International contract (FEA): features and recommendations

What is a foreign economic activity (FEA) contract and its key terms

A foreign economic activity contract, or FEA contract, is an agreement between a Ukrainian company or entrepreneur and their foreign partner. This contract defines, modifies, or terminates their mutual rights and obligations in international trade, such as purchasing, selling, or supplying goods and services.

An order by the Ministry of Economy established the requirements for FEA contracts until 2020. Currently, no other document regulates these requirements. Therefore, when concluding contracts, it is advisable to follow the norms of civil legislation, the Laws of Ukraine “On Private International Law” and “On Foreign Economic Activity.”

Key conditions to consider when concluding FEA contracts

When concluding foreign economic activity (FEA) contracts, it is essential to anticipate the following primary conditions:

Subject of the Contract: Specify what you are selling or buying, whether goods or services. Provide detailed descriptions in the contract or attach specifications or additional agreements where this is indicated.

Price and Currency: State the price and total value of the goods or services. If specifications determine the price, this should also be mentioned. As payments are often made in foreign currency, having a foreign currency account in a bank and considering currency restrictions is necessary.

Payment Method: The seller typically prefers prepayment, while the buyer prefers post-payment. It is best to find a compromise, such as partial payment linked to specific stages like customs clearance of the goods. You can also use a letter of credit, where money is reserved in the buyer’s account and transferred to the seller after providing the necessary documents. The contract should specify which documents are required for payment or prepayment.

Delivery Terms: Specify whether the price of the goods includes delivery and packaging costs. Determine who is responsible for organization and logistics. The distribution of costs and risks should comply with INCOTERMS rules. For example, DDP terms mean that the seller is responsible for everything from customs clearance to delivery of the goods to the agreed location, including duty payment.

Contract Duration: Indicate whether the contract is valid indefinitely (until complete fulfillment of obligations) or specify an exact end date.

Additional Conditions Regarding the Goods: Agree on quality guarantee issues, warranty period, possibility of returning the goods, conditions for engaging subcontractors and carriers, loading and unloading rules, conditions for transferring technical documentation, preserving trademarks, and the procedure for paying taxes and customs duties.

Chosen Legislation and Dispute Resolution: Specify which legislation will govern the contract and which dispute resolution mechanisms will be used.

Parties’ Details: Ensure all parties’ details are correct. If the details change during the contract’s validity, an additional agreement should be concluded to simplify bank control and customs clearance.

These simple recommendations will help make your FEA contracts more understandable and practical for all parties involved.

Choice of applicable law and dispute resolution procedures

Choosing the applicable law in case of a dispute after it has arisen is too late. Therefore, it is essential to address the issue of possible dispute resolution methods at the negotiation or contract signing stage.

International private law provides for parties’ autonomy in choosing the law that will govern their contractual relations. This means that the parties can stipulate in the contract which country’s legislation will govern their contractual relations and which body will consider disputes in case they arise.

If such an agreement is not reached, the applicable law of the contract is determined based on the conflict of laws rules provided by the Law of Ukraine “On Private International Law.”

Disputes arising between foreign economic activity entities and foreign business entities in the course of such activities may be considered by the courts of Ukraine, foreign judicial institutions, and, with the consent of the parties, by the International Commercial Arbitration Court and the Maritime Arbitration Commission at the Ukrainian Chamber of Commerce and Industry.

Suppose it is impossible to agree on the country where the dispute will be heard or the applicable law when concluding the FEA contract. In that case, the optimal option is to stipulate that the dispute will be considered at the claimant’s location. That is, if you file a claim, it will be in Ukraine; if the counterparty files a claim, it will be in the country of their location abroad.

Options for signing contracts with non-residents

A foreign economic contract (agreement) is concluded by a subject of foreign economic activity or their representative in simple written or electronic form unless otherwise provided by an international agreement of Ukraine or by law. In the case of exporting services (excluding transportation), a foreign economic contract (agreement) can be concluded by accepting a public offer for the agreement (offer) or by exchanging electronic messages, or in another manner, including by issuing an invoice, including electronically, for the provided services. (Article 6 of the Law of Ukraine “On Foreign Economic Activity”)

Options for concluding contracts with non-residents

The following methods can be used to conclude a contract:

1. Exchange of paper copies of the contract: the traditional method where each party signs and exchanges paper copies of the contract.

2. Acceptance of a public offer : one party places a public offer on a website, and the other (the acceptor) accepts this offer by taking appropriate actions, such as paying for the goods or services.

3. Exchange of electronic messages: The parties negotiate and agree on the terms of the contract by exchanging emails, messages in messengers, or other electronic means.

4. Use of electronic digital signature (EDS/QES): In 2023, a resolution was adopted allowing Ukrainians to use a qualified electronic signature in the EU. The European QES will also be valid in Ukraine. However, Ukraine has not yet concluded any international agreements on the mutual recognition of public key certificates and electronic signatures. Therefore, if an FEA contract is signed with an electronic digital signature, there is a risk that questions may arise regarding the validity of such a contract and the fulfillment of its terms.

Services for signing electronic contracts

For signing contracts with an electronic digital signature (EDS), the following services can be used:

Ukrainian Platforms:

• Document.Online: A convenient service for electronically signing documents.
• Vchasno: A platform supporting various electronic signatures, including qualified ones (QES).
• Diia: A state service that supports electronic signatures and other digital services.
• M.E.Doc: Widely used for accounting and ensures electronic signing of documents.
• SignMyDoc: Ensures data security during the signing of electronic documents.

International Platforms:

• Adobe Sign: Integration with other Adobe programs, such as Acrobat, and support for Ukrainian EDS.
• DocuSign: Supports Ukrainian EDS and offers integration with other document management programs.
• Kofax SignDoc: Provides integration with document management systems and supports electronic signing.

Clauses on Services in the Contract

In the contract, it is essential to specify which service will be used to sign documents electronically. This will help avoid misunderstandings and ensure the legal force of the contract. For example:

“The parties agree to use the DocuSign service to sign this contract with a qualified electronic signature (QES). The parties recognize the legal force of documents signed in this way and undertake not to dispute their validity based on the electronic form of the signature.”

These methods and recommendations will help ensure the proper execution and validity of contracts with non-residents.

Recommendations for concluding a foreign economic activity (FEA) contract

Trust is undeniably a vital part of doing business. However, a counterparty’s primary motivator is profit, and achieving this goal may not always be pursued in good faith.

Thorough Due Diligence on the Counterparty:

• Charter Documents: Verify the statutory documents.
• Authority Verification: Confirm the authority of individuals who will sign the FEA contract and represent the counterparty’s interests.
• Field of Activity: Understand the counterparty’s business domain.
• Financial Status: Assess the financial health of the counterparty.

Control Over Communication with the Counterparty:

• Authority Awareness: Know the authority of individuals communicating on behalf of the counterparty.
• Designated Communication Channels: Specify the email addresses for communication in the FEA contract and only communicate through the agreed contact details.

Verification of all relevant matters related to the FEA contract and essential terms:

• Agreement Adherence: Ensure all agreements made during negotiations are adhered to.
• Avoid Oral Agreements: Avoid any oral contracts unless they can be documented in writing.
• Documentation and Correspondence: Ensure proper documentation and orderly storage of all documents and correspondence related to each FEA contract.
• Accurate Details: Carefully check all specified terms, correct parties’ names, addresses, bank details, and contact information.

Specify Force Majeure Conditions in the Contract:

• Detailed Force Majeure Clauses: Two years ago, force majeure was often treated formally. However, the martial law in Ukraine has caused significant risks to contract compliance. To minimize the risk of avoiding obligations, it is essential to thoroughly detail the application of the force majeure clause. This is no longer a formality but a survival condition for businesses engaged in foreign economic activity.

A prudent approach to concluding foreign economic contracts is crucial for business operations and protecting interests. Therefore, it is recommended that foreign partners be carefully selected and the obligations in the FEA contract precisely formulated.