GILS Commercial contracts: Mongolia
GENERAL CONTRACT LAW REGULATIONS
MONGOLIA
1. Is it mandatory for a commercial contract to be governed by local law?
Commercial contracts are not required to be governed by Mongolian law. Parties to a commercial contract within Mongolia may stipulate their choice of governing law through mutual agreement.
2. What language applies to commercial contracts on the territory of the Country? Is it possible to establish the prevailing language?
Commercial contracts can be executed in any language agreed upon by the parties involved. However, if the contract is concluded in a foreign language, a certified translation into Mongolian may be required for tax authorities or/and in case a dispute arises in a Mongolian court.
3. Is it possible to use electronic signatures for the execution of commercial contracts between private entities?
The Civil Code of Mongolia acknowledges the legal validity of contracts executed with electronic signatures. In practice, electronic signatures are broadly accepted for commercial contracts, provided that both parties consent to their use. However, for specific documents, such as those requiring notarization or registration with relevant authorities, original handwritten signatures may still be required.
4. Are there any requirements to the form of a commercial contract? Are there any standard forms of commercial contracts?
Commercial contracts shall be concluded in the form prescribed by law. If no specific form is mandated, the parties may agree to conclude the contract either orally or in writing. Contracts that require notarization must be certified by a notary or by any other person authorised by law.
5. Are there any types of preliminary agreement or “gentleman’s agreement” in the Country?
The Civil Code recognizes the concept of a “transaction” defined as an expression of the parties' intent. Such an expression of intent becomes effective upon receipt by the other party. If the other party has previously refused or expressly refused to accept the expressed intent, the expression shall be deemed ineffective.
6. What currency is allowed to be used for commercial contracts in the Country?
While the Tugrik (MNT) is the official currency, parties to a commercial contract in Mongolia can agree to use a foreign currency if the contract involves international trade or transactions with foreign entities. This is common in contracts related to imports, exports, or other cross-border activities. However, prices of goods, works and services shall be expressed only in national currency or MNT, and payment shall be made in MNT on the territory of Mongolia.
7. Are there options for the limitation of liability of a party under the commercial contract?
Parties to a commercial contract have the flexibility to include clauses that limit liability, subject to certain legal restrictions and considerations. The limitation of liability is a common contractual tool used to manage risks and define the extent of a party’s responsibility in case of a breach or other issues arising under the contract.
8. Is the concept of release from liability or indemnity enforceable in the Country?
Release from Liability:
Parties to a contract can agree to release one or both parties from liability for specific types of breaches or damages. This release must be expressly stated in the contract and clearly define the scope and extent of the liability being waived.
Indemnity:
Indemnity provisions are generally enforceable under Mongolian law if they are clearly drafted and specify the scope, conditions, and extent of the indemnity.
9. Is there the concept of “consequential damages” in the Country? Can it be excluded from liability?
The Civil Code entitles one party to a contract to claim compensation from the other party for any consequential damages and expenses incurred during the contract term.
Parties to a contract in Mongolia are generally free to agree on the exclusion of liability for consequential damages. This is typically done through a limitation of liability clause in the contract, where the parties specifically exclude liability for indirect or consequential losses.
10. Is the concept of “force majeure” recognized by the legislation and courts on the territory of the Country?
Yes, it is. Force majeure means the parties are unable to implement their contractual obligation due to the following obstacles which are beyond the reasonable control of parties, unforeseeable circumstances, and cannot be predicted, prevented, or overcome by scientific and technological achievement. They are:
1. Announced and unannounced war, armed conflict, riot, foreign aggression, sabotage activities, revolution;
2. All kinds of natural disasters (severe storms, hurricanes, earthquakes, strong waves, floods, snowstorms, severe weather, droughts, heavy rain, thunderstorms, fires, etc.);
3. Detonation, explosion, damage of the machinery or industrial equipment, and serious electrical damage;
4. All kinds of restrictions, pandemics, quarantines, closedowns, and strikes at the legal entity of a party wishing to be exempted from all types of sanctions and liabilities;
5. Legal and illegal action and inaction, legal acts, orders, decrees of the state officer, dissolution of the workplace, mobilisation of assets, and socialisation.
Moreover, the Mongolian Chamber of Trade and Industry shall certify the force majeure and provide a force majeure certificate.
11. Are export control provisions due to the economic sanctions specified by legislation and enforceable in the Country?
The State Great Khural and the Government of Mongolia shall approve the list of prohibited goods from import and export, and impose non-tariff restrictions on goods crossing the national frontier of Mongolia respectively under the Law on Customs of Mongolia.
As stated by the Law on Customs, goods prohibited from entry into the national territory of Mongolia shall not be permitted to enter the Customs territory. If such prohibited goods do enter, they shall be immediately re-exported. In the event that re-export is not feasible, the goods shall be placed in a Customs examination area or a temporary warehouse for a period not exceeding three days. If the individual or legal entity fails to withdraw the goods within this period, Customs authorities shall take action in accordance with the regulations governing the destruction of goods. Likewise, goods prohibited from export under Mongolian law shall not be permitted to leave the Customs territory. Prohibited goods shall not be allowed to transit through the Customs territory, except as provided for by international treaties.
12. Is there a mandatory dispute resolution regime in the Country for commercial contracts?
Parties to a commercial contract are generally free to choose their preferred method of dispute resolution, whether through negotiation, mediation, arbitration, or litigation unless otherwise required by specific laws or regulations.
13. May the arbitration (local or foreign) be chosen by parties as a method of dispute resolution?
Parties to a commercial contract are entitled to select arbitration—whether local or international—as their method of dispute resolution, and such choice is fully recognized and enforceable under Mongolian law.
Local Arbitration: Parties may choose to resolve their disputes through local arbitration in Mongolia. The Mongolian International Arbitration Center is the leading institution for administering domestic arbitration in Mongolia.
Foreign Arbitration: Parties may also opt for foreign arbitration, choosing an international arbitration institution, such as the Singapore International Arbitration Centre, the London Court of International Arbitration, or the Hong Kong International Arbitration Centre. The choice of foreign arbitration is often used in international commercial contracts, particularly where foreign parties are involved.
Authors: Bolormaa Volodya, Partner
Khulan Ganbold, Associate
