This article would be interesting for both foreign companies and foreigners who interact or planning to interact with Russia. I guess that anyone else planning to cooperate with any other foreign partner could find some important information from here.
Expanding trade horizons and economic relations, businessmen spend a lot of effort to find foreign partners, persuade them to conclude a contract. Then when the common consent is received – profit is almost in the pocket, just few formalities are left! When concluding foreign economic contracts, businessmen pay attention to the essence of the agreement, obtaining certain favorable conditions, profit-making, minimizing possible risks.
Unfortunately, quite often while this, some essential details might be missed out. I am telling about legal details that negotiators sometimes miss accidentally by inattention or by ignorance. But sometimes they miss it intentionally, not wanting to seem impolite or too distrustful in relation to partners. This last reason sounds especially ridiculous in comparison with the consequences that might occur if the legal details are not checked or agreed. If something goes wrong – e.g. a partner delays payment or does not pay, a cargo is lost in transit, or conditions changed and it became impossible to fulfill obligations – for example, if unexpected sanctions inhibit the contract, the need for the contract no longer exists etc. – verification of your foreign partner and beforehand proper fulfillment of all essential legal formalities could prevent being nervous, possible long-lasting lawsuit and huge financial losses.
It is better to prevent legal risks than to face unexpected bad consequences in the future. How to protect yourself from such situations? Here are some of the points that you should pay attention to while negotiating concluding a contract:
- Whether the person holding the negotiations and signing the contract has the necessary authorities (If it turns out that the agreement is signed by unauthorized person, the partner might legally renounce the performance of obligations under the contract);
- Whether the description of a foreign partner correspond to reality (Do not neglect it. If it turns out that the company with which the contract was signed with is not registered, or its legal address or obligatory requisites are different from those specified in the contract, it could be impossible to file any claims);
- Whether the agreement includes all the obligatory essential conditions and other legal requisites, that:
- Correspond to the international legislation and the legislations of the countries of the agreeing parties,
- Include the agreed subject of the contract, rights and duties, payment details and It is good to assure that the contract properly describes the moment of performance of obligations under the contract, applicable trade operations, the moment of transfer of ownership and transfer of risks of loss or damage to goods, applicable law and dispute settlement procedure,
- Assure that the contract allows to define all the parties quite precisely, with correct name and all obligatory requisites (to exclude possibility that in the future your partner, or governmental authorities, or the court do not recognize the signing of the agreement by the parties).
How to verify a Russian partner?
Minimal care would include asking your partner to give you copies of the company’s constituent and registration documents and a document verifying the authorities contract signer (it is better if the copies are notarized).
You can verify your partner – whether the partner is really registered; whether the company is now what is called in Russia “scrapyard” – meaning having a nominee director of a company that does not do any real business; whether he is not under bankruptcy procedure or does not have any other bad reputation .
Such verification can be held through official registers (EGRUL, etc.) or other sources. Usually doing it from the other country is difficult as such online services might be unavailable from other countries and if you do not speak Russian language.
Verifying that the Russian part of the contract matches the part in your language is also important, as if Russian language prevails, and the contract is subject to Russian law, authorities and courts would interpret its terms as they are provided by Russian law.
In relation to the last feature, it is important to negotiate the so called ‘applicable law’ – the legislation of a country that will be applied to the relations of partners. If the applicable law is undefined the parties, then the so-called ‘conflict norms’ are used – rules that define which countries’ laws are applicable in a certain case. Just imagine, that if you do not care about it in advance, your contract might unexpectedly to you become subject to Russian law, or other country’s law that you were not familiar with but which unexpectedly ruins your plans for, e.g., recovering a penalty.
Another important advice to you is to negotiate conditions in a written form quite detailed and to keep the correspondence in your records, even if you negotiate conditions via emails – this wound help you prove your position in court. Basically, this is a major advice for all kinds of business negotiations. Unfortunately, sometimes even the best trustful relationships change into a cold calculation with own interests of one party.
Also, do not hesitate to ask and collect invoices issued, payment documents, reconciliation acts, certificates of work performed, any other documents and reports on the work performed.
So please take into consideration how important it is to have a due diligence by verifying your potential Russian partner and providing proper legal support to the contract itself.
If all of your legal due diligence (ok, or agreeing to a contract with no care) did not go right and the issue came up, you would have to search for ways of solving your problems, restoring your violated rights and returning losses. At this point you would remember the advices about verification of a potential partner and of the contract.
It would not be difficult, if you have a good Russian lawyer (independent from your potential partner) who would be able to represent your interests, agree your contract, explain you specifics of Russian and international laws, translate you Russian texts if necessary, and to ‘be your eyes and hands in Russia’ – to able to provide you with quick legal and factual support right from Russia.
I am wishing you good luck and success in your business.
Contact me by any contacts below.
Anna S. Menshova
Lawyer and Legal adviser
Saint Petersburg, Russia
Tel. +7 967 590-73-79