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Contract on Purchase/Sale and Delivery Contracts to Russia, Content of a Contract

Britta Struve
Attorneys of Kramer & Partner
Consultancy partner of SLC Group

For the contracts on purchase/sale of goods between the German and Russian companies the Russian buying governing law can be stipulated.

Unless no special agreement occurs between contracting parties, the United Nation Convention on Contracts for the International Sale of Goods prevails (U.N.O.- legislative on purchase/sale).
The U.N.O. legislative on purchase/sale applies only for international treaties. The contracts for work come also under the U.N.O. legislative on purchase/sale, unless the customer is underlies to the delivery of consumer components/parts.

The clean contracts for work and the contract on services (the building and service contracts, the maintenance and training contracts, etc.) and the sale for private consumption do not subject to U.N.O. international legislative. For contracts with Russian partners, thus a peculiarity thereof applies: according to Article 12 and 96 U.N.O. Treaty for Russia, for this country applies e.g.: pursuant the Russian legislative validity, the concluding, the amendment and the cancelling of contracts on purchase/sale, as well as the bid and take-over are mandatory to be in written form.

Also without dependence on this regulation, the observing of a written form should be common in any bids and contracts with Russian partners, only due to a reason, for the company would not get into problems with substantiation in case of some troubles. Any particular agreements should be confirmed in writing.

Some legislative areas are not regulated by U.N.O. legislative on purchase/sale. In these areas, pursuant to IPR (International Private Right) the national contracting right deems to be a supporting/auxiliary one, i.e. it becomes as a supplementary bearing one, unless both parties expressly stipulate the agreement on applied right, or stipulate anything otherwise in a contract with respect to the matter in question.

The U.N.O. legislative on purchase/sale is missing e.g. the measures for transfer of property or for incorporation of general buying and selling conditions, or in business of standard delivery, transport and payment clauses. Thus, these points should be expressly agreed in a contract. Pursuant to validity of U.N.O. legislative on purchase/sale, in case that the different agreement is missing, according to the commercial customs that content of contract becomes valid, which the contracting parties have known or had to have known. The contracting parties are also bound each other by customary habits.

The U.N.O. legislative on purchase/sale has the following important features:

  • The substantial and non-substantial breaches of a contract are to be distinguished. The party has the right to withdraw from a contract only when the other party committed a “substantial breach of a contract”. The substantial breach of a contract is when the discriminated party is withhold from expectations from a contract.
  • In case of defects of goods to be sold (the material and legal insufficiencies) the buyer has the right, according to his own decision, to subsequential remedy or discount. If the buyer determines a period for subsequential remedy, its shortening can not be required ahead of the term. The replacement delivery (exchange) can be required only at the “substantial breach of a contract”.
  • )The seller is responsible for defects, providing they occurred already at the transfer of risk (in case of sale through forwarder, generally at the transfer to the carefully selected carrier). The moment, when the purchaser noticed the defects, remains irrelevant.
  • The recipient of goods has the duty to test it during a short period of time and to notify the eventual defects/contractual discrepancies within reasonable time. Otherwise his claims vanish.
  • The Russian law can acquire the exclusive or subsidiary validity in international contracts on purchase/sale of goods pursuant to above mentioned conditions. Several essential features of Russian measures to the contracts on purchase/sale and the contracts for work should be thus known:
  • INCOTERMS 2000 have not been yet accepted in Russia. In spite of this, they are accepted both in Russia and all over the world. So their validity should be expressly included in the contract.
  • The contracting arrangements precede, according to Russian legislative, to the available legal measures. The validity of binding standards (e.g. the written form of foreign trade contracts) can not be contractually excluded. When exercise the right, the following precedence applies: binding standards, contractual arrangements, available standards, practices between parties, the commercial customs.
  • The violation of a written form at valid foreign trade causes its invalidity. The written form can happen besides this also by electronic form, and it is based on electronic signature, providing this has been expressly agreed between the parties.
  • The subject of purchase and the quantity must be strictly specified in the contract, otherwise the contract considers to be not concluded.
  • Together with the goods, it must be also delivered: the accessory to the goods, the operating instructions, the technical passport and the quality certificates. If the accessory is not delivered within reasonable additional period, the buyer can withdraw from a contract.
  • The risk, unless otherwise agreed, passes in this moment onto a person, which the seller has met the duty to hand over the goods to. So, according to the type of a contract, by the goods’ hand over (delivery), its presenting to disposal or by presenting to the first forwarder. The seller is recommended to arrange the transfer of risk as soon as possible, i.e. the sale from factory (ex works) (delivery terms INCOTERMS EXW).
  • The seller warrants the agreed quality of goods in time of risk transfer. In case that the appropriate agreement is missing, he warrants the purpose of article with corresponding quality, or the quality corresponding with its purpose of use.
  • The legal regulations on durability (consumption, life) can also correspond with the statutory guarantee. In this case the seller should proceed so that the goods could be used according to determination of its purpose within the warranty period.
  • In case of consumer goods, the assortment should be described in details. In case that the wrong goods has been delivered, the buyer can refuse to accept it.
  • Similarly as in the U.N.O. legislative on purchase/sale according to the Russian legislative there is the burden of proof of a fact, that the deficiencies existed still at the moment of risk transfer, or that their causes already existed.
  • The contracting parties can agree the longer warranty periods, otherwise the warranty period defined by a low in the period of 2 years applies (in course of these two years these defects must be „detected“).
  • The seller can recover the faults. Otherwise, the purchaser is entitled to a discount in case of defects, the remedy of defect or indemnification of costs for remedy of certain defects. Only in case of essential defects, which e.g. can not be remedied at all, the purchaser has the right to withdraw from the contract or the ask to replace the goods.
  • In case of wrong or total failure in completing the contractual conditions, the purchaser ensue the compensation of damages.
  • The contractual fine can be agreed.
  • The general term of prescription is 3 years after maturity.
  • The clause of proprietorship and therewith connected right for claim of restitution can be agreed. In Russia this instrument of insurance is not popular at all, because the seller is receiving relatively little protection, e.g. as concerned to the augmented provision of ownership (which would prevent from further processing of further sale).
  • The Russian legislative does not treat the transfer of warranties (the securing transfer of ownership). The most popular security tool is the (legal and contractual) lien/retention right. Thus the seller acquires, in case of instalments sale or credit sale, the legal lien for the goods after being acquired by the pruchaser till the time of its full payment, if the contract of sale does not stipulate otherwise.
  • For the businesses in foreign exchange in Russia the alternate limitations are applied.
  • The Russian purchaser needs so called importation passport, which issues the transferring bank. The conditions to receive the importation passport represent mainly the following provisions that should be included in the contract of sale:
  • The transfer must be realized from the account of importer.
  • The contract must contain the specific periods for the goods import into the territory of Russian Federation.
  • In case of payment in advance, the contract must also include the terms for the case of repayment, if the goods would not be delivered.
  • In deliveries with the pro forma invoice, the goods must be in Russia within 90 days. The transfers for purpose to complete the subject of contracts for purchase/sale, in case of which the 90-days-period between the payment and delivery (customs clearance) is evidently exceeded, must be provided by the permission of central bank.
  • If the transfer should occur after the successful customs clearance in Russia, the permit of central bank is not necessary.

In principle, the Russian purchaser receives for the businesses in foreign exchange from his bank the responding proposal of contract, or the form issued in the Russian and English language and which must be signed by both contracting partners.

The attorneys of Kramer and Partner
The attorney Britta Struve

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