At the request of one of the parties, the contract may be terminated by a court decision. A violation of the contract by one of the parties is considered significant, which entails such damage to the other party that it is largely deprived of what it was entitled to expect when concluding the contract.

 Limited Liability Partnership "O" (hereinafter referred to as LLP) filed a lawsuit against Joint Stock Company "K" (hereinafter referred to as JSC) with a claim for invalidation of the act of acceptance and transfer of the leased item dated April 11, 2014 (Appendix No. 3) to the Financial Leasing Agreement No. UKO-5\35\11 dated On March 29, 2011, invalidation of the investment project financing agreement dated March 25, 2011 No. 5\8-11, termination of the financial leasing agreement No. UKO-5/35-11 dated March 29, 2011, recovery of an advance payment and losses in the amount of 100 000 000 tenge. The claim was denied by the decision of the specialized interdistrict Economic Court of the South Kazakhstan region dated April 14, 2016. By the decision of the Judicial Board for Civil Cases of the South Kazakhstan Regional Court dated June 22, 2016, the court's decision remained unchanged. By the decision of the Judicial Board for Civil Cases of the Supreme Court of the Republic of Kazakhstan dated March 7, 2017, the judicial acts were canceled, the case was sent for a new hearing to the court of appeal. The claim was denied by the decision of the Judicial Board for Civil Cases of the South Kazakhstan Regional Court dated May 11, 2017. The Judicial Board for Civil Cases of the Supreme Court overturned the decision of the appellate instance, and a new decision was made to satisfy the claims in the case: the act of acceptance and transfer of the leased object dated April 11, 2014 (Appendix No. 3) to the financial leasing agreement dated March 29, 2011 no. UKO-5/35-11 and the agreement on financing the investment project were declared invalid. Draft No. 5/8-11 dated March 25, 2011. The financial leasing agreement No. UKO-5/35-11 dated March 29, 2011 was terminated, the application of O LLP was satisfied on the following grounds. It follows from the case file that on March 25, 2011, the parties signed an agreement on financing investment project No. 5/8-11 to create an automatic greenhouse complex on 2 hectares of land in the Yntymak microdistrict in the city of Shymkent, South Kazakhstan region (hereinafter referred to as the Agreement). On March 29, 2011, the parties concluded a financial leasing agreement No. UKO-5/35-11 (hereinafter referred to as the Agreement), according to which the JSC, which is the lessor, undertakes to transfer the leased item to the LLP according to the act of acceptance and transfer. By the Act of Acceptance and Transfer dated April 11, 2014 (Appendix No. 3), LLP accepted the leased item in the form of an automatic greenhouse complex on 2 hectares of land (hereinafter referred to as the leased item). The leased asset of JSC was acquired from the Turkish company ELIF MAKINA MOBILYA GIDA KIRTASIE SANAYI VE DIS TICARET LIMITED SIRKETI (hereinafter referred to as the Company) under an agreement dated March 30, 2011.

At the request of one of the parties, the contract may be terminated by a court decision. A violation of the contract by one of the parties is considered significant, which entails such damage to the other party that it is largely deprived of what it was entitled to expect when concluding the contract.

The Court of Appeal, rejecting the LLP's claim, indicated that all the terms of the Agreement and the Contract had been complied with by the parties, with the exception that the LLP had not provided the land plot to the JSC as collateral, as stipulated in the terms of the lease agreement. The plaintiff used the leased item for his business purposes and received the corresponding benefit, while alienating it to a third party. In addition, the lease item was accepted by the plaintiff without any comments. These conclusions are not based on a correct interpretation of the law or a full and comprehensive investigation of the circumstances of the case. The Court of Appeal did not take into account that the Agreement of March 29, 2011 is invalid by virtue of paragraph 1 of Article 158 of the Civil Code of the Republic of Kazakhstan (hereinafter referred to as the Civil Code), as its content does not comply with the requirements of the legislation. In addition, it does not follow from the terms of the Agreement that the LLP receives money or material resources from the JSC. The Contract and the Agreement have different goals, different amounts, therefore, they are not interconnected by single obligations. According to subparagraph 7) of paragraph 2 of Article 15 of the Law of the Republic of Kazakhstan "On Financial Leasing" (hereinafter referred to as the Law), the lease agreement must contain essential conditions, one of which is the content of the conditions for the transfer of the leased object to the ownership of the lessee, if such a transfer is provided for by the contract. Meanwhile, in violation of this requirement of the law, the Financial Leasing Agreement does not contain conditions for the transfer of ownership of the leased item. Therefore, in the absence of the specified conditions, the lease agreement is considered not concluded. Moreover, the courts' reference to the LLP's failure to comply with the terms of the land transfer agreement is untenable, since the agreement does not contain such conditions. In accordance with paragraph 1 of Article 117 of the Civil Code, immovable property includes: land plots, buildings, structures, perennial plantings and other property firmly connected to the land, that is, objects that cannot be moved without disproportionate damage to their purpose.

By virtue of paragraph 1 of Article 118 of the Civil Code, the emergence, modification and termination of rights (encumbrances of rights) to immovable property are subject to state registration in cases stipulated by the Civil Code and the Law of the Republic of Kazakhstan "On State Registration of Rights to Immovable Property". Article 5 of the Law provides that ownership of the leased item transferred to the temporary possession and use of the lessee remains with the lessor for the entire term of the lease agreement, except in cases when the leased item becomes the property of the lessee before the expiration of the lease agreement (if such a transfer is provided for by the lease agreement). If the automatic greenhouse complex is real estate, then before exercising the authority to dispose of it, the joint-stock company had to register ownership of it with the authorized state body. This circumstance is an obstacle to the transfer of ownership to the LLP as a lessee. Meanwhile, there is no evidence in the case of the JSC's legally established ownership of the greenhouse complex, since the latter is considered immovable property by generic characteristics. In addition, Resolution of the Government of the Republic of Kazakhstan dated October 15, 2001 No. 1328 "On certain issues of implementation of the Law of the Republic of Kazakhstan "On Architectural, Urban Planning and Construction Activities in the Republic of Kazakhstan" and Article 75 of the Law of the Republic of Kazakhstan "On Architectural, Urban Planning and Construction Activities in the Republic of Kazakhstan" provide for the preparation of an act of the State acceptance commission on acceptance the constructed facility is put into operation with the participation of the customer and the authorized body. Meanwhile, as follows from the circumstances of the dispute, these requirements of the law have not been fulfilled. By the decision of the Abai District Court of Shymkent dated August 25, 2015, the state registration of the act of the State Acceptance Commission dated November 25, 2013 No. 274 on the commissioning of a greenhouse built for the production of agricultural products was declared invalid and annulled. According to clause 6.5.2 of the Agreement, the transfer of the leased item to the lessee in terms of quantity, quality and completeness is formalized by signing Appendix No. 3 by the parties. The inventory and/or factory numbers of the leased item, which make it possible to identify and identify the property transferred to the lessee as a leased item, are indicated in Appendix No. 3. Meanwhile, the act of acceptance and transfer of the leased item signed between the parties does not contain the specified requirements, and the leased item is listed as equipment. At the same time, JSC did not make full payment to the Company for the supplied automatic greenhouse complex in the amount of 227,000 US dollars, which led to the Company's failure to fulfill obligations to LLP for agronomic support, and, accordingly, losses to LLP in the form of lost income, since LLP did not have the technology and trained personnel necessary to obtain guaranteed Company harvest standards (clause 6.12 of the Purchase Agreement). According to paragraph 2 of Article 401 of the Civil Code, at the request of one of the parties, the contract may be terminated by a court decision only: in case of a material violation of the contract by the other party; in other cases provided for by the Civil Code, other laws or the contract. A violation of the contract by one of the parties is considered significant, which entails such damage to the other party that it is largely deprived of what it was entitled to expect when concluding the contract.

Attention!   

       Law and Law Law Law draws your attention to the fact that this document is basic and does not always meet the requirements of a particular situation. Our lawyers are ready to assist you in legal advice, drawing up any legal document suitable for your situation.  

 For more information,  please contact a Lawyer / Attorney by phone: +7 (708) 971-78-58; +7 (700) 978 5755, +7 (700) 978 5085. 

Attorney at Law Almaty Lawyer Legal Services Legal Advice Civil Criminal Administrative Cases Disputes Protection Arbitration Law Firm Kazakhstan Law Office  Court Cases