Changed judicial practice with regard to set-off of liabilities
08.06.2017
According to judicial practice, prevailing until 2017 the courts would allow for mutual set-off of claims only in the case of undisputed admission of claims by parties (see Decision of the Supreme Court of Georgia # AS-915-1222-07). When one of the parties denied set-off the court would rule the set-off of mutual claims on the basis of a counter-claim, through which the party was to demand the satisfaction of its counter-claim and set-off of the claims, at the same time. Filing a defense was not sufficient. By this approach the court was refuting the substantive nature of set-off (see Decision # AS-857-908-2011 of the Chamber of Civil, Industrial and Bankruptcy Cases of the Supreme Court of Georgia, dated July 29, 2011; Decisions of the Supreme Court of Georgia: # AS-761-817-2011;  AS-495-469-2011;  AS-915-1222-07; AS-1173-1193-2011; AS-309-295-2012). The foregoing could have been partially accounted for incorrect translation of "free-from-defense" claim from the German language into "undisputed" claim. 

As a result Article 442 of the Civil Code of Georgia lost its function and the moment of set-off depended not on the statement, made by a party, but rather on the delivery of a decision by the court. This would place the party, claiming set-off in a grave situation as it was to pay the expenses of a counter-claim, and the liability, it was to fulfill, was regarded as overdue until the delivery of a court decision, what might have become grounds for the assessment of a forfeit.

In the aforementioned case the claimant filed an action, demanding the fulfillment of pecuniary claim from the defendant and assessment of forfeit due to delayed fulfillment of pecuniary claim. In its defense the defendant argued that he had offset all the liabilities owned to the claimant  before filing the action through the respective notice contained in counter claim for forfeit filed against the claimant. 

The courts of lower instances relied on the existing practice and stated that disputing a setoff was not sufficient and the party was supposed to file an attributive counter action, and then demand the reciprocal set-off of claims. As a result, the court considered that claims were set-off from the moment of delivery of the court decision, whilst the defendant was charged with the payment of forfeit for overdue fulfillment of obligation from the moment of giving a set-off notice until filing the counter-claim. 

The cassation court explained that : "Set-off is an empowering substantive-law right and a party is exercising this right through provision of  notice to the other party. Respectively a party does not need to file an independent action with the court to exercise this right or to file a counter action in already initiated judicial proceedings and bear extra judicial expenses. According to procedure law the party is entitled to file a defense destroying the claim. The fact, that in the case under consideration the recipient party (contractor) did not agree to set-off, will not change the legal situation. The client confronted the principal claim of the contractor with the right to claim the forfeit, which was due and free from defense." 

As a result of the aforementioned decision, set-off regained its substantive-law content, what is a common approach in civil law countries and is also offered within the framework of DCFR. From now on a party will not have to file an independent action in Georgia as well. A reference to notice, made before the initiation of a set-off litigation or a set-off statement made directly in the defense will be sufficient. Furthermore, the claims will be regarded as set-off not from the moment of delivery of a court decision, but rather from the moment of making a notice. 




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The Law Firm Kordzakhia, Jgenti, GP was founded in 1999 as a Partnership. Prior to foundation the current partners of the company had independent advocacy practice and were advanced specialists in their respective fields. Since 2003 the company had been operating as a General Partnership –"Pataraia and Partners," and from 2009 the Law Firm has been carrying out its activities under the current name. Read More
News
08.06.2017
The Supreme Court of Georgia offered very important interpretation with regard to preconditions of setting-off mutual claims and substantial-law implication of setting-off of liabilities in Case # AS-708-678-2016, where the Law Firm Kordzakhia, Jgenti, GP was defending the interests of the defendant party.  Read More
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