Daria Avdeeva

Having just returned from the 6th Global Conference on Letters of Credit in Vienna (hosted by ICC Austria), I feel almost compelled to share some take-aways.

The 2 day session I attended was as inspiring as it was intense. Topics were changing with a speed of lighting: one second you hear about internal Algerian regulations on the L/C issuance, the second – you are following on an exciting discussion about risk distribution of trade assets. Such variety as general (with some very few exceptions to my personal taste) a very high level of presenters made it both challenging and inspiring to be a part of it. Speakers were extremely cunning in not letting the audience fall asleep by throwing questions into the auditorium and demanding answers.

An Austrian bank hosting the conference really showed the best of Austrian cuisine; famous pastries were offered in what seems a non-ending flow at each break… Very few could show courage and resist the temptation (you pay back for your weakness at home once the weights start shaking under you….) I think that we should pass a proposal to ICC to host the next conference in some developing country and serve us one banana wrapped in a palm-tree leaf per day, while making us do some community work at breaks. Sorry for digression...

An integral and extremely important part of conferences is of course socializing. I easily found out that being a Russian-born working for a Swedish bank in Norway is just a normal thing in these cosmopolite-sans-frontier days. My acquaintances at the conference included an American working for an Italian bank in Austria, a Turkish citizen working in London for the Austrian bank to name a few. So the more colorful the better - our business of financing international trade only welcomes different backgrounds. Being a Norwegian representative also yielded an unexpected but positive result: a lovely lady from Portugal having studied my badge for quiet some time said: “Norway…mmm.. cod! We love bacalao!" I felt nice to represent a country bringing the world more than much needed but boring oil. Providing our Portuguese friends with not less needed fish to make their favorite dish is a good thing.

On more LC-related issues later… need to burn all sacher cakes by plunging into hard work.

I have now landed in Moscow for a term considerably longer than the 5-7 days I usually enjoyed during the last years. The feeling was of both relief (no need to rush from place to place trying “to do it all”) and yet of some uneasiness. Have I (or things here) changed so much that I will become over-critical to the daily life of my fellow-Moscovites?

Happily the transition has been a smooth one; still somewhat unconsciously I have been registering things that were new to me: on a personal level I should mention that people are avoiding discussions about the crisis and its consequences. De facto the lifestyle has changed and saving, budget-friendly products, cheaper stores are highly popular, but not to be discussed openly.

On a higher – state – level the picture one sees is different: both the President and PM are busy as ever promoting positive, liberal, democratic and pro-active image of Russia that should attract investments (and reassure that we have learnt our crisis lessons). During the course of my short 2 weeks here the President, among other things, has met with the Swiss head of state, American president, addressed the GA of UN, opened the international conference in Yaroslavl (an old Russian city). PM in its turn has focused on more “down-to-earth” economic issues: appearing in Yamal (northern region of Russia extremely rich in natural resources) at the forum on the development of gas fields where both Russian and leading international oil&gas companies were present (one of the hottest topics was of course the Stockman field). Fresh from the North, Putin visited the Investment Forum “RUSSIA CALLING”, designed to promote portfolio and strategic investment into Russia. During the forum it was reiterated that the government does not plan to fold up the anticrisis program aimed at bank support (to the ca. 70 countries’ largest bank).

And though S&P came out with 8 rating for Russia (out of 10), the efforts apparently worked. During the last week of September investment funds have attracted USD 165 mill in shares of Russian companies. This is the best result among other BRIC countries.

Coincidentally or not but one of the most scandalous corporate conflicts (dragging on for 5 long years) seems also to come to an end leaving (hopefully) a foreign investor satisfied: “Alfa group” and Norwegian “Telenor” has finally made a deal where both parties will transfer disputed shares of Ukrainian and Russian telecom operators to a newly established entity. Telenor will end up with 38,84% of voting shares in the new co and the Russian partner with 38,46%.

So hopefully efforts made on all levels will contribute to Russia climbing out of the skepticism hole it has found itself during the turbulent times. As I plan on staying here a bit longer, I shall see it “first-hand”.

Bilingual (multilingual) contracts

In the modern world we take pride in mastering several languages fluently and thus increasing both our career opportunities and social networks. However, as any good thing, multilanguage skills are not without its dangers if we speak about international contracts.

For companies involved in an international trade it is common to have the contracts signed in several languages, since the counterparts are located in different countries. In some cases (e.g. for customs, registration, etc. purposes) a particular country/authority may require that the contract is written in the local language (or alternatively demand a translation certified by the public notary). However, this shall not be the reason to blindly “go for it”.

Of course you might try to use a translation agency to help you with the text. However, practice shows that even if the contract has been sent to a reputable translation bureau, it might not have the necessary expertise (legal, technical) to make a 100% accurate translation. “Word-by-word” approach, unfortunately, is still popular. More than once I have seen "pig iron" directly translated as the metal attributed to this tasty but totally in this case irrelevant animal.

Alternatively, one might go to international legal firms that earn good money on offering “proof-reading” services. But in everyday life you might not have the time, resources to go through this procedure. So suggestion is to make yourself safe by including the clause on the “prevailing language” in any bi- or multilingual contract you are signing. Ideally, your local language shall prevail, or alternatively - English - if you have ensured that it precisely reflects your contractual intentions. You should also try to avoid accepting wording similar to: “both texts have equal value” - otherwise in case of dispute you might find yourself with documents submitted in a language you do not understand!

So guards on: a clause on prevailing language in place for every contract executed in several languages.

Please note that the above is not intended as a legal advise and shall not be interpreted so.

Compensation of lost profit

Our fellow “bencher” has recently asked a question whether a guarantee can be an effective instrument to cover for lost profits if the counterparty does not fulfill its obligations under the contract. The answer is “no” in most cases, but it made me think that many of us are easily “charmed” by words compensation of lost profit and by including these words in the contract consider themselves protected. The harsh truth is that it is extremely difficult to recover/claim these “losts” (and what can only be done in court).

Term "lost profit" refers to an amount of profit claimant would have received under the contract if the breach has not occurred. Courts in many countries have proven to be far from eager to award requested amounts in these situations or – even if granted – significantly cut them. As it is put by a reputable lawyer: “Claims for lost profits raise arguably the most complicated issues for a tribunal deciding a contracting dispute”.

So prepare for the battle if you want to see your profit returned and bear in mind that courts’ logic is often based on the following:

It is always the claimant that bears the onus of proof in establishing the amount and ground of claim as well as proving the link between the breach and loss sustained.
Factors taken into account when defining the amount are: is loss proven to be the immediate result of the transaction? Could the claimant have avoided the damage or anticipated it? Business transactions include a priori an element of risk that the claimant has agreed to when signing the contract, etc.

Is there any alternative to solving the problem and protecting yourself from potential future breach of the contract/losses?

One of the suggestions would be to incorporate the detailed description/calculation of penalties and other punitive measures for failure to fulfill obligations in the contract (e.g. for delay in delivery/payment, lower quality of the goods delivered, etc.). In the strictest of scenarios: every obligation your counterparty has agreed to undertake shall be linked to a measure allowing you to enforce/compensate for non-fulfillment. Such penalties as they are already clearly stipulated in the contract will be easier to claim/prove in case of litigation than lost profit/earnings.

***
Please note that the above is not intended as a legal advise and shall not be interpreted so.

The first thing we do, let's kill all the lawyers – says a character in Shakespeare’s Henry VI.
I would not recommend such radical measures (having a legal background myself), but I cannot deny that the old man had a rational in his saying.

In normal, day-to-day situations, when negotiating contracts with well-known clients/suppliers, you might be very well off with just a standard contract template and some minimal adjustments to reflect the specifics of the deal. Lawyers do not always need to scrutinize with a fine-comb every word provided… you keep your eyes open. I have decided to continue the topic of my previous blogs (“back on popular demand”) to point out some typical and “easy-to-make” mistakes when we talk about trade finance - and not only - contracts.

- Terms of LC/SBLC do not substitute/are not automatically included in contracts’ conditions and vice versa.

This seems like a commonplace statement, however, it often happens that a detailed description of goods/packaging that is provided under LC does not match in detail level to the description in the contract. The consequences of such “discrepancy” are clear: supplier relying on the contract provides a concise description in the documents, while LC requires more details and thus presentation of documents is not compliant. Or vice versa: LC clearly defines latest date of shipment, while contract is silent on that matter. How/from what date would one then calculate penalties for delay in shipment?

Therefore the golden rule is to treat LC and contract as 2 separate documents, ensure they are compliant with each other where all details in LC are respectively reflected in the contract. Remember, it is the contract you will be relying on should default situation occur and it is LC you will refer to when it comes to payment. To simplify the matters, it would also be recommendable to include drafts of your LC or SBLC as an appendix to the contract, thus guaranteeing that the instrument issued will be compliant with the desired wording and giving you extra good position to reject/demand amendment to anything not 100% identical to your appendix.

In addition, remember to put in “punitive” measures in the contract – fines, interests for delay, test mechanisms for the goods delivered, etc. Any breach of counterparts' obligation (including LC issuance) and losses related to it can only be recovered under the contract.

... to be continued ...

Please note that the above is not intended as a legal advise and shall not be interpreted so. I hope though, it might be interesting/useful for the Benche-users and am very curious to know if there are any “faux-pas” or traps you’ve encountered in your way and are not too ashamed to share.