Certain Aspects Of Law Enforcement In The Courts Concerning Financial Lease

In this article, we would like to address some of the issues that lessors face in the protection of their interests concerning financial property lease in Kazakhstan courts.

In 2016, we participated in around 20 lawsuits—which can now be viewed as case studies—on the lessee's default in performing the obligations in financial lease agreements. In view of these cases, we would like to point to certain issues that may arise in the courts.That being said, we do not aim to cover all the issues on financial lease litigation.

The Kazakhstan courts tend to neglect the statutory provisions on lease and have stated that lease activities fall under the legal and economic regime of investment activity1. Hence, lessors are granted full and unconditional protection2 of their rights and interests, as secured by all Kazakhstan regulatory legal acts.

This is reflected in the fact that the courts tend to unfoundedly align themselves with the lessees in the consideration of the lessors' claims.

Unreasonable Size Reduction of the Penalty Accrued Due to Untimely Performance of the Obligations by the Lessee

One of the main problems in financial lease relations is the lessees' violation of the lease payments terms, even including the complete cessation of payments.

In order to ensure the lessee's timely performance of his financial obligations, the parties provide for contractual and financial lease penalties and the procedure for the accrual thereof. Accordingly, the lessee, upon signing the financial lease agreement: first, assumes the obligations of timely lease payments; and second, as a security in the event of non-compliance with these obligations, undertakes to pay the penalty in the amount set by the agreement.

However, despite the fact that issues of charging and levying penalties are directly regulated in the financial lease agreements, the courts, guided by Article 297 of the Kazakhstan Civil Code, would generally reduce the amount of the leviable accrued penalty, substantiating it by the fact that the penalty is extremely high compared to the losses of the creditor. At the same time, the reduction can be considerable (up to 10% of the claimed penalty).

Thus, one can draw the following conclusions:

First, there is no assessment of the lessor's losses arising from the lessee's failure to perform its obligations (including untimely performance) to make the lease payments, and the subsequent termination of the lease agreement through the lessee's fault...