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How is it beneficial for the buyer to draw up a supply contract? Our legal department recommendations

27.01.2022
Mr. Erich Rath
Attorney-Partner

Taking into account the new judicial practice, our team has prepared 5 points that will help the buyer in 2022 conclude a supply agreement on favourable terms for him. Let’s be more specific, shall we?

  1. What should be specified in the contract so that the supplier pays twice for the delay?
  • Indicate in the paragraph on the payment procedure that you provide an advance payment on the terms of a commercial loan;

The supplier will have to pay a certain percentage for each day of delay, as in the case of a penalty, but it will not be possible to reduce the amount for using a commercial loan with reference to Article 333 of the Civil Code. For example, include a clause in the contract that the advance or advance payment after the delivery date becomes a commercial credit. Practice shows that the courts positively evaluate these conditions.

  • Fix the moment after which you will start accruing interest on a commercial loan;
  • Specify the amount of interest on a commercial loan;
  • Add a forfeit clause.
  1. How to issue a delivery condition so that you can refuse it and not pay?
  • It is necessary to separate the supplier’s transport services from the price structure. In this case, the buyer will pay for the delivery only when the service is rendered.

Rationale: The decision of the Arbitration Court of the Moscow District dated April 2, 2021 in case No. A41-45881/2019 indicates the following:

The supplier indicated in the contract that the cost of transport services for the delivery of goods is included in its price. There was also a clause that the buyer has the right to deliver the goods by his own transport at his own expense. The buyer exercised this right and independently exported the goods. Then, through a counterclaim, he demanded to recover unjust enrichment from the supplier. The court had to decide whether the price was reduced by the amount of the transport costs. The first time the courts answered positively. When the case was re-examined, it was decided that it did not follow from the contract that the method of delivery affects the price. Therefore, it is not reduced by the buyer’s shipping costs. As a result, the courts refused the buyer.

  1. Specify in detail the completeness of the goods.

From the decision of the Arbitration Court of the North-Western District of June 30, 2021 in case No. A56-23647 / 2020, for example, the following practice follows:

The buyer referred to the fact that the device included additional equipment that the supplier did not transfer to him, and demanded that the price of the goods be reduced due to incompleteness. The courts refused and noted: it does not follow from the literal content of the specification and drawings that this equipment was included in the cost of the device.

  1. Fix penalties for non-fulfilment of each minor obligation.

This applies to obligations such as, for example, delays in transport during loading when the supplier does not issue a bank guarantee or does not provide samples of the goods.

The decision of the Arbitration Court of the Moscow District dated June 25, 2021 in case No. A40-193938/2020 indicates to us that the provision of samples is not included in the contract in the contract. Hence, there are no grounds to hold accountable for the violation of this optional obligation.

  1. Expand the list of significant shortcomings of the product.

Such a condition is permissible, because the parties have the right to establish other criteria for the materiality of product defects, in addition to those specified in Article 475 of the Civil Code of the Russian Federation.

For example, from the decision of the Arbitration Court of the Moscow District dated August 19, 2021 in case No. A40-57593/2019, it follows that the court recovered the amount that the buyer paid for the goods, since it was confirmed at the court hearing that the equipment was imported illegally and there is no support from the manufacturer. The court pointed out that there was no agreement between the parties in the contract and that the goods were transferred without warranty and service obligations from the manufacturer.

Our legal department will be happy to answer all questions regarding the practice of contract law in your company. Send your question to er@sterngoff.com and we will provide accurate and quality feedback.