International contracts. Concepts and essential terms

The main requirements and terms of international contracts are defined by the Law of Ukraine “On Foreign Economic Activity” № 960-XII dated on 16.04.91 (hereinafter referred to as the “Law № 960”).

An International Contract (hereinafter referred to as the “Contract”) it is an agreement between a company founded in Ukraine and an international company, and is aimed at creating, modifying or terminating their mutual rights and obligations in international trade.

International Contracts are executed in either a written or electronic form.

In the case of export of services (other than transport services), the Contract may be concluded by accepting a public offer, by exchange of e-mails, or in other ways, such as issuance of an invoice in electronic form for the services provided.

In cases where parties decide to enter into an agreement in electronic form, they shall be guided by the requirements of the Law of Ukraine “On Electronic Commerce” and the Law of Ukraine “On Electronic Trust Services”.

Executing the Contract

The main requirement of an electronic form of contract it is that the parties shall sign the contract using electronic digital signatures or facsimile signatures.

In practice there are difficulties with these methods of signing.

The complication of using an electronic digital signature lies in the legal acceptance of signatures between Ukrainian and foreign electronic signatories.

One of the conditions for acceptance of foreign digital signatures in Ukraine is the conclusion of an international treaty with Ukraine; however at the time of publication of this article no such treaty has yet to be concluded with any country, though such treaties are planned for the future.

The complication for using facsimile signatures is that the parties must beforehand execute a separate contract (with wet signatures) and agree on the terms of using facsimile signatures. Such a contract must also contain specimens of their respective handwritten signatures.

This type of electronic signing can be comfortable and convenient to use for parties who, for example, have long term business partnerships in Ukraine and often make multiple transactions.

Governing Law

Parties to the Contract are entitled to choose the governing law (also known as applicable law), but that doesn’t mean that the terms of the contract are allowed to contradict Ukrainian legislation.

Law № 960 sets forth that a Contract may be judged by a court to be invalid if it does not meet the requirements of Ukrainian law or with international treaties made by Ukraine.

Therefore, notwithstanding the right to choose the governing law, the Contract shall comply with the requirements of the Civil Code of Ukraine, the Commercial Code of Ukraine and other legislative requirements of Ukraine for a particular type of contract.

Essential (material) Contract Terms

All Contracts shall include essential terms as:

  • Subject (scope of the contract), Consideration (reciprocal exchange of value) and Term (duration of the contract);
  • terms that are defined by law as essential or mandatory for certain types of contracts;
  • all those terms on which, at the request of at least one of the parties, agreement shall be reached.

Particular attention shall be paid to the place where the contract is concluded and the place of dispute resolution. This may in effect determine what the governing law will be (unless there is a specific clause to that effect), what taxation will be imposed and what costs the parties will incur to resolve a dispute should one arise.

Mandatory (Imperative) Rule of Law

As discussed at the outset of the article, regardless of the selected governing law, the effect of the mandatory application of the law of Ukraine governing the relevant relations of the Contract cannot be limited.

An example of such a rule is the mandatory notarization of conveyancing agreements and their registration by the state.

Furthermore, if one deals with an international contract then it is also necessary to comply with the mandatory rules established by the National Bank of Ukraine (NBU) with regards international settlements.

One example of a NBU mandatory rule is a set deadline for cross-border transactions of 365 calendar days.

In other words, it is legally stipulated that payment under an international contract, as well as the delivery of goods, services and works, must be made within 365 days. Failure to comply with this requirement will result in the imposition of penalties.

This deadline does not apply to transactions related to Contracts of less than UAH 400 000.00 (or its equivalent in foreign currency).

We are happy to have presented in this article the main terms relating to international contracts. Rest assured, subject to correct contract drafting, foreign trade in Ukraine is not complicated to carry out.

Furthermore and finally, Ukrainian Law does not require special permits nor licenses for companies or entrepreneurs of Ukraine to participate in foreign trade.

Galina Bastieieva

Laudis Tax&Legal