Bound by Contract: Assessing the Risks of Business Deals with Arab Partners for Belarus Citizens
Unleashing the Hidden Risks: Choosing the Right Law for Business
In the thrilling world of business, selecting the appropriate law for contracts can make all the difference. That's according to Elena Babkina, a secretary advisor to the Court of the Eurasian Economic Union, who recently graced the International Conference of Arbitration Institutions under the Chambers of Commerce of the CIS countries in Minsk with her insightful words.
The expert drives home an important point: the choice of law is a strategic decision, powerfully shaping the strategy of protecting your business interests in court. However, it's essential to remember that the choice of applicable law isn't tethered to the choice of arbitration.
Considering various jurisdictions, some come with risks that might catch Belarusian businesses off guard. Babkina zeroes in on contracts like sales, distribution, and agency agreements, which frequently top the charts in arbitration cases due to their contentious nature. In general, parties are typically free to choose the law, adding that the choice of applicable law is possible even with a Belarusian counterparty on foreign soil.
However, Babkina warns that in the countries of the Persian Gulf, the choice of applicable law is often prohibited in agency and distribution contracts. To prevent legal quirks from becoming ticking time bombs, it's crucial to assess risks in advance. From her observations, the law of the Persian Gulf is particularly surprising to Belarusian businesses, boasting the highest number of overriding norms and restrictions.
These potential pitfalls can encompass:
- Long-term contract duration (not less than 5 years)
- Minimum commission fees (not less than 5%)
- Prohibition on contract termination or the possibility of termination with a prior notice of not less than a year
- Prohibition on charging interest if it contradicts Islamic law
"The main risks of Persian Gulf law revolve around national protectionism, high commissions, and the complexity of contract termination," Babkina stresses.
On the other hand, EU law poses its own set of challenges, such as strict antimonopoly regulation, protection of the weak party, and high fines.
The risks associated with Chinese law boil down to national protectionism, abstract formulations, and lower product quality standards.
An expert adds that applying English law in dealings with counterparties can lead to additional costs, with the simplest solution being to reject it. "It may be wiser to reject such applicable law, and one should also assess whether the Vienna Convention is more suitable than national law," the lawyer concludes.
Insights: Choosing the right law for contracts can significantly impact a business's success and strategies for protecting its interests in court. The Persian Gulf, EU, and Chinese laws each present unique advantages and risks, especially for Belarusian businesses. To prevent legal pitfalls from arising, it's essential to have a thorough understanding of the region's legal and cultural landscape, along with robust legal expertise and a proactive approach to contract management.
- Cultural and Legal Differences: The Middle East, in general, and the Persian Gulf states, in particular, feature distinct cultural customs that can profoundly impact contract interpretation and dispute resolution. These differences may necessitate a deeper understanding to avoid misunderstandings and disputes.
- Contractual and Commercial Risks: The region has a high rate of construction disputes due to contract issues, stressing the need for robust contract management and dispute resolution strategies. The Dubai International Arbitration Centre (DIAC) is a key player in resolving disputes, but the process can be costly and time-consuming.
- Economic and Political Risks: The region is prone to geopolitical tensions, affecting business stability and security. Economic incentives and sanctions policies can also change, impacting trade and investments. This can particularly affect Belarusian businesses due to international sanction dynamics.
- In the Persian Gulf, the industry of finance and business is underlain by unique cultural customs that can greatly influence contract interpretation and dispute resolution, necessitating a deeper understanding to avoid misunderstandings and disputes.
- For Belarusian businesses engaging in transactions with parties in the Persian Gulf, it's crucial to be mindful of cultural and legal variations as well as the potential for economic and political risks, such as geopolitical tensions, shifting economic incentives, and sanctions policies, which can impact trade and investments.