Before the deal is done, one cannot possibly foresee every possible scenario that may arise afterwards. This is especially true now that sanctions threat is clear and present. There are some important aspects however, that deserve special attention if one seeks to lower the risks linked to rights violations.
Foreign Partner Due Diligence
If you deal with a foreign partner, assuring its bona fide and good market reputation is vital.
Due diligence typically takes several steps.
General legal data verification
This includes checking registration data, legal history and current status (liquidation, bankruptcy, restructuring, etc.). "Green" and "red" flags that pop up in the process, help you choose the best contract terms and tools to enforce them.
Checking the partner’s sanctions compliance, beneficiary structure, and commodities to supply
In this way one can assess the likelihood of missing contract deadlines due to asset freeze, risks to delivery and payment terms etc.
Sanctions due diligence check should include not only the U.S. and EU lists, but also those of associated countries, as well as other national restrictions.
Checking the partner’s website
One should correctly identify not only the owner of the website (an individual or a legal entity) but also its creation date. A freshly launched website may raise additional red flags.
Website owner check can be made through hosting provider websites or domain verification tools (e.g., WhoIs). Web archives, such as Wayback Machine are useful to verify the website's change history that is also worth doing.
These freely available check options can be complemented with others or reduced depending on specific contract terms, partners’ jurisdiction, financial situation, and other modalities.
A holistic due diligence approach allows to identify potential red flags at an early stage, adjust contract terms accordingly and deploy extra safeguards. Effective pre-contractual work reduces the risks of default, financial losses, and legal conflicts, facilitating a lengthy and successful partnership.
Choosing Applicable Law
Parties are free to choose an applicable law for their contract (Article 1124 of the Civil Code of the Republic of Belarus). One has to keep in mind however, that this choice must be expressly stated or clearly implied by the terms of the contract and all the circumstances of the case.
To effectively safeguard one’s contractual rights and interests, it is crucial to clearly realize one’s situation as a seller or a buyer. The seller is usually more vulnerable in a deal and therefore more sensitive to national norms governing it.
If your partner insists on choosing a foreign law, you should consider how knowledgeable you are of its norms and what can be the implications of a potential dispute.
Importantly, is you agree to a foreign law for your contract, you may have to establish the exact content of its norms in the course of dispute resolution.
Article 1095 of the Civil Code states that in case of foreign law application, a court or other government body establishes the content of its norms in accordance with their official interpretation, practice, and doctrine in the relevant foreign state.
Always pay close attention to how vulnerable your position might be in the event of a dispute with your partner, and stay alert of specific foreign rules, particularly governing dispute resolution, respect of contractual obligations, etc.
As a rule, choosing a foreign applicable law may involve additional costs of consulting, translating, legalization services, etc.
Fixing a clear pre-trial dispute resolution procedure
A good way to minimize the risk of a dispute is to rule out pre-trial dispute resolution.
If pre-trial dispute resolution is mandatory under applicable law, e.g. in Belarus or Russia, the parties may specifically stipulate in their contract that pre-trial dispute resolution does not apply.
Selecting an Authority for Dispute Resolution
Choosing the right competent authority to address eventual disputes is key to safeguarding the parties’ contractual rights and interests. Failure in this crucial aspect may invite risks arising fr om inadequate knowledge of dispute settlement procedures in foreign state or arbitration courts, extra judicial costs (e.g. difficulties with hiring a foreign legal counsel or lawyer) or lengthy trials.
Here, one needs to understand two key aspects:
• which court, a state or arbitration one, will hear the dispute;
• which state court will resolve the dispute.
State courts have the advantages of clear dispute settlement regulation, power to enforce decisions, existence of an international treaty and relevant judicial practice. All this speaks in their favour. In other cases, it is advisable to opt for an arbitration court.
To recognize and enforce decisions of a Belarusian court in a foreign state, a recognition procedure with this country’s competent authorities is necessary. Therefore, to enforce a Belarusian court decision in the debtor's country, the creditor must undergo a second judicial review of its court's decision, by applying for enforcement to the other country’s competent authorities.
This can significantly delay dispute resolution and the enforcement of the competent authority's decision.
Correct drafting of the arbitration clause (arbitration agreement) is essential to a contract. The clause must be clear and unambiguously interpret the parties' intention to refer the dispute to arbitration. Inaccurate wording (for example, inaccurate court designation) can provoke a conflict.
One should choose the right dispute resolution authority with due account of existing international agreements on legal assistance and the possibility of enforcing a court decision in another jurisdiction. Standard trial length, state fee (arbitration fee), and enforcement procedures in the foreign country should also be factored in.
Integrating Arbitration or Prorogation Agreements into the Contract
An arbitration or prorogation agreement may take the form of a separate agreement or a clause in an international contract. Here is a classic example of the latter: "All disputes arising from or related to this contract shall be subject to review by the Economic Court of the Republic of Belarus."
When including an arbitration clause in a contract, it is important to remember that the parties agree to refer their dispute to an arbitration institution.
The arbitration clause must be clear, unambiguous, and address all key aspects of eventual dispute resolution.
It must contain the following elements:
• Name of the arbitration institution: it must be clearly spelled out, e.g., the International Arbitration Court at the Belarusian Chamber of Commerce and Industry;
• Venue of arbitration: identify the city and country wh ere the arbitration will take place;
• Number of arbitrators and their appointment procedure: for example, whether the dispute will be heard by a single arbitrator or a panel;
• the language of the arbitration;
• the allocation of costs.
Example of an arbitration clause: "All disputes, disagreements, or claims that may arise out of or in connection with this agreement, including those related to its amendment, termination, execution, invalidity, or interpretation, shall be resolved by the International Arbitration Court at the Belarusian Chamber of Commerce and Industry in accordance with its rules."
Definition of Sanctions Clauses and Representations
At the time of sanctions, one has to take into account risks related to asset freezes, economic embargoes or direct listing of the partner or its stakeholders, etc. When dealing with targeted companies, one way of minimizing arising risks is to include anti-sanctions assurances or clauses into the contract.
An anti-sanctions clause is an agreement between the parties to respect their contractual obligations regardless of the introduction/effect of sanctions, or face liability.
Importantly, this obligation cannot be suspended; the introduction of sanctions does not constitute a force majeure.
An anti-sanctions clause may contain:
• representations regarding circumstances;
• obligations to share information.
An example of such a representation:
"The Supplier warrants that:
• the Supplier is not included in the sanctions lists of the United States, European countries, or other countries;
• none of the persons controlling the Supplier are included in the lists as per para 1;
• the Supplier has no contractual or corporate relations with individuals or organizations on the sanctions lists as per para 1, i.a. it does not own assets or participates in the authorized capital of sanctioned companies.
The Supplier undertakes to fully compensate any damage caused by the provision of false information."
Example of an anti-sanction clause:
"Despite the introduction of sanctions that prevent one of the parties from honouring its obligations, the parties fulfill their obligations in line with the original terms. The parties do not recognize the introduction of sanctions as a force majeure.
If one party fails to honour its obligation, the other party has the right to:
• suspend the honoring of counter-obligations;
• claim compensation and penalties;
• terminate the contract."
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