Contract between Russian and Chinese Companies
How to draw up a contract between companies from China and Russia to carry out foreign trade?
In recent years, taking into account the existing economic and political situation, we can declare that the Russian economy has set a course for comprehensive cooperation with China. This applies both to the export of Russian goods to China and to the purchase of many goods in China, including technically complex goods, as well as products that are manufactured according to individual parameters specified by the customer.
In order to establish legal relations with Chinese partners, a legally correct contract is required. The most common types of contracts concluded between Russian and Chinese businesses are purchase and sale (supply) agreements, contract manufacturing agreements (work contracts), service agreements, agency agreements, agreements of intent, “NNN agreements” (non-use and non-disclosure agreements), licensing agreements, quality agreements ( “technical agreements”), franchise agreements, etc.
Before concluding such agreements (contracts), it is necessary to carry out a proper check of the company, since in practice a situation may arise when partners do not fulfill or improperly fulfill their obligations under the contract. At the same time, due to the dishonesty of a number of counterparties and other various reasons, there is no actual possibility of imposing liability measures on them as provided for by law or contract. Let's take a closer look at how to prevent and minimize these legal risks.
How to check a Chinese partner?
To check the counterparty, it is important to pay attention to the following nuances and request the following documents:
- request the company’s constituent documents (certificate of registration and articles of association);
- check of information in open sources, including the official Register of Chinese Companies;
- request an official extract from the register of Chinese companies, as well as independently order a detailed business review regarding a potential partner;
- check the availability of a business license, which is issued upon company registration;
- check the credentials of the person who plans to sign the contract. To do this, it can be recommended to request the spelling of the representative’s name in Chinese and a copy of his identity document, and compare this data with the data of an extract from the register of Chinese companies, which should reflect information about its head or other authorized representative;
- check the supplier’s address with data on its actual location (possibly using Google maps);
- obtain confirmation that there are no legal disputes brought against the Chinese company (through the website of the Supreme Court of China);
- pay attention to the content of the organization’s official website (what address it is located at, what products it produces, what experience it has in the market) and search for reviews about the Chinese companies.
After verifying the contact, you can begin negotiations on concluding a contract.
What should you pay attention to when drawing up and concluding a contract with a company from China?
In fact, for all contracts entered into, it is important to provide for the following critical terms and pay attention to the following critical issues and conditions.
1. Subject of the contract. In addition to indicating the subject of the contract (for example, products planned for delivery), it is necessary to include in the contract a clear description of the requirements for the goods supplied and services provided. To do this, it is possible to include in the contract in the form of an appendix a project or technical documentation according to which the products will be manufactured. It is important to provide the supplier (performer) under the contract with clear terms of reference and criteria by which compliance with the contract requirements will be verified.
2. Deadline for fulfilling obligations under the contract. The deadlines can be an establishment of the final deadline for the execution of the contract, or a phased breakdown of the deadlines with the transfer of the results of the contract execution for each stage. Determining reasonable deadlines for the execution of a contract is extremely important to prevent possible delays.
3. Delivery conditions when concluding a contract for the supply or contract manufacturing. In this case, it is necessary to determine where the goods are accepted, at what point the risk of loss of the supplied products passes, and which party is responsible for bearing transportation costs and cargo insurance costs. This condition is the most important for supply contracts and is usually defined in terms of Incoterms® 2020.
4. Procedure for settlements under the agreement. When making payments between the parties, it is necessary to pay attention to the frequency of payments, their size, as well as whether or not the right to unilaterally change the contract price is secured in the contract. It is also necessary to indicate the conditions regarding the procedure for settlements by the parties (indication of the correct details for settlements), as well as alternative solutions for carrying out settlements in the event of sanctions being imposed on credit institutions in Russia or China or other circumstances beyond the control of the parties.
5. Contract language. It is recommended to provide for the drafting of a bilingual agreement in (a) Chinese and Russian or (b) English and Russian, indicating which version has priority, so that the parties are guided by it in the event of a conflict between versions.
6. Liability measures applied when the parties violate the terms of the contract. It is recommended to provide in the contract for sanctions applied to the party violating the terms of the contract, including requirements for the timing and quality of contract execution, violation of confidentiality provisions, violation of the payment procedure, etc.
7. Condition on IP rights. Often, as a result of the execution of a contract, intellectual property is created, such as utility models, inventions, industrial designs, software, works, etc. It is important for the parties to initially come to an agreement on how and under what conditions the rights to the results of IP will be transferred, as well as which party will own the rights to IP. It is also required to establish prohibitions on the registration and use by the counterparty of trademarks at the disposal of the other party, or to limit their use to the scope of the contract being concluded.
8. Terms of confidentiality. It is recommended that the contract provide that all information transmitted as part of the performance of the contract by the parties is confidential and not subject to disclosure.
9. Dispute resolution procedure and arbitration clause. As a rule, a condition is provided for pre-trial settlement of the dispute with subsequent recourse to court. As a general rule, if there is no arbitration clause, the parties go to court in the state where the defendant is located. However, it is recommended to further regulate in the contract the issue of jurisdiction of disputes, taking into account the legal assessment of enforceability of court decisions made in Russia or China.
10. Procedure for terminating the contract. It is recommended to provide for the conditions for termination of the contract, including the procedure for unilateral out-of-court termination.
Thus, drawing up and checking a contract between Russian and Chinese companies has many nuances that must be discussed with the counterparty and recorded in the contract. For a detailed study of the terms of the concluded contracts, as well as checking the partner for his good faith, it is recommended to involve lawyers who specialize in concluding relevant contracts, to which a Chinese company is a party.
Legal services
- Legal check of the company
- Support and negotiations between the Russian and Chinese parties to the contract
- Development of a contract between Russian and Chinese companies
- Legal expertise of the draft contract submitted by the counterparty, making changes and resolving disagreements
- Minimizing and preventing possible legal risks when choosing a counterparty and concluding a contract
- Support of the conclusion and execution of the contract
