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October 31, 2014

 

5 ACES IN THE HOLE, YIELDING ROYAL FLUSH OF THE CONTRACT


During making the contract, we always try to secure ourselves by defining a specific list of arrangements of the parties on pages of the agreement. However, in certain cases of large contracts, the lawyers intentionally include the special provisions into the contract under which the initial parity in the relations of the parties turns into the unconditional priority only one of them. In this review, we will warn you about five legal methods of game at a poker table of the contract text that will ensure you to have all the aces.

1. Few people know that during signing the contract the parties shall keep track not whether the contract is signed or not, but how it is signed. With entire understanding of terms of the contract or with remarks to it. You may be surprised and say: “Oops! how come? Is that possible to argue about something or to protest against the terms of the contract after its signing and putting the stamp? But signing of the contract and ensuring by stamp means a complete consent with its provisions”. So, here is hidden that trump point of what we talked above. Signing of the contract and its ensuring by stamp does not mean a complete agreement with the contract, in case if any of the parties upon signing the contract included the reference in the text of the contract to the statement of disagreements. It doesn’t matter, that the reference was made by pen or under the separate letter. But, the main thing that according to Article 375 of the Civil Code of the Republic of Uzbekistan, availability of the statement of disagreements means that the contract is offered to be signed on other provisions specified in the statement. And unless the parties do not agree about the disputable issues, the contract shall be considered as unconcluded.

However, here is one very cunning moment, or rather, the trump. If the statement of disagreements contains remarks on provisions not being a crucial under the contract, such contract, entirely shall be considered as concluded, except for those disputable items that are expressed by the dissatisfied party in the statement of disagreements. Thus, it appears that if the subject, price, provisions, procedure of payment, quantity of goods, scope of works and services, and other standard terms, specified by the Article 10 of Law of the Republic of Uzbekistan “On contractual and legal base of activities of economic entities” are agreed by the parties and on them the parties have not any claims, you may consider that all in apple pie order and you’ve got the contract, in that form as it is. But, hold on, if the party wants to dissolve one of the contract items that is referred to the list of substantial by the legislation, but on functionality being quite the same, he can easily prescribe in the statement of disagreements that he suggests to exclude this item or wishes to see it in another edition. That’s all! If another party does not pay attention to a minor addition about disagreements, in the corner of details of the parties, or just skip the incoming document with an unclear writing that is entitled by the statement of disagreements, in due time the omnipotent item in the contract on which he laid hopes, will be fizzled out as a balloon, as it will lose the legal force, being neutralized by the statement of disagreements. Therefore, the flush of a strong item of the contract is in favor of one party, it will be beaten by a full house of the statement of disagreements of another party.

2. Be attentive while reading the payment terms of the contract. Don’t be limited by availability of 100% payment terms. This payment will be entirely performed only under special terms of the contract which can contain such an exotic clauses as consent of the third party to scope and quality of the fulfilled contractual obligations. The list of the possible third parties may vary from creditors to investors - founders, of another party of the contract. In local contracts, such exceptions are made rarely. But, as the cost rates of the contract are higher, that the risk of the third parties participation in the contract will be high, and it is quite probable that these parties will not be absolutely agree with the position of the partner accepting the goods and works from you. The letter of credit payment method will also not rescue you from loss, as the terms and conditions for withdrawal of money from the credit account is specified in the contract, where it can be specified that for exemption of credit is requires the written consent of the third party.
As the trump moment in the contract can be the term that the transferred payments could be reconsidered by another party, and even after acceptance of fulfilled obligations. That is, during the claim period that is about three years, after completion of the contract, to you could present the invoice about repayment of money, in case of revealing the defects in goods and works. I imagine your face after receiving such a claim, when you even do not remember about that kind of contract.

3. Force majeure circumstances. Every time during reading this term of the contract, in mind we wish to escape to France. At first, because, this expression is come up in France (probably in order to innocently to excuse before the ladies, for their coming late to appointments), and at second, every time when we review the contract indeed we wish to go to France, actually more, than to read this annoying item about force majeure. Nevertheless, I would like to ask you to return for a minute, from the country of baguettes and put aside the bitten croissant, and listen to that I will tell you about the third trump, that may spoil all your game. In spite of seemed simplicity and commonality of force majeure circumstances, particular contracts may contain the unusual terms and conditions, that the force majeure circumstances affected to implementation of the contract terms, except for fire, flood, earthquakes and wars, can be either the shortage of money, lack of equipment or labor, claim of contractors, or fashionable for today the acts of governmental authorities influencing on implementation of contract terms or simply saying “change of the legislation”. Such contract, with the similar force majeure terms and conditions will not allow you to see France so soon. Your partner can try to avoid taking on responsibility for breach of the contract, referring to force majeure circumstances while usual internal economic difficulties. Particularly, if he receives 100% prepayment. Availability of term about acceptance of the act of governmental authority in force majeure, generally will give you the carte blanche to our smart “Frenchman”, because you can interpret in a very wide range the impact of any act of governmental authority on partner’s work. From adoption of the program of localization of the local production when it can negatively impact on profit of your partner in the future, to change of the amounts of state duties, where the payment of the big amounts of taxes and fees can seem to the partner as a force majeure circumstances. Having signed the contract in such conditions, it will be very difficult for you to cover a similar ace with another card, and to enforce your partner to conscientious implementation of the contract. Therefore eat up your roll and keep watching the croupier's hands at distribution of the draft contract.

4. At the crack of day of independence of Uzbekistan, and development of separate sectors of economy, were signed the various investment contracts with foreign partners for construction of sites, supply of technological equipment and for creation of investment projects. Unfortunately, due to the lack of qualified international lawyers in Uzbekistan at that time, quirky lawyers of the partners included into the contracts the some terms on regulation of the contract by the law of foreign state with a place of consideration of disputes in arbitral tribunal of the foreign states. For the time being, the contract worked without failures; however, the Uzbek party should have given a hint to its interests, in cases, which were beyond the text of the contract, the lawyers of partners referred to the standards of the legislation of their country, supporting the partner. In such cases, the Uzbek party has nothing to do but involuntarily to make concessions of partners. But, fortunately, it lasted not so long. By release of the Law of the Republic of Uzbekistan “On Courts” in 1993 and implementation of the Civil Code of the Republic of Uzbekistan in 1997, and the Economic and Procedural C of the Republic of Uzbekistan in 1998, there was formed a qualitative regulatory base that giving the chance to define in the foreign trade contracts as the maternal law - the law of the Republic of Uzbekistan, and to determine as the place of consideration of disputes our economic courts. If the partners might be disagree with the place of consideration of disputes in the courts of Uzbekistan, but in case of regulation of the contract by the legislation of Uzbekistan they cannot contradict, because not only by the provisions of the Civil Code of the Republic of Uzbekistan, and also by the international documents, such as the Convention “On the Right Applicable to Contracts of the International Trading in a Commodity” of 1986, in terms of issue for establishment an applicable law of the contract, the preference is given to the law of the place of the contract which is most closely connected with its performance, and more precisely by the place where the goods will be directly delivered or the site will be constructed. By the way, we still forgot to say that by that time, our lawyers fairly became skilled in hashing of the foreign trade contracts, and adequately entered into sword-plays with foreign colleagues on manufactory, reminding them a saying that “who pays under the contract, he orders the pieces”.

Today, possessing the available legal base, do not give to foreign partners the strongest trump in the form of determining of a legal regulation of the contract, and being carried out by enthusiasm do not forget to check the precedence of your language of the contract. Otherwise, the discrepancies in language versions of the contract, and the priority of the foreign version, also completely will spoil your game.

5. Sanctions, penalties and fee. Much cry during their presence in the contract, and a little wood when they aren't present. But, don’t be deceived by this, it is just needed to strain veins for the indignant shout right now. Because, according to Article 24 of the Law of the Republic of Uzbekistan “On contractual and legal base of activities of economic entities”, established in Article 25-32 of the Law, the sanctions will be applied as mandatory provision in your contract, even in case of their physical absence in the text of the contract. This is eureka for you? And you thought, what if there are no any penalties in the contract, you may bravely show your cards, without being afraid of any consequences? Not a bit of it! Punishment will come and will come inexorably, but with reference to the legislation, but not to the contract.


Therefore, in large contracts for millions of dollars, without doubt provide the demand to the partner, specify the amount of penalties i.e. in the amounts agreed with you, even in that case when his poker face doesn't raise your doubts in his honesty. So, you will know exactly on what rates the game is going on, and how much is the pood of evil, in case of breach of the contract.
                  

 

 

 

Timur Abdulazizov
Legal expert

 

 

 

 

 

 




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