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CODE VERSUS STATUTE: WHY DEMURRAGE CHARGES ARE PAID TWICE
03 December 2020

CODE VERSUS STATUTE: WHY DEMURRAGE CHARGES ARE PAID TWICE

The round-table discussion ‘The issue of applicability of penalties stipulated by the Statute of Railway Transportation (SRT)' was the part of the Urals Law Week. Participants discussed the current situation with regard to application of railway wagon charges in court practice as well as the growing number of suits from wagon operators against their customers, in particular, those brought by Sovfrakht Company.

Cement producers are concerned about the situation in which operators are now able to demand wagon demurrage charges to be paid more than once referring either to bilateral agreements or to the provisions of the Statute of Railway Transportation; courts resolve most disputes in favor of the operators. This issue is a relatively new one; earlier, parties used to settle their relationship in an amicable manner, based on contractual provisions.
In the current court practice, enforcement of the Statute of Railway Transportation has developed in a peculiar manner: the law intended to protect the rights of carriers has turned against their customers – industrial enterprises. The legislator stipulates the amount of forfeit for violation of the requirements of Article 99 of the Statute of Railway Transportation РФ, which is seven times higher than the market average forfeit for wagon demurrage (the amount of payment for wagon use under rolling stock operation contracts, according to agreements for supply and removal of wagons). Disputed amounts are huge, as high as hundreds of millions rubles.
Participants of the discussion considered several options of resolving the current situation, including  application of contractual instruments, in particular, increasing of contractual period of railway vehicle turnover, stipulation of special contractual provisions, i.e., a waiver of rights or of enforcement of the rights; moratorium for the use of penalties; modification of the legislation.
– Within the context suggested for discussion, disregarding of the penalty amount agreed by the parties in their contract is irrational, and no civilized values are found behind the lawful penalty that was ‘unexpectedly discovered’ by the Supreme Court; so there are reasons to doubt if this kind of penalty in principle complies with the ideology of the contractual law, – said Artem Vasilyev, Vice Director of the Private Law Institute.
Most participants of the round table discussion have shared the opinion that Article 99 of the SRT has to be modified in terms of its applicability to operators that are not carriers, because this practice is erroneous. It is unacceptable when the rights of one party to the process of transportation are given a higher priority than those of the other party. The Supreme Court has to state its opinion, and the Ministry of Transportation has to provide technical explanations with regard to this issue, as the economic nature of the charges in question is critical. This idea has been supported by the Union of Cement Producers.