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A-Z of English Law Framework Agreements on Russian Cross-Border Transactions

A-Z of English Law Framework Agreements on Russian Cross-Border Transactions

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Framework Agreements (FAs) are like swimmers on a mixed medley relay. Each one does something different and it can be hard to understand what is going on. They are nevertheless used in many cross-border transactions in Russia, so here is an A-to-Z checklist to consider when negotiating FAs.

Arbitration. Refer disputes to private arbitration, rather than English courts, for better global enforcement rights (including in Russia).

Bilingual. They don’t need to be bilingual, usually. If they are bilingual, state that the English language version prevails.

Coordination. Coordinate the sequencing and timing of transaction steps carefully and accurately, while leaving some room for error and delays, in particular if Russian administrative procedures are involved.

Default. Consider what termination rights for cross-defaults in other project agreements are appropriate, what remediation processes are fair, and what impact this might have on third-party relations, in particular if Russian public procurement is concerned.

Entire Agreement. Ensure that the parties should not be able to sue each other based on marketing speak.

Force Majeure. Provide that the parties cannot face liability for failure to perform based on issues arising from pandemics, Russia-related sanctions, and other force majeure events.

Guarantees. Consider what security for counterparty obligations you require and which parent or beneficial owners can best provide them.

Hierarchy. If there is any inconsistency between the terms of an FA and another project agreement, consider which should prevail, in particular if local arrangements are mandatorily governed by Russian law.

Indemnification. What key risks do you want to make the other side responsible for? Can they be enforced in Russia? 

Joint Steering Committee. Consider what committee(s) should run the project and what powers they should have (not the power to amend contracts, usually).

Know-how. Think about who will own and/or receive licenses for all know-how and other IP rights for new technology, and how such rights will be protected or registered in Russia.

Limits on Liability. What limits on aggregate liability are appropriate for the parties?

Materiality. Arbitrating disputes and then enforcing arbitral awards in Russia is expensive and time-consuming. FAs are more appropriate for high-value projects.

Non-Compete Clauses. Do you need these to protect know-how and trade secrets? Russian law limits the use of non-compete arrangements.

Out of Court Resolution. Do you want to build in an escalation process before disputes can be initiated? Sometimes these hinder enforcement.

Payments. USD, EUR, RUB, Bitcoin? Cross-border or local Russian bank transfer? Alternatives if exchange controls or Russian sanctions are implemented? Who takes any tax gross-up risks?

Qualification. If training and technology transfer is required, who pays for it, how many people hours are required, and who determines whether it was completed? How does this interact with Russian state inspections and licensing requirements?

Restructuring. English law FAs can be useful tools for implementing restructurings of debts owed by or to Russian groups. Debt write-downs and equity swaps, waivers, amendments, settlements, and standstills are common.

Subrogation. Should the subrogation rights of guarantors to recover amounts paid on behalf of other parties be included?

Termination. Under what circumstances does termination occur and what do the parties need to do upon termination? Would the Russian authorities need to be notified of the termination?

Un-Winding. How and under what circumstances is the transaction unwound? What happens if completion has partially occurred and some assets have already been transferred over? Will the Russian registration authorities require to re-transfer any registered property or rights back to the original owner?

Variation. There is always a risk that oral discussions or email exchanges will have the effect of varying a contract, but the parties can try to reduce this risk by inserting express wording to the contrary.

Warranties. Warranty claims won’t always lead to full compensation (both under English or Russian law), but they can prompt disclosure.

Execution. Execution as a deed is often advisable – not all parties may be giving consideration. Ensure all Russian corporate approvals are obtained – the transaction can be invalidated if not. If any Russian individuals are signing in their own capacity, certain additional checks are advisable.

Yield. Pay careful attention to financial formulae and expressions. Mistakes may be punished. Don’t get lost in translation.

Zip Codes. The same applies to notices provisions. Don’t hand out get-out-of-jail-free cards to the other side. Consider the practicalities of cross-border mail services to Russia and the relative convenience of email.

Andrew Robinson, Counsel, and Torsten Syrbe, Partner, Clifford Chance

This Article was originally published in Issue 8.8 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.