Sale and storage of goods in Ukraine: overview

The following domestic laws apply to sale of goods contracts in Ukraine:

Ukrainian law does not set out specific rules to protect small businesses against unfair terms or to resolve disputes between small businesses and their larger trading partners.

Ukraine is a party to a number of international treaties setting out rules relevant to sale of goods contracts. These include the:

Legal entities in Ukraine can use established international customs and international agencies’ recommendations when drawing up sales agreements (Article 6, FEA Law). The following standard contractual terms are used in Ukraine:

To create a legally enforceable contract, it is essential for the parties to agree on all future terms and conditions of co-operation on a fair and free basis to avoid the contract being considered invalid for reasons of mistake or fraud. Both the Civil Code and the Commercial Code regulate in detail how the offer and its acceptance must be performed by the counterparties to create legally binding relations.

Agreements governed by Ukrainian law must contain certain essential provisions for contracts of the relevant type. Under Article 180 (2) of the Commercial Code and Article 638 (2) of the Civil Code, the following essential conditions must be agreed on by the parties to a sales agreement:

The FEC Form Regulation also contains recommendations on the content of international sale of goods agreements to facilitate customs clearance by the Ukrainian customs authorities, including:

Sale of goods contracts in Ukraine must normally be concluded in writing. This covers not only written contracts, but also exchanges of emails, letters and telegrams (Article 205, Civil Code). Under Article 639(2) of the Civil Code, if the parties agree to enter into an agreement using information and telecommunication systems, the agreement is considered to be executed in writing. Ukrainian law sets out several options for the signing of such contracts by the counterparties’ authorised representatives. Therefore, agreements concluded in electronic form are legally enforceable in Ukraine.

Notarisation is required for sales of land plots, property complexes, residential buildings (apartments) or other real estate, except for sales of property in a tax pledge (Article 657, Civil Code). The validity of these contracts is dependent on notarisation, without which the contract is null and void. Parties can agree to notarise agreements even if the law does not require notarisation, and such an agreement is then concluded from the moment of its notarisation (Article 639(2), Civil Code). Under Article 210 of the Civil Code, if state registration of the contract is legally required (such as for sales contracts in respect of certain immovable property), the contract is only effective after that registration.

International sales agreements (as well as all annexes to these agreements (if any)) used in relations with different Ukrainian state bodies must be in Ukrainian or be accompanied by a Ukrainian translation (Article 254, Customs Code; Law of Ukraine On Ensuring of the Functioning of Ukrainian Language as State Language No 2704-VIII, dated 25 April 2019). Therefore, from a practical standpoint, it is advisable to use a bilingual text in any agreement using English or any other foreign language and Ukrainian.

If the price is not agreed by the parties in the agreement and cannot be determined on the basis of the agreement, it will be defined on the basis of usual prices for similar goods at the time of conclusion of the contract. Ukrainian law does not impose special requirements in relation to the time, method and place of payment. This also applies to international sales contracts. However, from a practical viewpoint, if there may be payments in foreign currency, it is advisable to precisely define price and payment mechanisms. Otherwise, there is a risk that the Ukrainian counterparty will not be able to buy the foreign currency for payment under the contract.

Article 546 of the Civil Code allows for the following securities:

This list is not exhaustive, and the parties can agree on other types of securities, such as retention of title to the products by the seller until the buyer performs its payment obligations.

Under Article 601 of Civil Code, parties can unilaterally set off claims if:

If the claims fail to meet any of these conditions, set-off is not possible. In addition, Ukrainian law specifies a list of claims that cannot be set off:

It is also possible to exclude the right to set off claims in the agreement by setting out a direct procedure for setting off counterclaims and/or excluding the unilateral right of any party to set off claims (Article 602, Civil Code). Previously, the National Bank of Ukraine (NBU) has applied from time to time different restrictions and has even banned the setting-off of claims in foreign currency. Therefore, applying a set-off in a case involving foreign currency must be constantly monitored in the future and analysed on a case-by-case basis.

Until 7 February 2019, Ukrainian law envisaged extensive restrictions on settlements between residents and non-residents in foreign currency. These foreign currency controls concerned, among other things, terms for payment and the submission of documents confirming foreign economic transactions.

As of 7 February 2019, the foreign currency payments were substantially relaxed by the Currency Operations Law. The Currency Operations Law envisages the principle of freedom in currency transactions (both individuals and legal entities are entitled to open accounts with foreign financial institutions and conduct transactions either in national or foreign currency. Residents are entitled to purchase currency valuables and assets abroad and to transfer currency valuables across the customs border of Ukraine).

At the same time, the NBU is entitled to establish a deadline for making payments in foreign economic transactions (for example, previously, 90, 120, 180-day deadline for making payments in foreign currency was established). Currently, the payments for import and export transactions must be provided within 365 calendar days (paragraph 21, NBU Resolution No 5, dated 2 January 2019). This means that if an advance payment is made, the products must be imported to Ukraine within 365 calendar days from payment. The same rule applies to export transactions. Failure to comply will result in penalties.

In particular, the Currency Operations Law envisages penalties for legal entities and provides for administrative fines for individuals, officials and officials of legal entities in the case of violation of currency legislation. More specifically, the State Tax Service of Ukraine can impose on legal entities fines of up to 100% of the amount of the transaction carried out in violation of currency legislation (Article 14(4), Currency Operations Law). The administrative fines for individuals are established by the Code of Administrative Offences of Ukraine No 8073-X dated 7 December 1984 (Administrative Offences Code) and depend on the particular type of violation. For example, the violation of currency transactions procedure is punishable by a fine of 1000 to 3000 minimum non-taxable incomes (UAH17,000 to UAH51,000) imposed on the officials of legal entities (Article 162-1, Administrative Offences Code).

Under Article 662 of the Civil Code, the seller must transfer goods under a sales contract to the buyer along with all relevant documents (such as the conformity assessment certificate). Under Article 689 of the Civil Code, the buyer must accept the goods, unless they have a right to claim replacement of the goods or reject the contract.

Under Article 664 of the Civil Code, the seller fulfils their obligation to transfer the goods to buyer on:

If the sales contract does not require the seller to deliver the goods to the buyer’s location, the seller’s obligation to transfer the goods obligation is fulfilled on transfer of the goods to a carrier or delivery service for conveyance to the buyer.

If a time for delivery is not agreed by the parties, the buyer can claim delivery of the goods at any time. The seller must fulfil this obligation within seven days of a claim by the buyer (Article 530, Civil Code).

If a place for delivery is not agreed by the parties, the following rules apply:

Under Article 685 of Civil Code, if the sales contract does not establish specific requirements for containers and packaging, goods must be delivered in containers and/or packaging in the usual manner. In the absence of an established or usual manner, the goods must be delivered in a manner that preserves that kind of goods under usual storage and transportation conditions, unless the goods naturally do not require containers/packaging.

If goods are delivered without or in inappropriate containers/packaging, the buyer can demand delivery of goods in appropriate containers/packaging or replacement of the goods. The buyer can also make claims connected with delivery of goods of improper quality, including:

(Articles 686 and 678, Civil Code.)

Under Article 334 of Civil Code, title to goods is transferred from the seller to the buyer from the moment the goods are transferred to the buyer. However, if the agreement under which the goods are sold is subject to mandatory notarisation or state registration, title to the goods only occurs after notarisation or state registration. In such cases, retention of title is not possible.

Under Article 668 of the Civil Code, if not otherwise determined by the agreement or law, risks pass from the seller to the buyer from the time of transfer to the buyer. If goods are sold during transportation, risks pass to the buyer on conclusion of the sales agreement, unless otherwise determined by the agreement or law (see Question 7).

Under Article 697 of Civil Code, the seller can reserve title to goods already supplied to the buyer until payment is made in full or the occurrence of other circumstances. If so, the buyer cannot dispose of the goods until title transfer, unless otherwise determined by the agreement or law, or if this arises from the purposes and characteristics of the goods. If the buyer violates the agreement’s payment terms and conditions, the seller can request return of the goods.

Retention of title to goods by the seller can be regarded as a security instrument that the parties directly agree on in the sales agreement. Unfortunately, neither Ukrainian law nor case law provides for any detailed requirements for making retention of title fully enforceable and operative in Ukraine. In practice, it can be quite difficult to apply this option in international sales contracts because the seller would require the buyer’s help to clear the goods through the re-export customs regime to return the goods. Buyers are usually reluctant to co-operate in these cases.

The parties usually rely on Incoterms when defining the transfer of risk in a contract.

If the contract is silent, Ukrainian law provides for the following general rules relating to the transfer of risk of accidental destruction or damage to goods:

(Article 668, Civil Code.)

The quality of supplied goods is regulated by the Civil and Commercial Codes as well as legislation applicable to specific products.

The quality of goods supplied under a sales agreement must meet any technical regulations and standards that specify quality requirements for the relevant products (Article 268(1), Commercial Code and Article 673(4), Civil Code). The quality of goods must be confirmed by proper shipping documents obtained in accordance with the procedure established by the relevant legislation for the specific type of product (Article 268(4), Commercial Code and Article 674, Civil Code). Parties can also specify higher quality standards in their agreement (Article 268(1), Commercial Code and Article 673(4), Civil Code).

If quality terms and conditions are not specified in the sales contract, the seller must transfer goods that are suitable for the usual purposes of such goods. If so, general quality criteria or regular quality standards are applied (Article 268(3), Commercial Code and Article 673(2), Civil Code).

If goods of improper quality are supplied, the buyer is entitled to:

(Article 678, Civil Code.)

If the defects cannot be remedied, the buyer can either:

If the seller of defective goods is not the manufacturer of the goods, the buyer can bring a claim against the seller or manufacturer.

Ukrainian law sets out requirements and provides for liability in the case of sale of dangerous products or products not complying with the relevant regulations to consumers (physical individuals), including under the:

The Safety Law and the Market Surveillance Law apply to non-food products and stipulate that on identification of products that do not comply with the relevant requirements, producers must voluntarily:

Under Ukrainian law’s general approach to product liability issues, it is likely that both the producer and/or the importer would be liable for a supply of defective products.

The definition of defective products is quite broad. In particular, under the Defective Products Law, a product is regarded as defective when it does not provide the safety that a consumer or user is entitled to expect, taking all circumstances into account, including in relation to:

The remedies available for breach of a sales contract depend on the type of breach and are based on the following principles:

(Article 216(3), Commercial Code.)

The following commercial sanctions can also be applied in the case of a contractual breach:

(Article 217(2), Commercial Code.)

The amount of damages must be proven before the court. In particular, compensation for damages is reimbursed if:

An agreement can be amended or terminated by court decision in the case of a fundamental breach, or in other situations stipulated by law or by the sales agreement. A breach is generally fundamental if the inflicted damages mean a party is deprived to a significant extent of the benefits that it could expect when entering the contract (Article 651(2), Civil Code).

See Question 8 on the buyer’s remedies for supply of goods of improper quality by the seller.

A buyer can terminate the sales contract for non-delivery (Article 665, Civil Code). If goods with specific characteristics cannot be delivered, the buyer can claim supply of the specific goods pursuant to the sales agreement (Articles 620 and 665, Civil Code). This right is only lost if the specific goods are already assigned or delivered to a third person.

Late delivery can result in the right to claim penalties or the application of other sanctions envisaged by the law or sales contract.

If payment is delayed, the seller can claim payment for the goods and interest for any credit it takes out as a result. The interest rate is determined by the contract or relevant statute (Articles 692(3) and 536(2), Civil Code). A buyer that delays payment must pay the debt amount plus the rate of inflation and 3% annual interest, unless another interest rate is established by the contract or statute (Article 625(2), Civil Code).

If a buyer refuses to accept and pay for goods, the seller can either claim payment or reject the sales contract (Article 692(4), Civil Code).

In addition, if goods are supplied with pre-payment conditions, failure to pay within a specified period enables the seller to suspend supply of the goods or terminate the contract (Articles 693(1) and 538(3), Civil Code). If the buyer delays payment for goods sold on credit terms, the seller can claim return of unpaid goods as well as interest on the delayed payment (Articles 694(5) and 536(2), Civil Code). If an instalment payment is not provided for goods already transferred to a buyer under contractual conditions for payment by instalments, the seller can terminate the agreement and claim return of the transferred goods (Article 695(2), Civil Code).

Parties can normally limit liability through a contractual limitation clause. Article 22(3) of the Civil Code provides for compensation of damages in full, unless a larger or smaller amount is set out by the agreement or statute. However, a clause excluding or restricting responsibility for wilful misconduct is null and void (Article 614(3), Civil Code).

In addition, exemption clauses restricting or excluding a manufacturer’s or seller’s liability under a sales contract are prohibited (Article 216(3), Commercial Code). The Commercial Code (which is a lex specialis compared to the Civil Code) only allows liability to be limited for specific types of commercial relations (Article 225(2), Commercial Code) and does not allow parties to contractually limit their liability for failure to perform or improper performance of their obligations.

If no governing law is chosen, the law of the state of the seller is applied to the sales contract (Article 44(1), PIL Law) (see Question 14).

However, under Article 8 of the PIL Law, a Ukrainian court can apply Ukrainian law to a foreign law-governed instrument or agreement or to the rights and obligations of the parties if it is not possible to establish, within a reasonable period of time, the rules of the foreign law governing the instrument or agreement using the procedures under the PIL Law. The parties to a dispute are expressly authorised to provide the court with documents on the rules of foreign law and to assist the court in establishing their content in any manner.

Under Article 14 of the PIL Law, mandatory provisions of Ukrainian legislation must be respected and be given effect by the courts and

tribunals even where a foreign law is applicable (in relation to, for example, taxes, customs, currency regulation, consumer protection and so on). Therefore, to make the agreement fully enforceable and operative in Ukraine, all mandatory limitations and restrictions stipulated by Ukrainian laws must be duly complied with irrespective of a choice of applicable law.

In particular, to be fully enforceable and operative in Ukraine as well as to facilitate its performance, the agreement must comply with the following formal requirements:

To facilitate customs clearance, it is highly advisable to incorporate into the contract the conditions envisaged by the FEC Form Regulation (see Question 2).

If no choice of law is made by the parties, the closest connection test applies, under which a contract is governed by the law with which it has the closest connection (Article 32(2), PIL Law).

Ukrainian law bases the closest connection test on the identification of the characteristic performance of the contract, according to which a contract is most closely connected with the law of the country of the contract’s characteristic performer. Article 44(1) of the PIL Law sets out a list of detailed rules for the determination of the characteristic performers in the most common contracts. For sale contracts, when no choice of law is made by the parties, the law of the contract is the law of the seller.

In cases established by law or an international treaty ratified by the Ukrainian Parliament, a dispute falling within the jurisdiction of a commercial court can be transferred to a court of a foreign state if this is agreed by the parties (Article 23(1), Commercial Procedural Code).

Article 76 of the PIL Law sets out a list of cases with a foreign element (involving non-Ukrainian parties) that can be accepted for consideration by Ukrainian courts. These include, among others, cases where:

However, Ukrainian courts have exclusive jurisdiction over certain disputes involving non-Ukrainian parties, including, for example, disputes relating to:

(Article 77, PIL Law.)

If one of the cases listed above is decided by a foreign court, it is likely that the decision would not be recognised or enforced in Ukraine (Article 468, Civil Procedure Code).

According to established court practice, in cases involving non-Ukrainian parties, the competent court must ascertain whether a bilateral treaty exists between Ukraine and the relevant foreign state and, if so, whether the dispute settlement procedure is regulated on the inter-state level. Ukraine has entered into a range of legal assistance treaties with different states.

Therefore, when a judgment is rendered by a court in a foreign state that has concluded a legal assistance treaty with Ukraine, those provisions apply to the process of recognition and enforcement of the judgment in Ukraine. The list of bilateral and multilateral legal assistance treaties in civil and criminal matters concluded by Ukraine is available in Ukrainian at: https://minjust.gov.ua/m/4906. The legal assistance treaties typically contain provisions on the courts’ jurisdiction.

Under Article 75 of the PIL Law, the jurisdiction of the Ukrainian courts in disputes with a foreign element is determined when proceedings are opened. The state court will refuse to open proceedings if there is a dispute between the same parties, on the same subject matter and on the same grounds under the consideration of a foreign court.

See also Question 15 on the application of Article 76 of the PIL Law.

Enforcement takes place under the New York Convention, to which Ukraine is a party. Article III of the New York Convention does not set exhaustive procedures for recognition or enforcement, and expressly refers to the rules of procedure of the territory where the award is relied on. Therefore, the procedural norms of Ukrainian legislation under Chapters VIII and IX of the Civil Procedure Code apply to enforcement of both foreign and international arbitral awards in Ukraine.

Although Ukrainian law does not have a concept of negotiable/non-negotiable instruments, it provides for the following two types of transferable warehouse documents evidencing title to goods in storage:

Ukrainian law also allows warehouses to issue warehouse confirmations, which certify the conclusion of storage contracts as well as the quantity and nomenclature of goods accepted for storage. Such warehouse confirmations are used to confirm the obligations of a warehouse towards its counterparty under the storage contract. If the counterparty assigns its rights under the contract to another entity, the warehouse confirmation(s) must be delivered to the other entity. While warehouse certificates can only be issued by certificated warehouses, warehouse confirmations can be issued by any warehouse.

In addition to the Civil Code, warehouse documents are regulated by the Law of Ukraine On Certified Warehouses and Simple and Twofold Warehouse Certificates No 2286 dated 23 December 2004.

The following acts set out further requirements for warehouse documents and pledges in relation to grain:

A simple warehouse certificate must specify that it is issued to the bearer and contain the following information:

(Article 965(2), Civil Code.)

For a twofold warehouse certificate, in addition to the requirements listed above, each part (the warehouse certificate itself and the pledge certificate) must contain the following identical information:

(Article 962(2), Civil Code.)

Documents not meeting these requirements risk not being regarded as simple or twofold warehouse certificates.

The Civil Code does not specify requirements for warehouse receipts. However, it is advisable to specify the same information as required for twofold warehouse certificates.

Goods accepted for storage under a simple or twofold warehouse certificate can be pledged during the storage period (see Question 18).

There are no impending developments or proposals for reform of national legislation affecting sale of goods contracts and/or storage of goods in Ukraine.