Belarusian business actively forges synergies with partners from the Eurasian Economic Union, Central Asia, and beyond. A successful deal essentially hinges on awareness of local laws, partner due diligence, and effective hedging agaist potential contract default. One should respect not only Belarusian norms but also applicable international agreements.
1. Partner Due Diligence
Before the deal is done, a due diligence check of your foreign partner is highly advisable. This would lower the risk of subsequent contract failure due to the other party's bad faith or other reasons, such as sanctions.
As enforcing a court decision may be difficult or even impossible for a Belarusian company in another country, due diligence should be thorough and comprehensive.
What to check:
1) The partner’s legal status, including by:
• requesting its constituent documents (charter, memorandum of association, etc);
• checking the partner’s registration through official registries and open databases;
• making sure it may operate in international markets under the laws of its country (e.g., requesting copies of its license, extracts from the trade register, etc.).
2) The signatory's authority through its corporate documents, including whether your deal requires approval of the partner’s governing bodies (e.g., shareholders or the board of directors). The relevant rules should be checked against the partner’s constituent documents and local legislation.
If the contract is signed by someone other than the director on behalf of the partner company, one has to request his/her power of attorney and make sure that it is valid and gives the signatory enough authority with regard to the value and subject of the deal at stake.
3) The partner’s potential lawsuits, financial statements (balance sheet, profit and loss statement), if openly available, or requesting them from the partner itself. International due diligence instruments can be helpful in this respect.
4) Business reputation (through various open sources, reviews from other partners, litigation and arbitration data, media etc.)
5) EU, U.S., UN, and other sanctions lists (e.g., OFAC and EU Sanctions List websites).
At each of the steps due diligence can be more or less detailed depending on the subject and size of the contract. For example, for large transactions involving banks and other financial institutions, it is standard practice to hire a law firm to conduct due diligence checks and verify the contract's compliance with relevant legal norms.
2. Key Contract Provisions
Any international contract must contain a disctinct and detailed language on the following essential elements:
Subject
In the Anglo-Saxon tradition for example, the subject is frequently described in general terms only (e.g., provision of services without indicating their nature). To avoid possible disputes, we recommend detailing the contract subject, including the list of goods, services or works, and planned results.
Price and payment
It is crucial to lay down precise procedures regarding price calculation, payment, invoicing, and delivery statements. Distinct payments terms and timely primary reporting can simplify compliance checks by banks processing international payments.
Honoring of obligations and liability for failure
By writing modalities and deadlines for implementation, acknowledgment of results, and penalties into the contract, one can reduce the risk of litigation and effectively protect one’s interests in court and arbitration.
Enforcement
Ways to ensure honoring of obligations depend on the contract specifics and value. Some of them need to be written into separate instruments, such as a bank guarantee or collateral agreements.
Applicable Law and Dispute Settlement
For small contracts, parties typically choose a court in one their home jurisdictions.
In bigger transactions, one is well-advised to consider deferring disputes to international arbitration, e.g. the International Arbitration Court at the Belarusian Chamber of Commerce and Industry. It is important to use clear standard wording for such a clause. Failure to lay down exact modalities for the establishment of an arbitration panel, the choice of an arbitration venue, or inaccurate name of the arbitration court may invalidate the clause.
3. Tools to Ensure Honoring of Obligations
To reduce the risk of a contract default, the following safeguards are commonly used in international practice:
• bank guarantee with the bank's obligation to pay a fixed amount of money in the event of default by the counterpart. Commonly used in big contracts;
• letters of credit to guarantee payment upon fulfillment of the supplier's obligations. Effective to minimize the risks of dealing with new partners;
• advance payment (partial prepayment, usually 20-30% of the contract value). Reduces the possibility of deal cancellation by the buyer and minimizes risks on the supplier's side;
• insurance against contract default. In Belarus, such services are provided by the Beleximgarant insurance company;
• penalties (fines, penalties) complete with a payment procedure in the event of a default;
• collateral (for example, a lien on expensive goods until full payment).
The choice for this or another tool should be based in each case on a sound analysis of the deal background, including the history of relations with the partner and its jurisdiction. For example, if Belarusian companies have difficulties enforcing court decisions in the counterpart's country, then one should hedge big contracts with the strongest possible safeguards (bank guarantees, collateral, advance payments, letters of credit).
4. Compliance with Currency Norms
Belarusian traders must comply with the national currency regulation, including:
• registering their foreign exchange contracts on the portal of the National Bank of the Republic of Belarus in relevant cases;
• repatriating foreign currency earnings by the established deadlines;
• respecting export control requiremenets (as per the product and the country of destination).
The counterpart's jurisdiction may have similar currency norms in place.
By respecting procedural deadlines one can avoid liability risks and safely pass compliance checks by banks processing international payments.
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