Three questions

When a contract is broken, the answer splits into three questions: is the party liable, what can be recovered, and does performance continue. The Code answers them separately, and the answers do not line up.

1. Liability: fault, and strict liability in business

Article 333 has two layers. The general rule (in the edition of Law OʻRQ-683 of 21 April 2021): the debtor is liable where at fault, and is found not at fault if it proves it took every measure within its power for proper performance.

Note where the burden sits: the party in breach must prove the absence of fault. A silent debtor loses.

Part three sets a different regime for business. A person who fails to perform in the course of business activity is liable unless it proves that proper performance was impossible because of force majeure — extraordinary circumstances that could not be prevented in the conditions concerned.

And the Code expressly lists what force majeure is not:

  • the debtor's own counterparties breaching their obligations;
  • the goods needed for performance not being available on the market;
  • the debtor not having the money.

Those are the three excuses people actually offer. They do not work.

Two more points: under art. 334 the debtor answers for third parties it engaged to perform (2021 edition); and under the last part of art. 333, an agreement made in advance to exclude or limit liability for a deliberate breach is void from the moment it is made.

2. What can be recovered

Damages (art. 324)

The debtor must compensate the loss caused by non-performance or defective performance. Prices are those at the place of performance, on the day the debtor voluntarily satisfied the claim; failing voluntary satisfaction, on the day the claim was brought. A court may, given the circumstances, use prices at the date of judgment (2021 edition).

In determining lost profit, account is taken of the measures the creditor took to obtain it and the preparations made to that end. "We would have earned more" is not enough — the preparations have to be shown.

Neustoyka (arts. 260–263)

A neustoyka is a sum of money fixed by legislation or by the contract. Its whole point is in art. 260 part two:

On a claim for payment of a neustoyka the creditor is not obliged to prove the loss caused to it.

In practice that is the main advantage. Proving loss in figures is expensive and slow; a neustoyka only has to be read off the contract.

Its forms (art. 261):

  • jarima — normally a fixed sum, for non-performance or defective performance;
  • penya — a percentage for each day of delay, on the unperformed part.

Two conditions: the agreement on a neustoyka must be in writing (art. 262), and a neustoyka secures only a valid claim (art. 260). If the debtor is not answerable for the breach, no neustoyka is due.

Article 263: a statutory neustoyka is recoverable whether or not the contract provides for one, and unless a law forbids it the parties may increase the figure.

The two together: art. 325

The default is that loss is recoverable to the extent not covered by the neustoyka. The neustoyka is set off against the damages.

But law or contract may provide otherwise: only the neustoyka; damages in full on top of it; or either at the creditor's election. Say which when drafting — silence means the default.

Money debts: art. 327

Interest is payable on sums wrongfully retained, withheld from repayment or otherwise paid late. The rate is the bank discount rate at the creditor's seat on the day the money obligation is performed; a court may use the rate at the date of claim or of judgment. Loss above that interest is recoverable for the excess.

3. A court can cut the agreed figure down

Article 326: if the neustoyka payable is plainly disproportionate to the consequences of the breach, the court may reduce it, taking into account:

  • how far the debtor performed;
  • the parties' property position;
  • the creditor's interests.

This cannot be contracted around. A very large per-day penalty therefore does not buy protection — it gets reduced.

This differs from the US approach. Under UCC § 2-718(1) a term fixing unreasonably large liquidated damages is void as a penalty — nothing survives. In Uzbekistan the court lowers the figure and the claim itself remains.

4. Does performance continue

Article 330 splits in two, and the distinction is fine:

  • where performance was defective, paying the neustoyka and compensating the loss does not release the debtor from performing in kind;
  • where there was no performance at all, compensating the loss and paying the neustoyka does release it.

So for work done badly you can take the money and still demand it be put right; for work not done at all, taking the money closes the matter.

Part three: where the creditor refuses performance that has lost its value because of delay, and where a neustoyka fixed as a payment for withdrawal has been paid, the debtor is released from performing in kind.

5. The creditor's own fault

Article 335: if the creditor intentionally or negligently contributed to performance becoming impossible or to the loss growing, or failed to take steps to reduce it, the court may reduce the recovery or refuse it altogether.

This is the duty to mitigate. Sitting still after a delivery fails, rather than sourcing a replacement, can be expensive.

6. Limiting liability: when it works

Article 332 sets two limits:

  • a law may restrict the right to full compensation for particular kinds of obligation (limited liability);
  • an agreement limiting liability in an adhesion contract, or in any contract where the creditor is an individual acting as a consumer, is void where the extent of liability is fixed by law and the agreement was made before the breach arose.

Plus the rule above: an advance agreement limiting liability for a deliberate breach is void outright (art. 333).

When drafting

  1. Write in a neustoyka, and do it in writing. Article 262 requires it, and it removes the burden of proving loss.
  2. State how the neustoyka and damages interact. Say nothing and art. 325's default applies: the neustoyka is set off against the loss.
  3. Do not inflate it. Article 326 reduces a disproportionate figure, so a huge penalty buys no protection.
  4. When drafting force majeure, remember art. 333 part three: a supplier's failure, goods being unavailable, and a shortage of cash are not force majeure. If you want them covered, say so expressly — the statute will not give them to you.