Lease Dispute: Court Upholds the Lessor’s Rights

We would like to share a case from our practice that demonstrates how courts approach the resolution of certain issues in lease disputes and what conclusions can be drawn from it.

Our client entered into lease agreements with a lessee (debtor). Under the terms of the agreements, the client purchased and leased several units of specialized equipment to the lessee, who was obligated to make timely lease payments. The debtor violated the terms of the agreements by failing to make lease payments on time. As a result, the client unilaterally terminated the agreements and demanded the return of the leased items. The debtor returned the leased items but did not settle the outstanding lease payments. Therefore, the client decided to file a claim to recover the outstanding lease payments, penalties, and expenses related to the return of the leased items.

The debtor, in turn, disputed the claim, arguing that some of the equipment was practically unused and was returned to the client at the original price. The debtor also filed a counterclaim, requesting that certain provisions of the agreements be deemed oppressive and illegal, and that the client's actions in unilaterally terminating the agreements be declared unlawful.

Lessor's Position:

1)   The special law «On Financial Leasing» and the agreements stipulate the lessee's obligation to make timely lease payments and to pay all lease payments in full up to the date of the return of the leased items in the event of any termination of the agreement.

2)   The agreements provide for the right to claim penalties for any period of delay due to improper fulfillment.

3)   The agreements provide for unilateral out-of-court termination of the agreement and the return of the leased items.

4)   The agreements were entered into voluntarily, and the terms were transparent.

5)   Under the agreements, the lessee bears all expenses related to the return of the leased items. In practice, such expenses may include transportation, storage, insurance, evaluation, repairs, etc.

Lessee's Position: 

1)   The terms of the agreements were oppressive, as they provided for strict penalties and the lessor's right to disable the equipment in case of delay.

2)   The lessee requested that the unilateral termination of the agreements be declared unlawful and that the excessively high penalty be reduced, as the client did not incur any losses.

The court, having considered all the circumstances of the case, ruled to partially satisfy the client's claims: the penalty was reduced to 10%, and the counterclaim was dismissed. Analyzing the court's decision, several key points can be highlighted:

(1) Outstanding lease payments

The court recognized the claimant's claim for the recovery of outstanding lease payments as justified. The debtor did not dispute the existence of the debt, which played a key role in the court's decision. This underscores the importance of timely fulfillment of contractual obligations, especially regarding lease payments, where delays can lead to significant financial consequences.

(2) Penalty.

The court reduced the penalty to 10%, considering the initial amount to be excessively high. This decision is based on Article 297 of the Civil Code of the Republic of Kazakhstan, which allows the court to reduce the penalty if it is disproportionate to the losses. This aspect of the decision shows that courts may consider fairness and proportionality when determining the amount of the penalty.

(3) Expenses related to the return of the equipment

The court granted the client's claim for reimbursement of expenses related to the return of the leased items, including transportation, evaluation, inspection, storage, and insurance. This decision is based on the terms of the agreement, which stipulated that all expenses related to the return of the equipment are borne by the lessee. This is an important point for leasing companies, which may include such terms in agreements to protect their interests. However, it is necessary to provide the court with all documents confirming the actual expenses incurred (contracts, invoices, acts, payment orders).

(4) The counterclaim

The court dismissed the counterclaim, finding no grounds to declare the terms of the agreement oppressive or illegal.

Having analyzed the judicial practice of the courts of the Republic of Kazakhstan, we noted that a transaction may be deemed invalid due to its oppressive nature if several circumstances are present simultaneously:

1)   The terms of the transaction are extremely unfavorable to one party, not just unfavorable.

2)   The party enters into the transaction only under the pressure of severe circumstances.

3)   The other party, aware of these circumstances, uses them for enrichment.

The debtor failed to prove that the terms of the agreement were imposed under pressure or that they were extremely unfavorable. This highlights the importance of carefully analyzing contractual terms before signing them.

Thus, this case demonstrates that leasing companies can successfully protect their interests in court, especially if the terms are clearly defined. However, it is important to remember that courts may reduce the amount of the penalty if they consider it excessive. Furthermore, before signing a lease agreement, lessees should carefully analyze all terms, especially those related to penalties, unilateral termination, and reimbursement of expenses. In conclusion, we were able to recover approximately 300 million tenge for the client in this case.