Russian Supreme Court Rules on “Take-Or-Pay” Provision in Russian Law Contracts

6 September 2021
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Key takeaways:
  • The Supreme Court of the Russian Federation (the “SC”) examined in detail the “take-or-pay” arrangement in Russian-law-governed contracts which is significant primarily for the commodities delivery and off-take market.
  • The SC noted that despite the “take-or-pay” arrangement not being expressly addressed in Russian law, the freedom of contract principle enables the parties to negotiate such provisions in their contract.
  • The “take-or-pay” provision consists of two obligations: (i) to “take”, i.e. the right to receive a certain volume of products or services from the other party (provider/supplier) exercised at the sole discretion of the customer/purchaser; and (ii) to “pay”, i.e. the right of the provider/supplier to require payment from the customer/purchaser even if the customer did not exercise its right to receive the agreed volume of products or services from the provider/supplier.
  • The customer may unilaterally terminate the services agreement, this right is contemplated by law and such right to terminate is an imperative rule that cannot be restricted/excluded by contract, however, it will not release the customer from its obligation to “pay”. Such obligation can be treated as payment for the repudiation of contract.