the unjust enrichment the value of the goods sold, works performed or services rendered for public (municipal) needs with no public contract for the benefit of the contractors entitled to enter into contractual relations with the budget-financed entities solely by means of concluding such contracts.

In this context, the dismissal of the claim with reference to incompliance with the law on state procurement enacted in order to ensure some public interests, such as to avoid abusive and corruptive practices in the sphere of placing orders, would actually be opposed by another public interest, that is the contemplated guarantees of the sanitary and epidemiological welfare of the citizens to secure the exercise of the constitutional civil rights to health protection and to a healthy environment. Such opposing with no intention of the contractor to evade the law and without any signs of unfair practices or another abuse in the disputed acts performed with no public contract is contrary to the goals of the arbitration court procedure established by section 2 of the Arbitration Procedure Code of the RF.

Therefore, the Supreme Court of Russia somewhat softened the stand previously established by the Presidium of HAC RF that it shall not be permitted to recover for the benefit of the contractors the value of the works performed with no public contract, admitted some exclusions to the general rule and established conditions for sustaining the contractors’ claims, wh ere the works performed without any contract does not imply per se any intention of the parties to evade the law, any signs of unfair practices or other abuse of rights in their actions.