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January 21, 2015

 

 

 

THE RIGHT WAY TO NEUTRALIZE THE OPRESSIVE CONTRACT


Don’t you ever had the case when you were driven into a corner, and the encountered problem seemed unsolvable? If no, then you are lucky person, living in an ivory tower, and I’m with admiring envy. At the same time, ignorance of problems in life means not only about favor of fate, but also about poor life experience of the person in the highway of life. So, this article is dedicated to one of the examples of knowledge of problem solution with the incorrect contracts that are able to bankrupt you.

After having negotiations and having signed the contract, we don't even think about troubles which trap us between lines of the text and semantic pools of legal expressions in the terms of agreement. Our thoughts are busy with future achievements of business and with a positive effect of the result of made transaction, so it comes as a no surprise. Surprises only, the separate cases of unfair behavior of partners of the contract when using your trust, the experts of an opposite party, put into the original clear text of the contract, the special clauses or so-called “special” terms under which the document signed by you, under the first demand of the contractor, suddenly turns into the terrible monster threating to your finance and mental rest.

Being more specific, in the contract there can be such terms, as unilateral increase of a total cost of the contract due to the reasons that a somehow related with reality, as an example, lack of the Contractor’s clear idea about the real scope of forthcoming contractual obligations. Provision of rights and responsibilities in the contracts, as well as the procedures that are vary from the statutory norm established by the legislation are both the rare cases. Besides, in some cases, do not even shun prescribing the frank point, about unilateral desire, opinion or the requirement in favor of one of the parties of the contract.

There’s no any claim when the demand to increase the contract cost is followed by performance of the additional scope of works agreed by the parties, but to accept an impudent unilateral contract blackmail, not persecuting the increase of the scope of works, services or quantity of goods, but intended for getting an easy money - you have no right.

Therefore, if in the contract there are no conditions about protection of your interests, you have the right to apply the legal conditions of protection of parties’ interests. According to Article 116 of the Civil Code of the Republic of Uzbekistan you have the right to appeal the one-sided terms of the contract against the partner, and accept them invalid, owing to the fact of their inconsistency with an equal interests of the parties and with the requirements of legislation. So, according to Article 10 of the Law of the Republic of Uzbekistan “On contractual and legal base of business entities activity”, and Article 386 of the Civil Code of Uzbekistan, the price of business contract shall be defined during its conclusion, and its unreasonable increase in interests of only one party is not applicable. This statement shall be confirmed by Article 636 of Civil Code of the Republic of Uzbekistan, where in terms of Contractor Agreements is established that the fixed price of work in the Contractor Agreement includes the compensation of expenses of the contractor and the due payment. Further, if there is a need for additional works and on this reason, in essential excess of the fixed price of work (approximate cost-estimate), the contractor is obliged in due time to notify the customer about it. If the customer is disagreed about excess of price of work (cost-estimate) that is specified in the contract, he has the right to cancel the contract.

As it is obvious from the text of Article 636 of the Civil Code of the Republic of Uzbekistan, the increase in cost can be made only on the basis of consent of both parties, in case of additional works performance, the approximate cost of works, but not on the basis of unilateral artificial overpricing of the contract. Moreover, by the terms of this article is also highlighted the fact that the contractor, as a rule, has no right to demand increasing of the fixed price (fixed cost-estimate), and the customer of its reduction, including and in case when during signing the turnkey contract, the opportunity to review the whole scope of performed work or expenses required for this work should be excluded.
It should be noted that in certain cases the performance of work under the contract can demand a reasonable adjustment of cost of the materials and equipment that is supported by official documents and such price increase objectively was not specified during signing the contract. In that case, is required to recheck the claim of contractor and in case of validity of received information, to consider the possibility of making the changes into the contract price, upon condition of profitability of final target due to the made changes.

Well, in all abovementioned, that during solution of a problem of recognition of invalidity of the contract terms according to the Article 116 of the Civil Code of the republic of Uzbekistan, you shouldn't go to court, is sufficient to submit the letter to other party. The same cannot be said for the below cases.

In legislation are prescribed the other cases of legal protection against crippling terms of agreements. These are the Articles 122 and 123 of the Civil Code of the Republic of Uzbekistan, which are invoked to define the contract terms that are concluded under the influence of delusion or false conduct, violence, threat, malicious collusion of the representative of one party with another party, as well as the transaction which the citizen had to make due to combination of adverse circumstances on the extremely unprofitable conditions for him, that the other party have benefited from, as a void condition. However, note that for applying the terms of Articles 122 and 123 of the Civil Code of the Republic of Uzbekistan you need a court decision.  

According to Article 383 of the Civil Code of the Republic of Uzbekistan, you were granted the right to change an unequal term of the contract if you prove this in the court that the circumstances significantly changed after the signing of the contract. And, owing to the unilateral claim of the contractor, violated the correlation and balance corresponding to the contract in terms of property interests of the parties, that involves to you a damage, that you substantially lose what, that you expected during signing the contract. Be prepared for a huge paper work when you refer to Article 383 of the Civil Code of the Republic of Uzbekistan, because you need to prove item by item the occurrence and compliance to four signs of essential change of circumstances.

Now, regarding the terms of contract that vary from the legislative and pursuing the interests of only one of the parties. According to Article 354 of the Civil Code of the Republic of Uzbekistan, the contract terms shall be determined under the discretion of the parties, except for the cases when the content of the corresponding term is prescribed by the legislation. That is, if in the contract is specified that the one of the parties has the right to terminate the contract at its own discretion, in case of absence of any fault of another party, and without payment of the part of obligations fulfilled by other party, this term of the contract will be invalid, and contradicts to some sections of the Civil Code of the Republic of Uzbekistan. However, the Civil Code of the Republic of Uzbekistan confirms that in the absence of a fault of the contractor, the party terminating the contract should compensate the performed part of works. There are also such cases when in contracts the party limits his responsibility for violation of contractual terms and in general, exempt himself from consequences. It is initially ineffective, under the Article 333 of the Civil Code of the republic of Uzbekistan “making preliminary agreements on elimination or restriction of responsibility for deliberate violation of the obligation is ineffective since the moment of its conclusion”. So, if you are pressed by unsuccessful terms of signed contract, my advice to you, follow the rules of legislation, perhaps the terms of the contract, are far from being valid.

Everything is good. Now, you are aware about tricky issues of protection and counterattacks of law and you know how to act yourself legally against evil contractors. But, it's early for joy, all above-mentioned regulatory base is very good, only in case if… Namely, in case if the contract is regulated by the legislation of Uzbekistan, or at least in the contract are not specified the terms of law-enforcement rights. So, if the local contracts, automatically are regulated by the national legislation of Uzbekistan, then import and export contracts may contain the other conditions. Therefore, when you mention in the contract the law-enforcement of the international legislation standards or English law is required to address the relevant international documents and acts of English law. One of the universal international document regulating the legal relationships in the private international law is the Principles of the International Commercial Contracts (UNIDROIT) in the last edition of 2004.

These UNIDROIT Principles establish the general rules for the international commercial contracts. They can be applied when the parties have agreed that their contract will be regulated by the general principles of law, lex mercatoria or similar provisions; they can be used when the parties didn't choose the law that is applicable to their contract; and shall be used for interpretation and completion of the international uniform law instruments; and used for interpretation and supplementing of the national legislation. That is, if in the contract as the regulating legislation you have chosen the rules of the international legislation or English law, you have a right to act under the provisions of UNIDROIT Principles for legal protection of your interests, cause the UNIDROIT Principles are the part of “common English Law”.

It’s a good news that the provisions of UNIDROIT Principles are in many instances are similar with provisions of the civil law of Uzbekistan. And as the fact, the items 3.5, 3.8, 3.9, 3.10 of the UNIDROIT Principles allow to accept the corresponding unilateral terms of the contract as ineffective, in case of significant delusion of the party in terms of signed contract, at which the party being under a delusion would have to sign the contract in general, if the true facts of the matter were known; or the deceptive acts of the other party; threats of other party and essential disbalance of the contract terms were known.  

Legal ways of the positive solution of the critical issues of the contracts for the qualified lawyer is sufficient, but these issues should be solved at the contract preparation stage, without omission of horrible surprises in the subsequence.

 

 

 

Timur Abdulazizov
Legal expert

 

 

 

 

 

 

 




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