Association of Distributors of automotive parts

ADAK-Expert №1

24.10.2008

Subject: The term of carrying over the property right of the goods after the payment.

We would to draw your attention to the problem of some suppliers' requirement of carrying over the property right of the goods after the payment while negotiating international contracts.

Consequences for importers:
In case of signing the contract with such a condition importer will sell the goods of which he is not an owner. i.e. in fact will act as an agent of foreign supplier (not having agent agreement). According to the Russian law one can't manage the goods if it's a property of a different company. So such a clause of a contract means that importer will break the law or will have to store the goods till payment and only after that be able to sell it.

Supplier motivation:
Insisting on adding such a term in a contract supplier wishes to have a possibility to get his assets through the judgment (or money for the assets). But it duplicates the obligation of payment of the goods in due time. I.e. violating the payment term by importer gives to suppler the right to insist on executing obligations by importer through the court.

Consequences for suppliers:
In case of signing the contract with such a condition in EU supplier can easily get his goods back if breaking the obligations by customer. In Russia it's hardly realistic as there's custom clearence procedure that means that supplier will have to export the goods in case if he will try to get the goods from importer. That will cause expenses on supplier side and importer will be free of payment obligation. So trying to secure himself by such a term supplier puts himself in a more unfavorable situation.

So "ADAK" administration recommends to the members of the Association not to sign internation contracts with their suppliers in which the term of carrying over the property right of the goods after the full payment is included to avoid above mentioned problems.