Contracts with Russian partners
What is necessary to take into account when concluding foreign economic contracts with Russian companies?
Legal system of the Russian Federation doesn't contain any definition of a term "foreign economic contract". However, with regard to established practice and scientific doctrine, a foreign economic contract can be determined as a contract of business nature, even if only one party to which has its place of business (permanent place of doing business) abroad.
When concluding foreign trade contracts with Russian companies, it's essential to consider the following:
1. Russian legal system, as a majority of European countries, belongs to continental law. Supremacy of the statute law, codification of civil legislation are typical features of this law. Administrative act is submittal and judicial practice is not a legal source. Russian legal system is close to legal system of Germany. Therefore, when foreign economic contracts are made by companies from common law countries with Russian legal entities it's necessary to take into account essential differences between continental and common law.
Civil-law provisions are regulated by Civil Code of the Russian Federation. Part I and Part II of the Civil Code serve as the legal basis for virtually every transaction in the Russian Federation. Part III, Chapter VI (the International Private Law) regulates transactions "complicated by a foreign element" i.e. transactions with a foreign citizen or with a foreign legal entity, or otherwise when a "foreign element" is involved (for instance, a contract for the sale of real property located abroad). Chapter VI contains a number of innovations, for instance, the default rule of the closest connection for determining substantive law applicable to a civil-law obligation.
The parties to a transaction complicated by a foreign element are free to choose any national law (either Russian or foreign) as applicable to their transaction. But this rule has an effect only if the chosen law does not contravene to the public policy (public order) of the Russian Federation or mandatory rules of Russian law.
Form of international contract: In accordance with Article 1209 of Civil Code of the RF: the form of foreign economic transaction in which at least one of the parties is a Russian legal person, shall be subject, regardless of the place where the transaction is made, to Russian law. Failure to follow this rule will lead to the invalidity of the transaction.
Civil Code also provides other conflict-of-law rules, relating to contractual obligations.
2. Due diligence of legal capacity of a partner.
When concluding a foreign trade contract it's essential to check legal capacity of a partner.
You should make a request for copies of the following documents:
- certificate of state registration of the company,
- certificate of registration with tax authority,
- charter of the company,
- license, if necessary. (If the activity of the partner is to be licensed (i.e. building and construction works), you need to request a notarized copy of the license with all applications. It's necessary as far as absence of license in cases when it's prescribed by the law means absence of legal capacity of the partner. This may lead to invalidity of the contract).
The contract may be signed on behalf of legal entity by two types of its representatives. First representative is a sole executive body, so a person who represents the company under the law. Second one is a representative under the power of attorney.
Branches and representative offices of legal entities are not considered to be legal entities. They perform their functions on the basis of regulation approved by the legal entity.
If a transaction is made by a chief executive officer (CEO) of branch/representative office, corresponding powers of branch/ representative office CEO is not to be based only on indications under the constitutive document of legal entity, branch regulation or regulation of representative office. When concluding a contract by branch/ representative office CEO on behalf of the branch/ representative office and without any reference to the contract is made on behalf of the legal entity and according to its power of attorney, it's obligatory to find out whether branch manager has correspondent powers under the branch regulation and power of attorney at the time concluding the contract. Transactions made by branch/ representative office chief executive officer without proper powers arising from branch regulation and power of attorney shall be considered unenforceable according to Russian law.
3. Language of a contract.
It's necessary to provide text of a contract with complete authenticity of translation and to introduce the provision which of the languages prevails in the event of arising any controversies and disputes when construing terms of the contract. Therewith, it is recommended to consume a time and means for checking the content and authenticity with Russian text, as far as in the event of arising controversies and disputes, both texts are taken into account.
Bi-lingual approach provides means to consider mentality of both parties, use clear terms that is of the high importance for making agreement between the parties and successful realization of foreign economic activity projects.
4. Settlement of disputes
When analyzing draft of a contract received from Russian business partners, it is essential to pay attention for arbitration clause (as a type of arbitral agreement).
Ways to settle disputes arising out from foreign economic contracts are the following: settlement of disputes in national courts (Arbitrazh court in Russia) or settlement of disputes by the means of international commercial arbitration. For this purpose when analyzing particular contract, it's necessary to consider issues not only in connection with settlement of disputes, but also practical issues concerning the recognition and enforcement of foreign awards.
Russian arbitrazh courts
The rules govern procedure in the Russian arbitrazh courts are based on the general principles of procedural law adopted in continental Europe, i.e. the procedure is inquisitorial and not adversarial as in common law jurisdictions. The Russian arbitrazh courts prefer written, documentary evidence rather than examination of witnesses or hearing of experts or audio or video records. The trial period of Russian arbitrazh court is limited to the extent of three month that means that courts must consider cases within three months of receipt of the claimant's suit.
There is specific trouble in regard to the recognition and enforcement of foreign awards of state courts (as opposed to arbitration awards). The award of foreign state court is subject to the recognition and enforcement only if relevant international legal assistance treaty is made between the Russian Federation and correspondent country. Subject to there is no such treaty (i.e. between the Russian Federation and Great Britain), recognition and enforcement of foreign awards of state courts may be only to the extent of application of the international principle of reciprocity. The principle of reciprocity is used only if it's proved another country recognized and enforced the award of state court of the country where recognition and enforcement are sought for.
As far as international arbitration has more flexibility in construction or determination of the applicable law, foreign legal entity may choose to refer dispute to a private arbitration tribunal, including ad hoc and institutional arbitration tribunals located either within or outside of the Russian Federation. But it is necessary to take into account the exclusive jurisdiction of the Russian arbitrazh courts (e.g. disputes arising from bankruptcy proceedings, or other disputes specifically enumerated in the Civil Code and other Russian laws).
The principal rules of international arbitration are governed by the Federal Law On International Commercial Arbitration, adopted on 7 July 1993. These rules comply with provisions of the Model UNCITRAL Law. In addition, Russian Federation is a party to different international treaties concerning the international commercial arbitration in particular, the European Convention on International Commercial Arbitration of 1961 and the New York (United Nations) Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958 (the New York Convention), also apply in Russia.
The International Commercial Arbitration Court at the RF Chamber of Commerce and Industry operates under the Law of the Russian Federation on International Commercial Arbitration of July 7, 1993. It is the leading arbitration court in Russia and in East European countries which deals with resolving disputes of international character.
Rules of the ICAC provides that "The parties to a dispute may agree to refer to the ICAC:
Disputes arising out of contractual or other civil law relationships connected with foreign trade and other kinds of international business where the place of business of at least one of the parties is located abroad, or disputes between enterprises with foreign interest and international associations and organizations established in the territory of the Russian Federation or between members thereof, or disputes between them and other subjects of law of the Russian Federation.
Civil law relationships resulting in disputes that may be referred to the ICAC for arbitration shall include, in particular, relationships concerning purchase and sale (delivery) of goods, labor and other services; exchange of goods and/or services; carriage of goods and passengers; commercial representation and agency; financial leasing; scientific and technological exchange; exchange of other intellectual products; construction of industrial and other projects; licensing operations; investment; crediting and settlement operations; insurance; joint ventures; and other forms of industrial and business cooperation".
According to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958 decisions made by International Commercial Arbitration Court are enforceable in more than 130 countries while the decisions made by national courts are not enforceable if there is no relevant international treaty.
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