Foreign Economic Contract: What to Check Before Signing

An entrepreneur from Almaty enters into dealings with a foreign supplier or buyer for the first time and receives from the partner a draft contract in a foreign language, or a short invoice instead of a full document. It seems enough to agree on the price and the shipment date, and the rest will be sorted out along the way. In practice, it is precisely inattention to the delivery basis, the form of payment and the applicable law that leads to disputes which are difficult and expensive to conduct in Kazakhstan.

The article examines what a foreign economic contract consists of, who actually acts as a party to it, which terms are mandatory, and how they relate to currency control and recording of the transaction in Kazakhstan. It also sets out typical mistakes that become visible when reviewing a draft before signing, and what is worth clarifying with the partner in advance.

Foreign Economic Contract: What It Is and When You Cannot Do Without It

A foreign economic contract in the law of the Republic of Kazakhstan is an agreement where at least one party is an entrepreneur or an organisation of a foreign state, and the subject matter is the supply of goods, performance of works, provision of services or transfer of rights across the state border. Such an agreement is governed by the Civil Code and by special regulation of foreign trade activity, currency control and customs procedures. For an entrepreneur from Almaty, this means heightened attention to the form of the transaction and its documentary formalisation.

What distinguishes a foreign economic contract from an ordinary contract is the composition of the participants and the cross-border nature of performance. Here there are requirements for mandatory written form, the structure of sections, the details of the parties and the language of the document. In simple terms, it is the same sale and purchase or works contract, but with a foreign partner, so the currency and customs rules of the RK are added to it.

• The subject matter and total value of the transaction, stating the currency
• The rights and obligations of the parties, the deadlines for delivery or performance of works
• The terms of payment and the procedure for drawing up payment documents
• The liability of the parties and the procedure for resolving disputes
• The details of the parties, the language of the contract and the applicable law
• The procedure for amending, supplementing and terminating the contract

Parties to a Foreign Economic Contract: Who Your Partner Actually Is

A party to the contract is a legal entity or an individual entrepreneur registered under the law of its own country. The name in the preamble must match the registration documents literally, including the legal form. If the contract names the wrong type of company, the question of the proper person will arise in a dispute.

The signatory's authority is confirmed by the charter and a decision of the relevant body, or by a power of attorney. The position alone does not give the right to act without restrictions: the charter may require the consent of the board of directors or the participants for major transactions. A copy of the charter, an extract from the register and the appointment decision show who may sign and within what limits.

• The partner's full name, legal form and registration number according to the documents of its own country
• An extract from the commercial register or another public register as at the current date
• A document on the appointment of the director or a power of attorney of the representative, with a translation
• Verification of the full name, position and signature of the signatory against the title documents
• Checking the charter's restrictions on major transactions and the procedure for approving them
• Stated in the preamble and in the details of both parties without discrepancies or abbreviations

Which terms must be included in a foreign economic contract

The content of a foreign economic contract under the law of the Republic of Kazakhstan is subject to civil legislation and currency regulation. The parties are free in their wording, but some information is mandatory, otherwise the contract will not pass registration with the bank and will not be accepted for currency control. Without these data, the document loses enforceability.

Mandatory terms include the subject matter and the price stating the currency, delivery periods and payment terms, delivery basis terms, the procedure for acceptance of goods and dispute resolution, the liability of the parties and the grounds for exemption from it. If the term on the currency of the price and of the payment is absent or they contradict each other, the bank is entitled not to make the payment, and the contract is deemed unenforceable.

Subject matter and price of a foreign economic contract: where disputes begin

The subject matter of a foreign economic contract is described so that it cannot be read in two ways. State the exact name of the goods by the EAEU HS code, the assortment, completeness and units of measurement; for works and services, the specific actions and the result. General wording leads to a dispute about the volume of the consignment on delivery and about the scope of the contractor's obligations under a works contract.

The price is tied to the delivery basis under Incoterms and to the currency of the obligation. Determine whether the price includes packaging, marking, loading, insurance and carriage. If the price is stated per unit, fix the procedure for recalculation when the volume changes.

The currency of the contract and the currency of payment may not coincide. Set out the currency of the price, the currency of settlement, the conversion rate and the date on which it is determined, otherwise, if the rate fluctuates, the payment will be less or more than the agreed amount.

• what exactly is supplied or performed and under which goods code
• in which currency the price is expressed and in which currency the payment is made
• how the price is recalculated when the volume or the rate changes
• which costs are included in the price and which are borne by the buyer
• how the terms of the contract relate to the registration number at the bank
• how the price changes when the volume is adjusted by a supplementary agreement

Delivery terms and transfer of risk in a foreign economic contract

Delivery basis terms determine who bears the costs of carriage, loading, insurance and customs clearance, and when the goods are considered handed over to the buyer. The basis determines which party bears the obligations towards the carrier and customs, and therefore the risk of losses in the event of loss or damage to the cargo. The terms must be set out through an unambiguous reference to the international rules in their current edition, and not in general words such as 'delivery to the warehouse'. If the basis is named without stating the edition and the place, a dispute over the allocation of costs is almost inevitable.

The contract ties the transfer of risk to a specific point in space and time: handover to the carrier, loading on board, arrival at the agreed point. From that moment, accidental loss or damage to the goods as a general rule falls on the buyer, even if the seller remains responsible for the paperwork. The parties should check whether the moment of transfer of risk coincides with the moment of transfer of title and with the payment procedure: a gap between these points creates a situation where the goods have not yet been paid for, but the risk has already passed.

A foreign economic contract is almost never rewritten in full — the dispute is over three or four clauses, and it is these that determine who pays for a failed delivery.

Payments under a foreign economic contract: the form of settlement and its consequences

The form of settlement under a foreign economic contract determines how protected the buyer is if the counterparty fails to perform. The legislation of Kazakhstan permits bank transfer, documentary letter of credit, collection, and settlement on an open account. The choice is fixed in the contract and in the payment order.

The payment procedure is tied to an event: shipment, the date of the bill of lading, acceptance of the goods, signing of the act. With general wording, the bank will not confirm performance, and the payment will be suspended. State the currency of payment and of the price, the moment the obligation arises, and the details of the parties. Any deviation requires written agreement.

• The type of settlement and the moment of payment, linked to the shipping documents.
• The currency of the price, the currency of payment and the procedure for conversion if they do not match.
• The buyer's right to suspend payment where breaches are identified.
• The deadline for returning the advance payment and liability for its non-return.
• The procedure for changing bank details and confirming such changes.
• The applicable law and the body hearing the dispute.

The specific form is chosen for the transaction; mixed schemes are permissible if their sequence is described in the contract.

Deadlines, acceptance and quality in a foreign trade contract

Deadlines are fixed by calendar dates or periods linked to shipment, arrival of transport or opening of a letter of credit, and state the start of the period and the procedure for extension, including delay at customs. Wording such as "within a reasonable time" and "as and when ready" does not work in disputes: the court will not establish the moment of breach. Under the Civil Code of the Republic of Kazakhstan, performance must be proper, so the deadline forms part of the subject of proof alongside quality and volume.

Acceptance is tied to the place and method of delivery: crossing the border does not confirm performance. Describe who accepts the cargo, within what period and by which documents, and what constitutes evasion of acceptance. Where there are several carriers, fix the point at which the risk of accidental loss passes and who is responsible for discrepancies in quantity, otherwise an act of shortage or damage will be challenged by reference to the wrong recipient.

• The performance period is stated as a calendar date or as an event with a specific moment of occurrence
• The acceptance procedure fixes the place, period, composition of the commission and the list of documents to be drawn up
• The risk of accidental loss passes to the recipient at the moment determined by the contract, not by default
• Quality is confirmed by a standard, a sample or technical specifications attached to the contract
• Defects are recorded by an act with notice to the other party and the right to an independent expert examination
• The claim procedure sets the period for sending demands and the list of documents to be attached

Liability of the parties and penalties in a foreign economic contract

The contract describes the liability of the parties through specific types of breach: delay in delivery or payment, non-conformity of quality, refusal to ship. A general reference to "liability under the legislation of the Republic of Kazakhstan" does not create a recovery mechanism. It is necessary to state directly what liability arises for and in what form.

A penalty is fixed as a daily penalty for each day of delay or as a fine for a one-off breach. The wording must contain the basis of calculation (the amount of debt or the value of the consignment) and the calculation procedure. Without the basis and procedure the figure cannot be determined, and a court will not derive it for the parties.

• A daily penalty for delay in payment or delivery with the basis of calculation and the calculation procedure.
• A fine for a one-off breach: incomplete delivery, refusal to ship, missed deadline.
• A deposit or advance payment with a condition on the consequences of non-performance.
• A third party's suretyship stating its scope and term.
• A bank guarantee with a list of documents for a payment demand.
• A pledge of property or rights describing the subject matter and the procedure for enforcement.

Applicable law and dispute resolution in a foreign economic contract

The applicable law of a foreign economic contract determines which country's rules govern the parties' obligations and the consequences of their breach. With a foreign partner this term is agreed separately: if the parties are silent, the applicable law will be determined by the court or arbitration under its own conflict-of-laws rules. For a Kazakhstan business, the choice of the law of the Republic of Kazakhstan or another jurisdiction changes the content of rights and obligations, and an error in the wording is discovered only in a dispute.

Dispute resolution is built on two routes: a state court or arbitration. The parties may agree on a specific court or arbitration institution and the language of the proceedings. The place of consideration affects the timeframes, costs and enforceability of the award, and without a jurisdiction clause a claim may also be filed abroad.

• state the applicable law directly in the text of the contract, without references to a document that may change
• identify the body that will hear the dispute: a court of a specific country or an arbitration institution
• describe the arbitration clause in full: institution, rules, number of arbitrators, place, language
• align the applicable law and the dispute resolution body with each other so that no contradiction arises
• check whether the chosen award is enforceable in the territory where the debtor and its assets are located

Currency control and registration of a foreign economic contract in Kazakhstan

A foreign economic contract is subject to currency control: the authorised bank monitors the receipt of export proceeds and the justification of import payments. Accounting registration is carried out by the servicing authorised bank for contracts whose amount exceeds the threshold set by currency legislation. Without an accounting number, the bank does not process payments under such a contract.

Accounting means that the bank maintains a file: the contract, invoices, transport and customs documents, acts, and information on the transaction. The entrepreneur must ensure that the deadlines and amounts match the contract: discrepancies lead to bank enquiries and letters from currency control authorities.

Separately — currency repatriation: export proceeds are returned to Kazakhstan within the deadlines set by the contract and the rules, and imports are confirmed by delivery. If payment or delivery is delayed, written justifications and correspondence are required, otherwise the transaction will be reported as a violation.

• The contract with annexes and supplementary agreements.
• The contract accounting number assigned by the authorised bank.
• Invoices, acts, delivery notes, transport documents.
• Customs declarations for imports and exports.
• Correspondence on payment and delivery deadlines.
• Bank statements on the movement of funds under the contract.

The bank is entitled to request confirmation for any transaction under the account contract.

Typical mistakes in a foreign economic contract and what to check before signing

Mistakes in a foreign economic contract are laid down at the drafting stage: the parties copy a template without regard to the applicable law, currency of payment and place of dispute resolution. The check starts with the signatory's authority: the charter, power of attorney, limits on the transaction amount. For a foreign company, documents on its registration and confirmation of the right to enter into such transactions are required.

The subject matter and deadlines require particular attention: vague wording leads to a dispute over what was supplied and when performance fell due. The currency, Incoterms basis and allocation of costs for carriage, insurance and customs clearance are set out so that each party understands its obligation before signing. The applicable law, jurisdiction and language of the contract determine where and under which rules a conflict will be considered.

• Signatory's authority: the charter, power of attorney, limits on the amount and type of transaction; for a foreign entity, confirmation of registration and the right to carry on activity.
• Subject matter and quantity: the specific name of the goods, works or services, units of measurement, assortment, without wording such as 'approximately' and 'as agreed'.
• Price, currency and payments: the currency of the contract and the currency of payment, the moment when risk passes, terms of prepayment, letter of credit or deferred payment.
• Deadlines and acceptance: the delivery schedule, procedure for notice of readiness, the time limit and method for submitting claims as to quality and quantity.
• Liability and force majeure: penalties, limitation of losses, the list of force majeure circumstances and the procedure for notifying them.
• Applicable law and disputes: jurisdiction or arbitration, language of the proceedings, procedure for sending claims and legally significant communications.