Trade agreements with Russia - how to make a contract with a Russian company?

To trade with Russian companies, you will have to enter into an agreement, but how to draft it and what to mention in it? In Russia, such documents are called «foreign trade agreements», because they are entered into between parties from different countries and have their own characteristics. So, what should you pay attention to to draw up this agreement?

First of all, let us talk about what must be included in such a document: as you understand, you do this not just like that, but to be guided by it if there are disputes with the counterparty. Of course, you can create a simple contract, but for it to be useful, we recommend making it as detailed as possible. In addition to mandatory information, such as parties to the contract and goods to be supplied, it's a good idea to specify the following:

A. Which Incoterms rules will apply? Of which year?

The Incoterms (International Commercial Terms) are a collection of customs systematized by the International Chamber of Commerce that have developed between participants in foreign trade transactions. Thus, the Incoterms reflect established commercial practice in the world market. The first version of Incoterms appeared in 1936 and is periodically revised, the most frequently used versions at present are those of 2010 and 2020. It happens that the parties have stipulated that the Incoterms apply, but do not indicate the year of the version applied. If there is no reference to a specific version, the court must apply the Incoterms version in effect on the date of the contract.

Please note that the International Commercial Terms do not replace the main contract - they establish unified options for distributing the obligations of the parties in matters of: payment for transportation, unloading of a batch of goods, customs clearance, payment of duties, fees and insurance, as well as the distribution of risks in the event of loss or damage to products.

What types of Incoterms contracts are there? In the 2010 and 2020 editions, there are 11 types of standard types of contracts, which can be divided into the following 4 groups.

1) group E (Ex Works) - the seller provides only release of goods, the rest falls on the shoulders of the buyer: export customs, all transportation, insurance and import customs.

2) group F, where the seller delivers the goods to the place where the main transportation starts - for example, to the port, and also undertakes various variations of export customs, loading onto the transport of delivery and loading onto the ship. The buyer provides the rest.
• FCA (Free Carrier) - the cargo is transferred by the seller to a place previously agreed with the buyer, released by customs as part of the export procedure;
• FAS (Free Alongside Ship) - the cargo is delivered to the port and placed along the side of the vessel;
• FOB (Free on Board) - the cargo is transferred by the seller on board the sea vessel and released by customs as part of the export procedure.

3) group C (where the main carriage is paid by the seller) includes:
• CFR (Cost and Freight) - the goods are transferred on board the vessel, released under the export procedure, but the buyer pays the freight and import customs clearance upon arrival of the goods;
• CIF (Cost Insurance and Freight) - the seller places the pre-insured goods, released under the export procedure, on board the sea vessel;
• CIP (Carriage and insurance paid to) - the seller transfers the goods to the carrier, pre-insured and released under the export procedure;
• CPT (Carriage paid to) - the seller transfers the goods, released under the export procedure.

4) group D (Delivery):
• DAP (Delivered At Place) - where the seller transfers the goods ready for unloading at a certain point and released by customs within the export procedure, and also pays export duties and fees;
• DPU (Delivered Named Place Unloaded) - when the seller transfers the goods ready for unloading at a certain point and released by customs within the export procedure, and also pays export duties and fees;
• DDP (Delivered Duty Paid) – when the seller transfers to the buyer the goods ready for unloading, the customs procedures for export and import have been completed.

I. e., the designation in the contract of one of the listed abbreviations will mean the use of the specified type of Incoterms.

B. In what currency and at what rate will the payments be made?

Settlements in a foreign trade contract must be made in the currency of the value of the goods, or in another currency determined by the parties to the contract. However, if the parties have not determined the payment currency, it may be determined on the basis of international norms of Article 55 of the UN Convention on Contracts for the International Sale of Goods, according to which the currency of settlements is determined by the place of sale of goods or services.

There is also a position of the Supreme Commercial Court of the Russian Federation that «courts shall determine the amount of debt in the currency in which the payment must be made. If the monetary obligation is expressed without specifying the currency of payment, then payment shall be made in rubles in the amount of the equivalent foreign currency on the date of payment».

Thus, there are different approaches to determine the currency of settlements when the parties have not agreed in the contract in which currency the settlements shall be made. So be sure to indicate the currency and methods of the payment, as well as the form of payment, payment terms and conditions, and documents that are the basis for payments.

C. In what language will the contract be drawn up? Which of the two or three languages will be the main one?

The language in which a foreign trade contract is drawn up is no less an essential condition, since the presentation of the agreements of the parties in the contract must be identical. When the versions of the contract are not identical in two languages, then a natural question arises as to which version should be used. The solution to this issue is in the Review of judicial practice of the Supreme Court of the Russian Federation No. 2 from 2021, according to which «When foreign trade contracts submitted to the court by a company are prepared in a bilingual version: in English and Russian at the same time in a parallel presentation of the contractual terms and conditions, including the details and signatures of the parties - as a general rule, translation is not required, since by default the English and Russian texts are considered identical and the latter is sufficient to resolve the dispute».

Thus, the versions of the contract set out in several languages are recognized as identical and the court has the right to interpret the contract according to the Russian version until the opposite party proves non-identity.

But this is what happens in a Russian court. And in a court of a foreign state, everything will be the other way around if it is an English-speaking country. And besides, there will be a very big dispute about which language shall prevail if in the country where the dispute is being considered the state language is different from one of those in the contract.

D. Which country's law will apply?

Governing law is the law that will be used when considering a dispute between partners from different countries. It is important to understand that the law of another country may differ greatly from Russian one, which may cause conflicts and disputes related to this. The absence of a clause in the contract on the governing law shifts the work of determining the governing law to the judicial authorities.
In accordance with Russian law, «if the parties have not agreed on the governing law of the country, then the law of the country where the performer of the main obligation is located, that is, the seller, is applied».

Of course, in such a case the parties increase the likelihood of a judicial error and the application of law that defines the rights of the partner differently than national law, which may lead to an unexpected loss in court. Thus, we recommend including in the foreign trade contract a condition on the governing law.

Better choose the law of the country that you are familiar with or the country in which you can get qualified legal assistance, otherwise you risk playing with the counterparty without knowing the rules of the game.

E. In which court will the dispute take place? Which court will hear the case - state or commercial?

You need to decide on the correct terminology of judicial institutions, for example, in the Russian judicial system, «arbitration court» means a commercial state court. But there is also just the term «arbitrazh» or «arbitration» and in most other countries, «arbitration» corresponds to an international commercial arbitration court, which is not a state court, e. g.: LCIA (London Court of International Arbitration), SCC (Arbitration Institute of the Stockholm Chamber of Commerce), or DIS (German Institute of Arbitration). In Russia, this is the International Commercial Arbitration Court at the Chamber of Commerce and Industry of the Russian Federation (ICAC).

The distinctive feature of international commercial arbitration (non-state) is that this institution represents an autonomous model of commercial arbitration, not connected with subordination to either the national state administration or the judicial system of this country. It consists of judges as independent arbitrators from different countries. But the decision of international commercial arbitration is binding. However, the parties may refer the dispute to international commercial arbitration only if a referral agreement has been made between the parties (court of competent jurisdiction agreement). If there is no such an agreement, the dispute will be heard in the national court, that is, in the state commercial court of one of the parties.

Is it possible to consider a case in a Russian court if a specific court is not mentioned in the contract Yes. To consider a dispute with a foreign participant in a court in Russia, it is necessary that there be a disputed connection of the legal relationship with Russia, for example, if:
• the overseas company is located in Russia or their property is located here;
• the dispute arose over the fulfillment of obligations that were fulfilled or should have been fulfilled in Russia;
• the overseas company conducts regular economic activity in Russia;
• their business is focused on attracting Russian individuals or legal entities, etc.

But if you want the case to be heard in the court of your country, be sure to include this clause in the contract.

IMPORTANT: when choosing a court, you need to think whether the decision will/can be executed. If you have specified in the contract that the case will be heard in your homeland, then, having won the case, you will have to go to a Russian court and get a writ of execution here. But here the question arises, will Russia enforce the decision of your court if this country turns out to be unfriendly towards Russia?

F.: What language will the case be heard in?

If nothing is written about this in the contract, then the official language of the country in which the court is located will most likely be used.

What else?

In addition to the details we covered above, it is advisable to set forth the following:
• the need to register a contract with a bank in certain cases;
• requirements for funds reparation;
• currency clause and procedure for converting currency into rubles.


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