On contracting and legal basis of activity of business entities (670-I-son)

29.08.1998

Law of the Republic of Uzbekistan

I. GENERAL PROVISIONS

Article 1. Goals and Objectives of the Law

The purpose of this Law is to regulate the relations arising from the conclusion, execution, amendment and termination of business contracts between business entities.

This Law defines the legal framework for the conclusion, performance, amendment and termination of commercial contracts, the rights and obligations of business entities, as well as the powers of local executive authorities and republican executive authorities in the field of contractual relations.

Article 2. Legislation on business contracts

Relations arising from the conclusion, execution, amendment and termination of business contracts are governed by the Civil Code of the Republic of Uzbekistan, this Law and other legislative acts.

Article 3. The concept of a business contract

A business contract is an agreement whereby one party undertakes to transfer goods, perform work or provide business services within a stipulated period of time, and the other party undertakes to accept goods, work, services and pay for them.

Article 4. Basic principles of contractual relations in the field of business activity

The main principles of contractual relations in the field of business activity are:

liberty to conclude business contracts;

mutual interest of the parties;

compliance with contractual discipline;

mutual property liability of the parties.

Article 5. Parties toa business contract

The parties of business contracts are legal entities, as well as individuals carrying out business activities without forming a legal entity.

Article 6. Rights of the parties to a business contract

Parties to a business contract as per prescribed manner have the right to:

request and receive certificates and other documents necessary in connection with the conclusion, execution, amendment and termination of business contracts;

request and receive written expert opinions, consult with specialists on issues related to the conclusion, execution, amendment and termination of business contracts;

file petitions and file complaints to state and other bodies, as well as to officials, and receive written and justified responses from them;

collect information relating to the economic condition, reputation and business qualities of the other party;

apply the means and methods provided by law for the protection of the rights and legitimate interests of business entities.

The parties to the business contract may also have other rights specified in the legislation and the contract.

Article 7. Obligations of the parties to a business contract

Parties to a business contract must:

comply with the requirements of the law on business contracts;

ensure timely conclusion of business contracts in cases specified in the legislation;

fulfill their obligations under the concluded business contracts in a timely manner and in proper order.

The parties to the business contract have other obligations as well specified by law and the contract.

Article 8. Powers of Local Executive Authorities in the Field of Contractual Relations

Local executive authorities shall, within the scope of their powers:

coordinate work on the conclusion and execution of contracts for the supply of goods, the execution of works and the provision of services for state needs, as well as agreements for contracting;

take measures to create conditions for the development of contractual relations between business entities.

Article 9. Powers of Republican Executive Authorities in the Field of Contractual Relations

Republican executive authorities shall, within the scope of their powers:

assist in the conclusion of business contracts;

summarize statistical data on business contracts and the status of their execution;

in cases provided by law, control the process of execution of business contracts;

render assistance in organizing the work of legal services of business entities, improving the skills of legal advisers;

in the event of the discovery of a violation of the law in the process of conclusion, execution, amendment or termination of a business contract, in the prescribed manner shall consider the issue of bringing the perpetrators to justice.

II. PROCEDURE FOR CONCLUSION, EXECUTION, AMENDMENT AND TERMINATION OF THE BUSINESS CONTRACT

Article 10. Requirements for a business contract

A business contract shall specify the subject of contract, quantity, quality, variety and price of the goods supplied (work, services), deadlines, calculation procedure, obligations of the parties, liability of the parties for non-fulfillment or improper performance of contractual obligations, dispute resolution, requisites of the parties, and place of conclusion of the contract, as well as other essential conditions that are established by the legislation with regard to contracts of this kind or in relation to the other type of contract where one of the parties has applied to reach an agreement.

When determining the settlement procedure, a business contract must necessarily provide for a condition for the advance payment of the cost of goods (works, services) in an amount not less than what is specified in law.

When concluding a business contract, the parties may be guided by their template or standard conditions (forms) developed for contracts of the relevant type and published upon legal expertise in the prescribed manner.

The contracting agreement is concluded at the location of the agricultural producer. The contracting agreement, along with other requirements, must provide for advance payments for the agricultural products supplied with the amount provided by law at least.

Article 11. Form of a business contract

The business contract is concluded in writing to allow an implementation of a transaction. The written form of the contract is considered eligible if the proposal to conclude the contract is in line with the Article 12 of this Law.

A contract in writing can be concluded by drawing up a single document signed by the parties, as well as by exchanging documents through postal, telegraph, teletype, telephone, electronic or other communication, allowing to reliably establish that the document originates from the party to the contract.

Article 12. The conclusion of the business contract

The business contract is concluded, as a rule, by sending an offer (proposal to conclude a contract) by one of the parties and its acceptance (acceptance of the proposal) by the other party.

A business contract is considered concluded if an agreement has been reached between the parties on all the material terms of the contract.

Article 13. Effect of a business contract

A commercial contract shall enter into force from the moment of its conclusion and shall be binding upon the parties. Contracts concluded with suppliers of goods (works and services) financed from allocations from the State Budget of the Republic of Uzbekistan, the budgets of state targeted funds and the extra-budgetary funds of budgetary organisations, as well as any amendments and additions thereto, shall enter into force after their registration with the treasury authorities.

The parties shall make sure that the provisions of the contract are in line with the prior agreed arrangements

The expiration of the business contract does not free the parties from liability for its violation.

Article 14. Execution of a business contract

A business contract must be properly executed in accordance with conditions and requirements of the law, and in the absence of such conditions and requirements, it shall follow the customs of business relations.

The execution of a business contract can be secured by a penalty, a pledge, the retention of the property of the debtor, a surety, a guarantee, a deposit, and other methods specified in the legislation or the contract.

Article 15. Amendment and termination of a business contract

Amendment and termination of a business contract is possible upon agreement of the parties, if not otherwise provided by law or the contract.

The agreement of the parties to amend or terminate the business contract follow the same procedure as conclusion of a contract.

A unilateral refusal to execute a business contract and a unilateral change of the terms of a business contract are not allowed, except the cases specified in the legislation or the contract.

At the request of one of the parties, the business contract may be amended or terminated by a decision of the economic court only if there is a significant violation of the business contract by the other party or in other cases provided by law or the contract.

A violation of a business contract by one of the parties is deemed significant, in case if the other party suffers losses and does not receive the expected benefits counted for while concluding a business contract.

A requirement to amend or terminate a business contract may be filed by the party to the court only upon refusal by the other party to amend or terminate the contract or if a response is not received within the period specified in the proposal or established by law or contract, and in the absence of an established period in the contract thirty days are given.

Article 16. Conclusion of an intercompany contract

An intercompany contract is concluded, as a rule, between a business entity and its structural divisions or between a business entity and its employee (group of employees).

In cases stipulated by law, business entities are obliged to ensure the conclusion of intercompany contracts for the production of goods, the performance of work, or the provision of services in an amount not less than what is specified in the business contracts concluded by them with other business entities.

The provisions of Articles 353 — 385 of the Civil Code of the Republic of Uzbekistan are applied to the intercompany contract, unless otherwise provided by legislation or the contract.

III. CLAIMS AND LEGAL ACTIONS UNDER THE BUSINESS CONTRACT

Article 17. The Procedure for Lodging Claims

The business entity whose rights and legitimate interests are violated, shall have the right to lodge a claim against the business entity that violated these rights and interests.

The claim is made in writing.

The claims include:

the name of the business entity that made the claim, and of the business entity that is subject to the claim;

filing date and claim number;

the circumstances forming the basis for the claim;

evidence confirming the circumstances of the claim;

the applicant's requirements;

the amount of the claim and its calculation, payment and postal details of the applicant;

list of documents attached to the claim.

The claim is signed by the head or deputy head of the business entity.

The claim is sent by registered or postage prepaid letter, by telegraph, teletype, as well as using other means of communication, by establishing its sender with notification of the recipient, or handed over upon signed receipt.

The procedure and terms for claims against transport and communication business entities arising from the carriage of goods and operations for the provision of communication services are established by law.

Article 18. Procedure and Terms for Processing a Claim

The business entity receiving a claim is obliged to reply it within fifteen days from the date of receipt of the claim.

The response to the claim is signed by the head or deputy head of the business entity and sealed (if there is a seal).

The response to the claim is sent by registered or prepaid postage letter, by telegraph, teletype, as well as using other means of communication, by establishing its sender with the notification of the recipient, or handed over upon receipt acknowledgment.

In case of full or partial recognition of the claim, the business entity voluntarily makes payment of the recognized amount to the entitled party.

If the acknowledgment of the claim does not indicate the transfer of the recognized amount, the claimant has the right, within twenty days upon receipt of the reply, to submit to the bank an order to write off the amount recognized by the debtor incontestably. The debtorʼs response shall be attached to the order.

Article 19. Submission of claim and application for a court ruling

A party may file a court claim and an application for a court ruling to be issued to the economic court in case of refusal (partial refusal) or failure to receive a response to the claim within the prescribed period from the other party, and also avoid filing a prior claim with regard to abusiness contract. The procedure for filing these applications is determined by the Economic Procedural Code of the Republic of Uzbekistan.

IV. ORGANIZATION OF LEGAL SUPPORT OF CONTRACTUAL RELATIONS. CONTROL OVER COMPLIANCE WITH THE LEGISLATION ONBUSINESS CONTRACTS

Article 20. Rendering legal service to the parties to a business contract

Legal services to the parties to a business contract are provided by their company Legal Departments or lawyers engaged for this purpose on a contractual basis.

Legal service of business entities shall:

control compliance with the established procedure for the conclusion, execution, amendment and termination of business contracts, as well as the procedure for the presentation and consideration of claims;

handle enforceability activities on disputes arising from contractual relations;

monitor the conduct of mutual audits of the execution of business contracts;

check the compliance of draft business contracts and other legal documents related to it to ensure compliance with requirements of the legislation that are to be signed by the head of the business entity;

should any discrepancy be found in a draft contract or another related document of a legal nature, a revision is requested along with relevant justification;

engage directly in the development of proposals for the improvement of contractual relations.

Article 21. Legal review of business contracts

Business contracts shall be checked for compliance with the law by the legal service of business entities or by involved lawyers in the process of preparation. The conclusion of contracts without their approval is not allowed.

In order to conclude business contracts, the parties are entitled to receive a written opinion of the legal service of business entities or lawyers involved.

In written opinion, as a rule, the following shall be indicated:

what legislative acts govern the relationship specified in the business contract;

whether the conditions of the business contract comply with the requirements of the legislation;

whether penalties imposed on the parties and the procedure for resolving disputes meet the requirements of the legislation.

Article 22. Mutual verification of the execution of business contracts

The parties to business contracts carry out mutual verification of the timely and proper execution of business contracts. In case of violation of contractual obligations, the head of the business entity is obliged to take measures for the execution of business contracts, protect the rights and legitimate interests of the business entity, and, if necessary, take measures to bring the guilty person to justice.

Article 23. Control over compliance with the legislation on business contracts

Supervision of compliance with legislation related to the conclusion, execution, amendment and termination of business contracts is carried out by the prosecution authorities in accordance with the legislative acts. These bodies also take the necessary measures to having the perpetrators brought to justice in the order established by law, and ensure compensation of the damage caused to the business entity.

V. RESPONSIBILITY FOR VIOLATION OF CONTRACTUAL OBLIGATIONS

Article 24. Responsibility of the parties for non-fulfillment or inadequate execution of business contracts

In case of non-fulfillment or improper fulfillment of contractual obligations by one of the parties, the relevant party shall:

indemnify the other party for damages;

bear other responsibility in the manner prescribed by the Civil Code of the Republic of Uzbekistan, as well as the given Law, other legislative acts and the contract.

Articles 25 — 32 of this Law are applied as penalty for the non-performance and improper performance of business contracts, unless otherwise provided by legislation or the contract.

Article 25. Penalties for the delay in delivery, shortage of goods, non-performance of work or failure to provide services

In the event of late delivery, shortage of goods, non-performance of work or non-provision of services, the supplier (contractor) pays the buyer (customer) a penalty in the amount of 0.5 percent of the unfulfilled part of the obligation for each day of delay, but the total amount of penalty should not exceed 50 percent of the value of the undelivered goods, unperformed works or undelivered services. Payment of the penalty does not exempt the party that violated contractual obligations from compensation for damages caused by late delivery, shortage of goods, non-performance of work or failure to provide services.

Article 26. Responsibility for the supply of goods (works, services) of inadequate quality, range and grade

If the delivered goods, work performed or services rendered do not meet the standards, technical conditions, samples (standards), other mandatory conditions for quality, assortment and grade established by law or business contract, the buyer (customer) has the right to refuse to accept and refuse to pay for goods (works) , services), to recover from the supplier (contractor) a penalty of 20 percent of the cost of goods (works, services) of inadequate quality, range and grade, and if the goods (works, services) have already been paid for, request a return of the amounts paid in accordance with the established procedure. Penalty for the supply of goods (works, services) of inadequate quality, range and grade is collected without prior approval of the supplier (contractor).

A payment request for writing a fine off an account is filed with a bank no later than ten days after the preparation of an act of inadequate quality, assortment and grade of goods (works, services). In case of a payment request for writing a fine off an account made in violation of the established ten-day period, the recovery of the fine is carried out in the prescribed manner.

Article 27. Responsibility for the supply of incomplete goods

In case of delivery of incomplete goods, the buyer (customer) shall be entitled to:

require complete set (package) of goods. The supplier must complete the goods within a period of fifteen days from the receipt of the buyer's (customerʼs) request, unless another period is established by agreement of the parties;

prior to the completion of the goods shall refuse to pay, and if the goods have already been paid for, shall request to return the amounts paid in accordance with the established procedure;

to recover from the supplier a penalty of 20 percent of the value of incomplete goods, including the cost of missing parts.

Should supplier fail to complete goods in due course, the buyer (customer) has the right to return incomplete goods and demand replacement of incomplete goods with complete ones.

Article 28. Responsibility for the supply of unmarked goods, as well as goods without container or packaging

For the delivery of unlabeled or inadequately labeled goods, as well as for goods without containers or packaging or in improper containers or packaging, the supplier shall pay the buyer (customer) a penalty of 5 percent of the value of such goods. In cases where goods are subject to further shipment or storage, the buyer (customer), in addition to collecting a fine, has the right to ensure packaging and bagging using own funds, but at the expense of the supplier or demand from the supplier that is located in the same town as the buyer (customer) packaging or bagging of goods.

Article 29. Responsibility for non-use of letter of credit

In case of non-use of a letter of credit issued at the request of a supplier (contractor) during its validity period, the supplier (contractor) shall pay the buyer (customer) a penalty of 5 percent of the unused amount of the letter of credit.

Article 30. Responsibility for the delay of payment and shipping documents

Upon non-delivery of a copy of the payment or shipping document for the goods shipped or failure to provide other information about the shipment of goods, the supplier shall pay the buyer a penalty of 1 percent of the value of the goods supplied for each case of failure to present information.

Article 31. Responsibility for non-selection or refusal of goods

For non-selection of goods, as well as for unjustified refusal to receive goods upon delivery by the supplier within the contractual term (period) of delivery, the buyer pays the supplier a penalty of 5 percent, and for perishable goods this represents 10 percent of the cost of unselected (not received in time) goods.

In case of non-selection of goods (unjustified refusal to receive), the supplier, in addition to collecting a fine, has the right to demand payment for the value of unselected (not received in time) goods, providing guarantees of the availability of these goods.

Article 32. Responsibility for non-payment or late payment of goods (works, services)

For an unjustified full or partial refusal to accept a payment request, as well as for evading payment for goods (works, services) with other forms of payment (failure to submit a payment order to the bank, failure to issue a check, failure to issue a letter of credit, etc.) the buyer (customer) pays the supplier a penalty in the amount of 15 percent of the amount refused to pay or declined.

Upon late payment for the delivered goods (works, services), the buyer (customer) pays the supplier a penalty in the amount of 0.4 percent of the amount of the overdue payment for each day of the delay, but not more than 50 percent of the amount of the overdue payment.

Article 33. Responsibility for direct debiting of funds

For unjustified, direct debiting of funds from the account, the guilty party pays the other party a fine of 10 percent of the amount unjustifiably debited without prior approval.

Article 34. Indemnification

Regardless of the payment of a penalty (fine, surcharge), the party that violated the contractual obligations shall indemnify the other party for the damages resulted from this.

The losses incurred include expenses incurred by a party or due to be incurred due to non-performance or improper performance of a contractual obligation, loss of or damage to property, and income not received by a party, but could have been received had the other party performed the contractual obligation.

Payment of a penalty (fine, surcharge), established in case of delay or other improper performance of contractual obligations, and compensation for losses caused by improper performance of contractual obligations, do not exempt the parties from the obligation in kind, except those specified by law or contract.

Article 35. Responsibility of an official for violation of contractual obligations

Upon non-fulfillment or improper performance of contractual obligations due to the fault of an official of a business entity, identification of the improper use of money and other property of a business entity, violation of payment discipline, bringing a business entity to insolvency or other offenses in the field of contractual relations, an official of a business entity may be brought to civil liability in accordance with articles 45 and 48 of the Civil Code of the Republic Faces of Uzbekistanadministrative responsibility in accordance with articles 175, 1762, 212 and 214 of the Code of the Republic of Uzbekistan on administrative responsibility, as well as criminal liability in accordance with articles 175, 181, 186, 205, 207 and 209 of the Criminal Code of the Republic of Uzbekistan.

Article 36. Dispute Resolution Procedure

Disputes arising between the parties during the conclusion, execution, amendment and termination of business contracts, as well as compensation for damages are considered in the manner prescribed by law by the economic court, and in cases provided by the contract or by agreement of the parties, by the arbitration court.

President of the Republic of Uzbekistan I. KARIMOV

Tashkent City,

August 29, 1998,

No. 670-I