General principles
Freedom of contract
By default, individuals and legal entities are free to determine with whom and on what terms to enter into agreements. Even though the Code provides for general rules governing agreements, in most cases, parties to an agreement are free to deviate from such general rules and agree otherwise, unless law clearly prohibits altering the respective rules (so-called “imperative” rules).
The parties may also enter into a mixed-nature agreement combining features of different types of agreement specified in and regulated by the Code. For example, even though Russian law does not specifically regulate distribution agreements, the parties may conclude such an agreement combining elements of supply, services, agency and other necessary agreements.
Also, as mentioned above, individuals and legal entities are free to conclude agreements not specified in the Code, in which case matters not covered by such agreement will be regulated by general rules set in the Code.
Neither the name of an agreement, nor specified terms used to define its parties (e.g. “buyer” “seller”, “contractor”, etc.) determine in themselves the legal nature of the agreement. They do not qualify the agreement as being this or that type specified in the Code. However, when making such a qualification, Russian courts or other authorities (e.g. tax authorities) may take them into account alongside with other attributes.
Contract vs Agreement
Russian law does not draw a legal distinction between a “contract” (“kontrakt”) and an “agreement” (“dogovor”): both denote the same civil-law concept of a transaction giving rise to mutual rights and obligations, and the Civil Code applies the same rules to either. The choice of term is largely a drafting convention rather than a matter of legal substance. “Dogovor” is the term used throughout the Civil code and remains the default choice for most commercial relationships, while “kontrakt” is more commonly used for supply, construction, and state or municipal procurement agreements. In bilingual agreements, the English words “contract” and “agreement” may be used interchangeably without affecting how a Russian court characterises or interprets the underlying transaction.
Governing law
The parties to an agreement may generally choose as its governing law, which is by default Russian law or, provided the agreement involves a foreign element, foreign law. Russian law may be preferable if contractual relations involve Russian state bodies and companies, or parties intend to settle disputes in Russian courts. The use of foreign law remains a common option, although the choice of foreign law cannot completely exclude the relevance of Russian law, whose imperative rules may not be overcome.
Disputes resolution
Russia has treaties allowing reciprocal enforcement of national court judgments with only a few countries, which makes the choice of national courts less preferable in cases when the Russian judgment should be enforced outside Russia or a foreign decision in Russia.
China is one of the few countries with which Russia has such a treaty: a 1992 bilateral treaty on legal assistance in civil and criminal matters provides a basis for mutual recognition and enforcement of court judgments. This makes Russian or Chinese courts a comparatively reliable forum for disputes between Russian and Chinese counterparties.
Russia is a party to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, and an arbitral award obtained in another signatory jurisdiction should be enforceable by a Russian court.⁷
But since 2020, Russian state commercial courts (the so-called “arbitrazh” courts) have exclusive jurisdiction over disputes involving Russian entities subject to foreign sanctions (Article 248.1 of the Arbitrazh Procedure Code of the Russian Federation), which rule, in practice, overrides any arbitration clause or a foreign-court jurisdiction clause.
When selecting the forum, the parties should take into account the chosen governing law and the issue of enforceability of court decisions or arbitral awards in Russia or abroad. Chinese forum is now a viable option, given that after the new version of the PRC Arbitration Law comes into force, Chinese arbitration is becoming more predictable and functional for Russian business.
Language
Agreements between foreign and Russian individuals and legal entities are usually drafted as bilingual texts – in Russian and respective foreign language.
It is important to have a Russian version to facilitate some interactions with the Russian authorities or banks.
Bilingual agreements should contain a clause on the prevailing language to avoid disputes relating to any discrepancies between texts. The prevailing language usually depends on the forum selected by the parties and aligns with the language of the dispute resolution or arbitration.
Negotiations
The Russian Civil Code establishes:
· a duty on those entering into contractual negotiations to act in good faith and not to enter into negotiations frivolously; and
· the notion of bad faith negotiations, and defines the concept of bad faith as a situation where one party to the negotiations provides the other party with incomplete information or conceals certain facts or unexpectedly breaks off the negotiations without due cause.
If a party breaches the above requirements, it will have to reimburse the aggrieved party’s losses, which are defined as the expenses incurred by the good faith party for the conduct of the negotiations and any expenses related to the lost opportunity to conclude a contract with a third party.
The rules will clearly apply to negotiations carried out between Russian individuals and entities and to negotiations of agreements mandatorily governed by Russian law. Their application to cross-border negotiations is a more complex issue, which depends on the applicable conflict-of-laws rules.
To minimise the associated risks, the negotiating parties should establish the time when negotiations have formally started, e.g., by signing a letter of intent or a memorandum of understanding. Such document can serve as evidence if a claim for reimbursement of expenses related to termination of negotiations is filed. However, if it contains essential terms of the future agreement, it may be binding on the parties, hence requiring careful drafting.
To argue that Russian pre-contractual rules do not apply and foreign law governs, the letter of intent or similar document should include a choice of law clause to avoid automatic application of conflict of laws rules.
To avoid uncertainty and disputes contracts often contain a wording that their provisions substitute previous negotiations and correspondence.
Corporate capacity and authority
As a rule, the general director, or any duly authorised representative (by power of attorney), has the capacity to bind a Russian company.
A transaction outside the company’s ordinary course of business qualifies as a “major transaction” once its value reaches 25% of the company’s balance sheet assets (or a lower threshold set by the charter). Transactions between 25–50% require unanimous board approval; above 50%, approval of a 75% shareholder majority is required for a joint-stock company, or a simple majority of participants for a limited liability company, unless the charter provides otherwise.
“Interested party transactions” (e.g. involving affiliates or cross-management) require no corporate approval unless requested by the company’s management or a shareholder holding at least a 1% stake, though the charter may set different rules. Missing approval does not automatically void the agreement, but it entitles the company, board members, or shareholders/participants holding at least 1% of the charter capital to challenge it in court.
Conclusion and requirements as to form
To conclude an agreement, the parties must agree on its material terms (e.g., for a supply contract, the type and quantity of goods). Once such terms are agreed, Russian courts may deem the agreement concluded even absent other terms, unless the parties expressly identified further terms as material.
Agreements are generally concluded in simple written form; some between individuals may be oral, while others require notarisation (e.g., annuity agreements or real estate, share purchase agreements) or state registration (e.g., real estate leases of one year or longer⁸). They should be signed by authorised representatives – typically the general director by virtue of the charter, or another person under a power of attorney, which it is prudent to verify. Seals are not legally required but remain common practice.
Russian law generally does not require a single hard-copy document (except, e.g., in the sale and purchase of real estate⁹): accepting a counterparty’s offer suffices, so an exchange of emails may itself constitute an agreement once all material terms are agreed, including when a counterparty returns a signed agreement with a so-called “disagreement protocol” (“protokol raznoglasiy”).
Contracts may also be concluded electronically; see the E-commerce section for details on e-contracts and e-signatures.
Representations
Representations (“zavereniya ob obstoyatelstvakh”) (an intended equivalent of “representations” and “warranties” as used in contracts under English law¹⁰) represent quite a new concept in Russian contract law. They can be given by a party with respect to both its status and activity. Typical representations under a Russian-law governed contract relate to aspects such as the legal status of the company (including that it holds valid licences and permits required to perform the agreement), compliance with tax laws, obtaining all necessary corporate approvals, the absence of threat of insolvency.
If any of the representations made are breached or false, the counterparty will be entitled to claim damages, including for direct damage and loss of profit, if inflicted, or liquidated damages¹¹ if provided for in the agreement. Moreover, should the representations be considered material by the counterparty who relied on them, this counterparty may unilaterally terminate the agreement on an out-of-court basis.
Payment obligations and currency control
Russian law does not set forth mandatory terms of payment, including any maximum or minimum payment deferment. Parties to an agreement are free to determine a payment schedule suitable to their commercial needs and particular relationship.
The contractual price may be set in any currency at the parties’ discretion. The currency defined in a contract may differ from the currency of payment. To mitigate foreign exchange risks, the parties may define the exchange rate applied and/or a currency corridor within which the currency may fluctuate for the purposes of the agreement.
However, foreign currency operations between Russian residents are generally prohibited. Contracts between residents may be denominated in foreign currencies, but the actual payment must be made in Russian roubles. Foreign currency transactions between residents and non-residents are generally permitted, although higher value foreign trade contracts must be registered with an authorised bank.
In addition, since 2022, transactions involving counterparties from countries designated by the Russian Government as “unfriendly” (the list includes the US, EU Member States, the UK, Japan - see the Restrictive measures (countersanctions) section) are subject to a special regime introduced by a series of Presidential Decrees. Depending on the type of transaction, such operations may require authorisation of a Government Commission or compliance with specific limits on payments and settlements. Separate rules also apply to the partial mandatory sale of foreign currency export earnings by certain major Russian exporters¹².
Security
The performance of obligations under agreements may be secured by a pledge, retention, a suretyship, an independent guarantee (including a bank guarantee), a financial collateral, a security deposit or any other means provided by the parties’ agreement. In general, the parties are free to select the type of securement most suitable for their relationship and purposes.
Amendment
As a rule, agreements may be amended or terminated upon mutual agreement of the parties. Addenda must be executed in the same form as that applicable to the agreement (e.g. in writing, with or without notarial certification).
In case of a disagreement between the parties, the agreement may be amended or terminated through the courts under the respective grounds set forth in the agreement, in the law or if one of the parties committed a material breach of the agreement.
Termination
Unilateral termination for convenience is prohibited, unless expressly allowed in the law or agreement itself. For example, the Code establishes that a service agreement may be terminated unilaterally on an out-of-court basis provided the party initiating termination compensates the other party’s losses.
There are no statutory requirements as to the terms of termination notices in case of termination for convenience, and the parties are free to set a term at their discretion. Termination for convenience may also be subject to a termination fee.
Invalidity
An agreement (a portion thereof) may qualify as void or voidable if it contradicts Russian law. Void agreements (“nichtozhnye sdelki”) qualify as such by the effect of law and irrespective of whether such qualification is given by a court (i.e. no court decision required). Voidable agreements (“osporimye sdelki”) become invalid after being qualified as such by a court. Thus, an agreement simply contradicting Russian law is considered voidable. However, if this agreement affects public or third parties’ interests, it is deemed void (e.g. an agreement violating an express prohibition or consumer protection law).
As a rule, an agreement may be challenged by an aggrieved party to the agreement, unless otherwise is expressly provided for by law.
As a rule, the parties must return all money or assets received under the agreement, or reimburse the cost incurred by the other party in the performance of the agreement. If only part of the agreement is declared invalid, the remainder remains in effect.
Contractual liability and limiting one’s liability
Each party is responsible for any breach of the agreement irrespective of its fault, unless non-performance was caused by a force majeure event (i.e. extraordinary and unavoidable circumstances).
The burden of proof that force majeure events really occurred and affected the performance lies on the breaching party. As a rule, the lack of available goods on the market, a party’s poor financial standing, a financial crisis or fluctuations of exchange rates between currencies do not qualify as force majeure events in Russian law.
Foreign sanctions are typically considered illegal and not rarely qualify as force majeure.
A breach of the agreement entitles the suffering party to claim damages in respect of both:
· direct loss; and
· lost profit.
Companies may face problems with proving the exact amount of damages in court. Therefore, agreements often set forth liquidated damages to cover at least a portion of aggregate damages. The courts may reduce liquidated damages if recognise them inadequate.
The Code also allows to limit the parties’ contractual liability. Typically, the parties exclude liability for lost profit and/or limit the total amount of liability by a particular threshold. Excluding liability for wilful misconduct and in few other cases is not allowed.
