What you should know as a seller about Russian contracts

Blogs May 24, 2016

Business Legal Agreements

Russian trade contracts may cause challenges for Finnish companies. In Russia, a company often needs a written contract even for a simple money transfer, either due to bank-dependent reasons or due to their own rules on money laundering and corruption. Although Russia has accepted the agreement on e-commerce, in practice, a written contract is required. Usually, it is the seller who prepares the trade contract. In general, contracts are written in two languages, English and Russian. If a Finnish company is preparing the contract and gets it translated, costs will of course arise from the translation. Further changes to the contract may still be required after it has been sent to the buyer. This may result in a seemingly endless revision cycle, which can in practice cause friction between the two parties involved in the trade.

The company may draw up a model contract that can then be translated into English and Russian. However, the trades are often unique and models may not be suitable. At least the general terms should, however, always be attached to the offer. Even though an individual contract concerning the trade is drawn up, the seller already highlights the conditions they consider important in the general terms. A practical way to start making a Russian contract is to accept a draft from the Russian counterpart, which at least meets the requirements of Russian banks, for instance. An expert can then edit the draft in such a way that it also meets the requirements of the seller. The responsibility for making changes to the Russian version of the text can be given to the Russian partner in the contract, but both parties should ensure that the contract is interpreted correctly by agreeing that the English version will be used to settle any disagreements arising from different language versions.

Essential terms of the contract include the normal common terms, provisions regarding dispute resolution and choice of law, payment and late payment terms, and payment delivery method. In international trade it is always important to specify the currency and the fact that each party shall bear the costs of its own financial institutions. In addition, it is important to agree, among other things, on the transfer of ownership, time of delivery, breaches of contract and the associated consequences. The procedure for reporting an error is a potential subject of dispute, so it is a good thing to mention in the contract. Quality criteria should also be specified. EU sanctions have also brought new issues into consideration, such as what happens to the object of the trade if sanctions against it come into effect. Have political or commercial sanctions been defined as a force majeure or a superior force, and do the parties have a duty to begin new negotiations about the matter. In relation to this, companies should also check whether trade sanctions are identified as a force majeure in existing contracts, particularly if the industry or products have been in the public debate.

The Russian requirement is that the company has a round stamp, and even if Russian legislation is not applied to the contract, but international or – always better – Finnish legislation is applied instead, in order to avoid confusion in Russia the contract should be verified/strengthened with stamps. It is useful for Finnish companies that regularly trade with Russia to also have a round stamp, as the Russians find it difficult to understand that anything binding would happen without one. Although the round stamp requirement has been waived in some cases, trading will run more smoothly if the contracts are stamped.

It is important to do background checks on both the company and the partner in contract, as well as ensure that the person is eligible to sign the contract. Russian tax authorities have corresponding information to a commercial register, which will show whether a person has the authority to sign. The main rule is that the Executive Director has the right to sign the contracts. The buyer should be asked to provide an extract from the register.

Products are subject to a number of requirements in Russia. Many products require the so-called GOST certificate and obtaining this is the seller’s responsibility. Regulatory requirements for products must be checked before purchase. Export firms are able to assist sellers with certification procedures. The requirements are constantly changing, so these should be monitored on an annual basis.

Many companies conduct trade where the delivery of goods takes place throughout the year. In such cases, the trade contract is often supplemented with new additions rather than with a new contract, since registering a new contract with the bank will always generate costs for the buyer. Such additions should always be attached to the main contract, and the main contract should mention possible future attachments and vice versa. Attachments must also be signed and stamped.

All in all contracts related to Russian trade have many small details and practicalities, knowledge of which will greatly facilitate smooth trading. My experience is that despite all of their own procedural complexities Russians are flexible contract negotiators if the counterparty has sufficient authority. Not least because to the Russians a contract remains only a required formality and trades are made between ‘friends’. However, a contract will resolve any disputes that may arise, which is why the seller should pay close attention from the very beginning of the trade.