GILS Commercial contracts: Azerbaijan
GENERAL CONTRACT LAW REGULATIONS
AZERBAIJAN
1. Is it mandatory for a commercial contract to be governed by local law?
Article 390 of the Civil Code of the Republic of Azerbaijan allows the parties to freely determine the terms of the contract. However, local legislation provides some conditions for the application of foreign law to commercial contracts.
2. What language applies to commercial contracts on the territory of the Country? Is it possible to establish the prevailing language?
The legislation of the Republic of Azerbaijan does not contain any restriction on the use of a foreign language in commercial contracts. It is also possible to designate a predominant language in case of contradictions or inconsistencies between the languages specified in the contract.
3. Is it possible to use electronic signatures for the execution of commercial contracts between private entities?
The Plenum Decision of the Constitutional Court of the Republic of Azerbaijan, dated August 12, 2020, provides a comprehensive interpretation of Article 407.2 of the Civil Code concerning contract formation. The decision recognizes the possibility of using electronic signatures in the conclusion of written contracts and confirms the legal validity of electronic signatures.
4. Are there any requirements to the form of a commercial contract? Are there any standard forms of commercial contracts?
Article 406 of the Civil Code of the Republic of Azerbaijan regulates the requirements for the form of contracts. Accordingly, commercial contracts can be executed in any form deemed appropriate by the parties, provided that the Code does not prescribe a specific form for commercial contracts. Should the parties agree to a particular form for the contract, it will be deemed valid in that form upon execution, even if such a form is not required by the Code for that type of contract. A contract in written form may be established either through the creation of a document signed by the parties or through the exchange of correspondence, including letters, telegrams, electronic documents, or other forms of communication, as stipulated in Article 331.1 of the Code.
5. Are there any types of preliminary agreement or “gentleman’s agreement” in the Country?
There are no specific types of “preliminary agreement” or “gentleman’s agreement” prescribed in the local legislation. However, Article 402 of the Civil Code of the Republic of Azerbaijan outlines the requirements for preliminary agreements. According to this provision, a preliminary agreement must be executed in the same form as required for the main contract. The preliminary agreement must outline the subject matter and other essential terms of the main contract. Additionally, it must indicate the timeframe within which the parties are required to conclude the main contract. If no such timeframe is specified, the main contract must be concluded within one year from the date of the preliminary agreement. If the main contract is not concluded within this period or if one party fails to propose its conclusion to the other, the obligations under the preliminary agreement are terminated.
6. What currency is allowed to be used for commercial contracts in the Country?
According to Article 439.1 of the Civil Code, monetary obligations must be expressed in manat. However, if one of the parties is a foreign individual or legal entity, the parties may specify the monetary obligation in foreign currency, provided that this is not prohibited by law.
7. Are there options for the limitation of liability of a party under the commercial contract?
Article 454 of the Civil Code of the Republic of Azerbaijan regulates the limitation of liability for obligations. Options for limiting liability may include setting a time period for raising objections regarding the quality of goods or services, or establishing a minimum threshold that exempts a party from liability.
8. Is the concept of release from liability or indemnity enforceable in the Country?
The concept of release from liability or indemnity may be recognized under Azerbaijani law, but it comes with specific limitations. Parties to a contract may agree to exempt one party from liability for certain breaches or damages. However, this exemption does not apply to liabilities resulting from intentional misconduct or gross negligence. As per the legislation of the Republic of Azerbaijan, it is not permissible to preemptively exempt a party from liability for damages caused by such actions.
9. Is there the concept of “consequential damages” in the Country? Can it be excluded from liability?
The Civil Code of the Republic Azerbaijan does not directly reference the concept of "consequential damages". This concept is more generally governed by the terms agreed upon in contracts. The legislation refers to the concept of "lost profit" which means the income that the injured party would have reasonably expected to earn under normal circumstances if their rights had not been infringed. Parties may agree to exclude liability for lost profits in their contract.
10. Is the concept of “force majeure” recognized by the legislation and courts on the territory of the Country?
Although the concept of “force majeure” is not explicitly addressed in Azerbaijani legislation, it is recognized by both the legislation and the courts and it is regulated by the Civil Code of the Republic of Azerbaijan.
11. Are export control provisions due to the economic sanctions specified by legislation and enforceable in the Country?
In Azerbaijan, export control is regulated by the law “On Export Control”. However, this law does not include specific provisions related to economic sanctions. Nevertheless, the adherence to international sanctions, including those imposed by the United Nations, is provided by aligning its practices with these international standards. Additionally, the “Law on the Approval of the Criteria for Identifying High-Risk Areas” sets out the criteria for designating high-risk areas, thereby supporting the management of the country's export control framework.
12. Is there a mandatory dispute resolution regime in the Country for commercial contracts?
There is no mandatory dispute resolution regime for commercial contracts. However, the parties involved in a commercial contract have freedom to choose their preferred method for resolving disputes.
13. May the arbitration (local or foreign) be chosen by parties as a method of dispute resolution?
The law does not prohibit choosing arbitration as a method of resolving disputes arising from commercial contracts.
Author: Fidan Vahabova, Senior Associate