Abuse of Rights as Grounds for Dismissal of a Claim for Termination of a Contract
LLP “D” filed a claim against LLP “A” seeking termination of a contract. By a judgment of the Specialized Interdistrict Economic Court of Almaty dated 5 September 2024, the claim was dismissed. By a ruling of the Civil Cases Judicial Panel of the Almaty City Court dated 4 December 2024, the judgment was set aside and a new judgment was rendered granting the claim.
It follows from the materials of the civil case that on 20 October 2015, LLP “D” (the customer) entered into a contract with LLP “A” (the contractor) for the performance of construction and installation works (CIW). Referring to the transfer of KZT 278,671,528 to the defendant and the failure to perform the works, the claimant asked the court to terminate the contract.
In resolving the dispute, the court of first instance took into account the circumstances established during the pre-trial investigation concerning the origin of the monetary amount specified in the claim and the parties’ actions aimed at evading tax payment.
It followed from the investigator’s resolution of the Investigation Department of the Department of Economic Investigations for Abai Region, attached to the case file, that funds had been credited to the account of LLP “A” (the defendant) under a fictitious construction contract.
During operational-search activities, an individual was apprehended in the act of cashing out KZT 130,000,000. It was established that the amount specified in the claim had been transferred from the accounts of several legal entities and had originally originated from JSC “K”. It was also established that the construction project under the gasification project had been completed.
When considering the case, the court of first instance applied the rules on the limitation period and concluded that the claimant had failed to take timely measures to protect its rights, given that it had only brought the claim in 2024 in relation to a contract concluded in 2015.
Disagreeing with the judgment, the appellate court made a general reference to the incorrect application of the rules governing contract termination, stating that the contract had not been performed in substance by the defendant and that the funds had not been used for their intended purpose. On this basis, the appellate court set aside the judgment and granted the claim.
By a ruling of the Civil Cases Judicial Panel of the Supreme Court of the Republic of Kazakhstan dated 6 May 2025, the appellate ruling was set aside and the judgment of the court of first instance was upheld.
The cassation court proceeded from the requirement prohibiting abuse of rights, as established by Paragraph 7 of Article 8 of the Civil Code and Part 1 of Article 49 of the Civil Procedure Code.
The court took into account the case materials, which indicated that LLP “A” had issued fictitious VAT invoices and that an employee of the enterprise had been apprehended by law enforcement officers while cashing out funds.
The pre-trial investigation established that the funds had been received under a fictitious contract and that numerous actions had been taken to facilitate tax evasion.
The cassation court also relied on the provision in the contract concluded between the parties granting the claimant the right to withdraw from the contract unilaterally.
In these circumstances, the initiation by LLP “D” of court proceedings seeking termination of the contract was found to be inconsistent with the fundamental principles of civil legislation.
Jurisdiction
The jurisdiction of disputes concerning the amendment and termination of contracts is determined by the provisions of Chapter 3 of the Civil Procedure Code. As a general rule, such disputes fall within the jurisdiction of the court at the defendant’s place of residence or location (Article 29 of the Civil Procedure Code).
In addition, the law provides for the jurisdiction of investment disputes (Parts 1–2 of Article 27 of the Civil Procedure Code), jurisdiction at the claimant’s choice in cases involving contracts specifying the place of performance (Part 6 of Article 30 of the Civil Procedure Code), exclusive jurisdiction over disputes concerning rights to immovable property (Part 1 of Article 31 of the Civil Procedure Code), and contractual jurisdiction (Article 32 of the Civil Procedure Code).
An analysis of the civil cases examined showed that, overall, the courts of the Republic comply with the legislative requirements governing territorial jurisdiction. Nevertheless, certain violations relating to the jurisdiction of cases have been identified.
By a ruling of a judge of the Balkhash District Court of Almaty Region dated 20 December 2022, the claim filed by A.K. against LLP “B” seeking termination of a contract and recovery of a monetary amount was returned.
According to the case materials, the parties had entered into a contract for the manufacture and installation of windows and doors on the basis of advance payment.
Referring to the prolonged failure to perform contractual obligations, claimant A.K. applied to the court at the defendant’s place of location.
In the aforementioned ruling, the judge of the Balkhash District Court of Almaty Region concluded that the dispute did not fall within the jurisdiction of that court, stating that the claim could be filed in Almaty at the place where the contract had been concluded or performed.
By a ruling of the Civil Cases Judicial Panel of the Almaty Regional Court dated 14 February 2023, the act of the court of first instance was set aside, and the civil case was remitted to the same court for consideration on the merits.
The appellate court proceeded from the fact that, earlier, by a ruling dated 29 December 2021, District Court No. 2 of the Auezov District of Almaty had referred the civil case concerning the claim filed by A.K. against LLP “B” for termination of the contract to the Balkhash District Court of Almaty Region, as the defendant’s actual location had been established within the territory of that district.
Accordingly, the conclusions of the court of first instance that the dispute did not fall within the jurisdiction of the Balkhash District Court of Almaty Region cannot be considered consistent with the requirements of the law.
Pursuant to the general rule established by Part 1 of Article 29 of the Civil Procedure Code, a claim shall be brought before the court at the defendant’s place of location.
In the above-mentioned statement of claim, which was resubmitted to the Balkhash District Court, the claimant provided information indicating that the defendant was registered in that district.
The judge’s reference to the lack of jurisdiction of the district court over the dispute on the basis of Part 9 of Article 30 of the Civil Procedure Code contradicts the law governing jurisdiction at the claimant’s choice.
In cases of alternative jurisdiction, the right to choose the court in which the civil case is to be heard is granted by law to the applicant.
State Duty
Article 35 of the Constitution of the Republic of Kazakhstan establishes the general requirement that the payment of legally established taxes, fees and other mandatory payments is a duty and obligation of everyone.
The rates of state duty payable in courts are established by Article 610 of the Tax Code.
Pursuant to Subparagraph 1) of Paragraph 1 of Article 610 of the Tax Code, as a general rule, state duty on claims of a pecuniary nature is charged as a percentage of the claim amount.
Part 1 of Article 104 of the Civil Procedure Code establishes the procedure for determining the value of a claim. In claims for early termination of a property lease agreement, except for residential premises leases, the value of the claim is determined by the aggregate payments for the use of the property for the remaining term of the agreement (contract), but not exceeding three years (Subparagraph 10 of Part 1 of the aforementioned Article).
At the same time, Subparagraph 7) of Article 610 of the Tax Code provides for the payment of state duty in the amount of 0.5 monthly calculation index (hereinafter referred to as the MCI) for claims seeking amendment or termination of a residential lease agreement, as well as for other non-pecuniary claims or claims not subject to valuation.
Overall, judicial practice has developed an approach under which claims for the termination or amendment of contracts are recognized as non-pecuniary claims or claims not subject to valuation.
At the same time, from the perspective of improving legal regulation, the issue arises of harmonizing the Civil Procedure Code and the Tax Code to establish a uniform approach to claims for termination of lease agreements.
Claims for amendment or termination of contracts are frequently brought together with claims for the return of property or recovery of monetary amounts.
For such cases, Paragraph 5 of the Regulatory Resolution of the Supreme Court of the Republic of Kazakhstan dated 25 December 2006 No. 9, “On the Application by Courts of the Republic of Kazakhstan of Legislation on Court Costs in Civil Cases,” establishes that where a claim contains both pecuniary and non-pecuniary claims, state duty shall be paid simultaneously in accordance with the amount prescribed for each type of claim.
Part 2 of Article 104 of the Civil Procedure Code requires the claimant to indicate the value of the claim. Where the stated value clearly does not correspond to the actual value of the property being claimed, the judge shall determine the value of the claim.
When resolving disputes concerning the amendment or termination of a contract accompanied by a simultaneous claim for the recovery of property or monetary amounts, courts must duly verify whether the claimant has complied with the requirement to indicate the value of the claim and whether state duty has been paid in full for each claim.
Legislation
The principal regulatory legal acts applicable to the category of civil cases under review are:
- The Constitution of the Republic of Kazakhstan dated 30 August 1995 (hereinafter referred to as the Constitution);
- The Civil Code of the Republic of Kazakhstan (General Part), adopted by the Supreme Council of the Republic of Kazakhstan on 27 December 1994; and the Civil Code of the Republic of Kazakhstan (Special Part), adopted by the Parliament of the Republic of Kazakhstan on 1 July 1999 (hereinafter referred to as the Civil Code);
- The Civil Procedure Code of the Republic of Kazakhstan dated 3 November 2015 (hereinafter referred to as the Civil Procedure Code);
- The Code of the Republic of Kazakhstan “On Subsoil and Subsoil Use” dated 27 December 2017;
- The Land Code of the Republic of Kazakhstan dated 20 June 2003;
- The Code of the Republic of Kazakhstan “On Taxes and Other Mandatory Payments to the Budget” dated 25 December 2017 (hereinafter referred to as the Tax Code);
- The Law of the Republic of Kazakhstan “On Housing Relations” dated 16 April 1997;
- The Law of the Republic of Kazakhstan “On Financial Leasing” dated 5 July 2000;
- The Law of the Republic of Kazakhstan “On Consumer Protection” dated 4 May 2010;
- Regulatory Resolution of the Supreme Court of the Republic of Kazakhstan dated 25 December 2006 No. 9, “On the Application by Courts of the Republic of Kazakhstan of Legislation on Court Costs in Civil Cases”;
- Regulatory Resolution of the Supreme Court of the Republic of Kazakhstan dated 18 July 1997 No. 9, “On Judicial Practice in Applying Legislation on the Privatization by Citizens of Residential Premises from the State Housing Fund”;
- Regulatory Resolution of the Supreme Court of the Republic of Kazakhstan dated 25 November 2016 No. 7, “On Judicial Practice in the Consideration of Civil Cases Arising from Bank Loan Agreements.”
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