Ilja Alexandrow, Dr. iur., MBA (Finance),

Managing Partner Alexandrow and Partners law Firm,

www.alexandrow.biz

The whole accumulated experience in providing legal services in Abkhazia shows that in practice, Russian and other foreign investors face problems with actual debt collection from local Abkhaz counterparties. This is one of the key issues that makes businessmen who have received the first – mostly negative experience – of attempts to invest in the Republic, to put their intentions on hold. As they say, “until better times will come”

Considering the latest novels in the legislation of Abkhazia, as well as the approaching moment of ratification of the Agreement between the Russian Federation and the Republic of Abkhazia on mutual recognition and enforcement of state and commercial arbitration decisions in economic cases, we decided to analyze the current situation as of mid-2024 and pay attention to existing opportunities and risks.

Since acute situations arise mainly at the stage of the onset of delay in the fulfillment of obligations, we will consider the entire process of establishing cooperation with Abkhaz counterparties from the very beginning. Because the bulk of legal problems and possible conflicts in the future are laid down at the pre-contractual stage.

Structuring contractual relations

Thoughtful and conscious drafting of an agreement taking into account local Abkhaz specifics is the key to the success of the full fulfillment of the obligations assumed by the parties.

In Abkhazia, they are traditionally not very willing to consider large agreements proposed for consideration and conclusion. Law firms rarely act on the counterparty’s side in Abkhazia; in-house lawyers are more likely to be encountered.

Let’s highlight the most important elements of the contract being drawn up in descending order of importance:

(1) The identity and specifics of the counterparty. Checking the other party to the contract – in Abkhaz realities is the most responsible and difficult for a Russian and any foreign businessman. We strongly recommend ordering such a service from a law firm that can give a preliminary opinion on the risks of working with a particular Abkhaz counterparty.

(2) The applicable substantive law and the agreement on jurisdiction (or arbitration clause, for the most courageous and self-confident parties) should always be carefully thought out in advance, taking into account the specifics of the contractual relationship.

(3) The order of fulfillment of obligations by the parties and the payment schedule. An old ancient principle says that nothing instills faith in the counterparty as much as 100% prepayment. It is also true that a clearly established contractual order of execution of obligations and a payment schedule agreed upon with it, which does not allow the counterparty to behave freely with the terms of implementation of its own actions, help the matter.

(4) Contact information about the parties to the contract and methods of sending notifications. Considering that the postal service in the territory of Abkhazia does not always function perfectly, as well as the international postal services in different regions of the republic, which are still in the process of formation, we strongly recommend that other methods for notifying the counterparty be specified in the contracts. The counterparty’s evasion of delivery of written correspondence can be minimized in this case.

Contract execution

Discipline in the execution of contracts is determined by all the above points. We believe that if you give in to the Abkhaz counterparty in something, this may negatively affect further work at the stage of execution of the provisions of the contract.

Settlement of disagreements and dispute resolution

Few people will voluntarily fulfill an overdue obligation if such a delay has occurred, and the creditor is not active in collecting.

A quick passage of the negotiation stage does not always lead to the desired result. In this case, in a number of cases, a mandatory claim procedure is established, that is, sending a properly executed claim to the debtor.

If the claim does not have the desired effect (who among us, practicing lawyers, has encountered such rare situations with a positive effect from the claim?), the creditor can only prepare a statement of claim with all appendices and apply to the court in accordance with the rules of jurisdiction and venue.

The judicial system of Abkhazia is built on the basis of the administrative-territorial division of the republic and the presence of a limited number of economic disputes. The only Arbitration Court is located in Sukhum, which has jurisdiction over such disputes. Despite the effect of national procedural codes, the Arbitration Procedure Code and the Civil Procedure Code, there are a number of borderline matters that can be attributed both to the jurisdiction of courts of general jurisdiction and to the jurisdiction of the Arbitration Court (in practice, it happened that two different claims with the same subject were simultaneously considered both in the Sukhumi City Court and in the Arbitration Court).

Court hearings in both district courts of general jurisdiction and the Arbitration Court are held in person. Communication with the court can be in writing, as well as by exchanging messages via messengers such as WhatsApp, Telegram – in such cases, the receipt of procedural documents, including court rulings, is formally considered successful service.

The procedure for requesting individual evidence from government agencies takes a long time. The current procedural legislation of Abkhazia, in our opinion, provides the parties to the arbitration process with a greater scope of rights to request missing evidence, compared, for example, with Russian arbitration. In practice, there are already cases of Abkhaz judges attaching Russian arbitration decisions that have entered into legal force as evidence in cases under consideration. Despite the fact that the Agreement between the Russian Federation and the Republic of Abkhazia on mutual recognition of recognition and enforcement of judicial and arbitration decisions in economic cases dated June 29, 2022 has not yet been ratified by the Parliament of Abkhazia, such practice has already been established.

There is no stage of appeal of the decisions made in the Abkhaz arbitration process. The interested party can appeal the decision of the Arbitration Court of the Republic of Abkhazia in cassation and supervisory proceedings.

Enforcement proceedings in the territory of Abkhazia

Debtors do not always voluntarily comply with court decisions. What a surprise.

On the basis of a judicial act that has entered into legal force, the claimant has the right to receive a writ of execution and apply to the territorial office of the Bailiff Service of the Ministry of Justice of the Republic of Abkhazia with an application to initiate enforcement proceedings. The activities of this state body, including all its employees, are regulated by a special law adopted in 2014.

Conclusion

Resolving disagreements with counterparties in Abkhazia is possible, despite individual media reports about cases of lawlessness and violence against Russian and other foreign investors in the republic. In some cases, based on such data, new and new businessmen draw conclusions that lead them to make hasty impulsive decisions.

High-quality pre-contractual and contractual work involving Abkhaz counterparties and taking into account the most important points listed above is, in our deep conviction, the key to success and a relatively low risk component of conflict-free cooperation. Going through legal proceedings at all their stages and participating in enforcement proceedings is associated with a significant amount of financial costs and long periods of time. However, this fact is true not only in relation to Abkhazia.