The situation
Despite natural and political upheavals, business ties between foreign and Belarusian partners are being restored and supply chains rebuilt, allowing Belarusian companies to sell their products in foreign markets. We were approached by a foreign client that had purchased finished material from a Belarusian company and used it to manufacture its own product: packaging and containers for food. After the product had been sold to third parties, it turned out that the materials supplied by the Belarusian counterparty were defective.
≈1,000
pages of case documents reviewed by our team
4 years
limitation period under the Convention
3 stages
strategy, procedural documents, court support
What our team did
Working on the client’s matter, our team reviewed around a thousand pages of case documents, proposed a legal strategy that anticipated the Belarusian counterparty’s possible objections to the claims, prepared the documents needed to protect the client’s interests in court, and provided legal support throughout the proceedings.
Section 01
Supply Agreement: Remedies Against a Bad-Faith Seller
The legal relationship between the parties clearly showed that they had entered into a contract for the sale of goods. Since the parties were based in different jurisdictions, we also examined whether international treaties applied, in particular the 1980 UN Convention on Contracts for the International Sale of Goods (CISG).
Under civil law, the buyer may choose how to respond to the seller’s breach of contract within the limits set by law. In particular, it may demand a proportionate reduction of the purchase price, have the defects remedied free of charge within a reasonable time, or recover its own costs of remedying them. Moreover, if the defects cannot be remedied without disproportionate expense, or keep reappearing, including after they have been remedied, the buyer may withdraw from the contract and demand a refund of the price paid, or demand that the goods be replaced with goods of proper quality.
Important
Initially, our client believed it could claim both compensation for its costs of remedying the defects and a refund of the price paid under the contract. However, such an approach is contrary to civil law. In effect, the potential claimant in a defective-supply dispute would be making two mutually exclusive claims, and a court will not grant both at the same time. In addition, from a legal standpoint, each claim requires proof of different facts. Having explained to the client that this strategy had no real prospect of success, we proposed alternative ways of resolving the dispute.
Section 02
Limitation Period Under a Supply Agreement
Belarusian law expressly provides that the limitation period for claims relating to the supply of defective goods is one year from the date the goods are delivered to the buyer. In some cases, the limitation period runs not from the date of delivery but from the date on which the buyer reports the discovery of defects. In addition, the supply agreement submitted to us for review expressly stated that the period for detecting latent defects was thirty calendar days from delivery of the goods to the buyer.
The dispute was further complicated by the fact that, in the buyer’s production chain, the goods delivered under the supply agreement were merely a material from which the buyer’s contractors manufactured food packaging to the buyer’s orders. Once processed, the products were shipped to food manufacturers, then to retail chains and wholesale buyers, and in some cases to individual consumers.
As a result, a considerable amount of time passed between the shipment of the material and the first complaints from end customers.
Note that the expiry of the limitation period is grounds for dismissing the buyer’s claims if the other party raises it during the court proceedings.
Anticipating that the potential defendant would rely on this argument, we built our legal strategy on the CISG and the 1974 UN Convention on the Limitation Period in the International Sale of Goods, even though the supply agreement made no provision for their application.
As an international treaty, the Limitation Convention entered into force for Belarus in 1997 and effectively forms part of Belarusian civil law. Under the Civil Code, as a general rule, provisions on limitation periods contained in international treaties of the Republic of Belarus that have entered into force form part of the civil law in force in the Republic of Belarus and are directly applicable.
Key fact
The limitation period established by the Convention is four years.
Under the Convention, its provisions apply if, at the time the contract is concluded, the parties to a contract for the international sale of goods have their places of business in Contracting States.
In this way, any potential objections based on the expiry of the limitation period were “nipped in the bud” while the legal strategy for the dispute was still being developed.
Section 03
Choosing a Legal Remedy Under a Supply Agreement
While developing the legal strategy, our team concluded that, in the circumstances, our client was entitled not only to the remedies provided by law but also to claim damages. In particular, when settling claims brought by its own customers, the client had made compensation payments in the amounts stated in their quality complaints. Under Belarusian law, such compensation payments constitute losses suffered by a good-faith market participant. Similar approaches can be found in the CISG. According to our calculations, the total damages amounted to USD 340,000.00.
Next step
Having agreed the strategy with the client, our team began preparing the procedural documents.
One of the tasks set for us was to assess the outcome of the pre-trial work: the parties had met repeatedly at production meetings, signed minutes and memoranda on the claims that had arisen, and exchanged correspondence. The key question is whether such actions can be treated as compliance with the mandatory pre-trial dispute resolution procedure. If the answer is yes, the client can go to court without further obstacles; if it is no, a formal pre-trial claim must first be sent in the manner prescribed by the procedural code, otherwise the court may decline to proceed with the claim until this is done. Read about the results of this work and the procedural decisions taken during the dispute in our upcoming articles.