Introduction
When entering into agreements with foreign counterparties, Russian businesses frequently encounter legal risks that could have been avoided with properly drafted contracts.
Choice of Governing Law
One of the most critical issues is the selection of governing law. The contract should clearly specify which country’s legislation governs the parties’ relationship. This is especially important when disputes arise.
Recommendations:
- Specify the governing law expressly — do not rely on default rules
- Consider where the counterparty’s assets are located
- Consult with an attorney regarding the advantages of each jurisdiction
Arbitration Clause
For resolving international commercial disputes, it is advisable to include an arbitration clause in the contract. International commercial arbitration offers several advantages over state court proceedings:
- Enforcement of awards in 170+ countries under the New York Convention
- Confidentiality of the proceedings
- The ability to select neutral arbitrators
In Russian practice, the ICAC at the CCI RF and the ICC are the most common choices. If your counterparty insists on a foreign arbitration body, verify that Russia enforces its awards. Make sure the clause is specific: it should name the seat of arbitration, the language of proceedings, and the number of arbitrators. Vague clauses are frequently struck down as unenforceable.
Contract Language
A bilingual contract is convenient, but it must specify which version takes precedence in case of discrepancy. If a translation error goes unaddressed and no controlling language is designated, a dispute over interpretation is inevitable. As a rule, the Russian-language version should be made controlling when your counterparty operates within Russian jurisdiction.
Currency Provisions
In the current environment, it is especially important to protect against currency risk. Include provisions in the contract addressing:
- The payment currency and the accounting currency
- The mechanism for recalculation upon a material exchange rate change
- The right to terminate the contract upon force majeure
Conclusion
A well-drafted contract with a foreign counterparty is the foundation of successful international business cooperation. If you need assistance drafting or reviewing such a contract, please contact our specialists.
Frequently Asked Questions
How do you choose governing law in a contract with a foreign counterparty? The parties may specify the governing law directly in the contract. It is practical to choose the law of the country whose courts or arbitral body will hear disputes. Russian law is the natural choice when arbitration takes place at the ICAC or disputes will be heard by Russian courts.
What is an arbitration clause and why does it matter? An arbitration clause provides that disputes will be referred to a specific arbitral body (ICAC, ICC, etc.) rather than a state court. Awards from international arbitration are recognised and enforced in 170+ countries under the New York Convention — a decisive advantage over domestic court judgments.
Should a contract with a foreign party be drafted in two languages? It is advisable. A bilingual contract eliminates translation ambiguities. Always specify which language version controls in the event of a discrepancy: courts construe unresolved inconsistencies against the drafter.
How can currency risk be managed in an international contract? Include a currency clause: peg the price to a stable currency, provide a recalculation mechanism for material exchange rate movements, or include a termination right in the event of force majeure. This is standard practice for long-term cross-border contracts.