The new Civil Code of Tajikistan: a lost opportunity or “better than nothing”?

On 24 December 2022, the new Civil Code was signed into law which will come into force starting from 1 July this year. We have only started to review this piece of legislation and, for now, offer you some of the novelties which it brought.

Understandably, a change of a legislative piece of such magnitude would assume an enormous amount of effort. And such would be the expectation of its outcome: to have something fundamentally better. The new Code provides only a few new concepts meeting, primarily, the requirements of international business. This is a small step towards transplanting Common Law system provisions into Tajik Romano-German Civil Code.

Since the absolute majority of cross-border business transactions are governed by English law, the introduction of new legal transplants in the Tajik Civil Code may portray Tajikistan as a country attracting new foreign investments to the country. But those notably new provisions do not in large parts concern corporate law and equity transactions.

So, let’s see what these new things are.

Irrevocable Power of Attorney (Article 206)

This novelty is, again, a product of western-law traditions. The irrevocable power of attorney is primarily to ensure that the obligations to which the principle has committed itself, remain enforceable vis-à-vis the principal on whose behalf the authorized person is acting. The underlying obligations in connection with which the representation takes place should be for business purposes. The power of attorney cannot be revoked (canceled) unless its period of validity expires or certain events occur which nullify it and provided such events are set out in the power of attorney itself. The irrevocable power of attorney can be canceled after the obligation for which it was issued is terminated or in case of abuse of powers granted by it. Such power of attorney should be notarized and explicitly referred to its irrevocability.

An example of the use of the irrevocable power of attorney is when a shareholder exercise voting rights in a certain way, i.e. as it was agreed upon in a shareholder agreement. This removes the risk of the principal changing their mind after it has issued it thereby ensuring that the commitments in the shareholder agreement are not impeded in actuality (this is why the law refers to such power of attorney as a toll for enforcement of obligations of the principal). The potential problem with the use of such toll in this way is that voting rights are not transferable in Tajik corporate law nor does shareholder agreements are known to Tajik law. Another example would be to use it in aircraft lease where certain actions at certain critical times may be taken on behalf of the lessee for the lessor’s comfort (although other international toles are already available).

Guarantee (Article 425)

The most essential change in the regulation of a guarantee is that it can now be issued not only by a bank or other credit institution but by any business entity. This means, that contrary to the current position which permits the guarantee only by credit institutions licensed for that purpose, from June this year, any company can issue a guarantee with no further statutory requirements attached to its legal capacity.  

Subscriber agreement (Article 491)

A subscriber agreement is another novelty (although already used in practice) and is defined as an agreement where one party (the client, or subscriber) is entitled to require the performance of certain services by the other party (service provider) against regular payments by the client. The Client does not require such performance, as a general rule, the money should continue to be paid and that already is non-refundable.

Option and Option agreement (Article 492)

A widely accepted internationally, option agreement has now part of the Tajik law. Option is an irrevocable offer to the other party to enter into an agreement on terms set out in the option agreement. the other party may exercise this right within the provided period, under certain conditions and other terms agreed upon between the parties. Any such negotiated conditions may or may not necessarily be in control of both parties. By default, option is granted for consideration. The consideration is not credited against the price (payments) for which the option agreement is concluded, nor is it returned should the agreement is not entered eventually. Where parties have not agreed upon the deadline for the option to be effective, it shall, as a general rules, last for one year. The option agreement should be made in the form in relation to which the agreement is intended to be entered in the future. Terms of the option agreement may be part of another agreement. Option may generally be assigned to a third party. If, within the provided period or upon the occurrence of a provided event(s), the option is not triggered by the party to which it was offered, the option agreement terminates.

Negotiations to conclude a contract (Article 501)

This provision introduces the concept of good faith in negotiating a contract and exposes to liability the party which, during negotiations, provides the other party with wrong or incomplete information, hides specific facts, or unexpectedly breaks off the talks for no cause, or when a party was knowingly entering negotiations with no intention to conclude a contract. In this case, such party will be obliged to reimburse the other party the losses, incurred by it in connection with the negotiations with the lost opportunity to conclude a contract with a third party.

Acceleration under Loan Agreement (Article 892)

The new Code has rectified a deficiency that the current Civil Code contains in terms of the lender’s rights. Under the current legal regime, the lender was unable to accelerate the entire loan in case of default, if the repayment of the principal amount had to be done in parts, and the borrower in fact had repaid more than half of the principal amount of the loan. As mentioned, there will be no such rule anymore, which clearly protects the prospective foreign lenders in Tajikistan.

Escrow Account Agreement (Articles 953-954)

Under Escrow Account Agreement, a bank account is opened with an escrow agent (a bank) to block money locked there by the account holder (a depositor or a seller) in favor of the beneficiary (buyer) which money are released upon the occurrence of certain events set out in the escrow agreement entered among the account holder, the bank (the escrow agent) and the beneficiary.

The escrow account is an English law concept that is widely used internationally and has sometimes been used in practice in Tajikistan, too. The arrangement allows parties to rely on a third party to avoid trust issues that naturally arise when a purchase of assets is conditioned with fulfillment or clearance of certain obligations, or with compliance with certain requirements, set out in the agreement. The escrow agent, acting neutrally, can ensure the transfer of money once it is satisfied with obligations and requirements being performed and in place.

Money blocked on the escrow account is ringfenced from any arrest or withholding due to claims towards the depositor from any third parties, including from the beneficiary.

Escrow Agreement (Article 1031-1039)

Similar to the Escrow Account Agreement, an Escrow Agreement is mainly intended for the transfer of assets including paperless securities (although cash and non-cash money may also be included). The intention of this construct is the same: to ensure the fulfillment, or the completion rather, of the transaction with the reliance on a third-party agent. In this case, however, Escrow Agreement allows a situation where an agent is not a bank, but an individual, a company, or even a notary public. While the differences between Escrow Agreement and Escrow Account Agreement appear to be thin and certain questions already arise, it remains to be seen how they will evolve and find their application in practice once the provisions come into force and become adopted by the business community.    

Agency Agreement (Article 1110)

Even though agency agreement is widely used in practice, it has not been specifically regulated in Tajik law (although permitted). The new Code devotes now a few articles to this agreement. An agency agreement is an agreement where one person (the agent), in his own name, or in the name of another person (the principal), takes legal or other actions for remuneration, but at the expense of the principal, or in the name and at the expense of the principal. The code explicitly prohibits including in the agency agreement an exclusivity provision that would refrain the principal from executing similar agency agreements with different agents in the same territory. Any such provision would be void.

Otherwise, the agreement does not differ significantly from its siblings: the commission agreement and the agreement of delegation.

State immunity in cross-border transactions (Article 1323)

The new code expands the rules on the jurisdictional immunity of the state. It provides that a state may invoke its jurisdictional immunity unless it has waived it. It can claim such immunity for itself and its property, it can also claim immunity from the jurisdiction of foreign state courts and from the injunctive measures and enforcement of court decisions, unless otherwise provided for by the international agreement, in a written contract or in a declaration before the court or by written communication in a specific proceeding.