International Agreements and Contracts
Involving in a contract is often fundamental for a business to function effectively. It involves a plethora of responsibilities and liabilities which need to be fulfilled by both the contracting partners as a part of their mutual transactions. However, at times, there is a breach of responsibility from either end which often ends in a dispute.
This becomes more intricate while entering into cross-border transactions. If the procedures for resolving such disputes become cumbersome and bureaucratic it affects the smooth functioning of businesses thus affecting the economic growth tremendously. So we know that International Contracts are agreements between two parties from different territorial jurisdictions. When the contract is between two different countries, it is known as a bilateral agreement while it is termed as a multilateral agreement when the contract is between more than two countries.
In case if you are quite perplexed about the enforceability of an international agreement, read on! This article is going to address the issues, faced while drafting an international contract that shall make enforceability convenient.
Negotiation of International Contracts
Negotiating an international contract requires much more vigilance than one would require for penning down a domestic one. This is due to the reason that there may be some further issues that may be encountered in an international contract but may not be witnessed in a domestic contract.
It is the sine qua non to negotiate which court’s jurisdiction shall be involved in determining the issues, should there be any dispute while enforcing an international contract. The issue of coming with a singular jurisdiction and venue is often difficult since it takes many aspects into its ambit. Such legalities may include the legal procedure, the legal expenses, and the enforceability of judgments.
However, in case of any unfavorable situation of unmatched jurisdiction before the door, the parties should always be ready with recourse. It has often been acknowledged that European parties may find the English law suitable, while those from Asian countries often favor Singapore and Australian laws, while African, European, and Middle Eastern people may find English Law more feasible.
It is very crucial to note that the parties should always select a law that shall be favoring each of them so as to eliminate any kind of barriers related to language, culture, or legal tradition for the days to come.
Kinds of International Contracts
International contracts can take any form and may cover any of the types elucidated below:
Intellectual property licenses
Supply agreements
Investment agreements
International distribution agreements
International sales contract
Letters of credit
Joint venture agreements
Development agreements
Franchise agreements
Salient points to keep in mind while negotiating an International Contract
Each of the parties in a bilateral or multilateral contract should make sure to chisel out the rights and the obligations that need to be fulfilled by both of them in order to prevent any kind of unnecessary complexity in the future.
In the process, the parties should pay close heed to the following points:
The parties should highlight the anticipations and the sale targets effectively. This would include the expected business performance as well as involve significant business decisions.
The rights and remedies of the parties should be articulated properly under the dispute resolution section.
The involvement of an arbitration clause is indispensable as it states explicitly the dispute resolution procedure in case of any rising conflicts in the future.
The involvement of important measures to be taken aid of, in case of termination without the breach of contract.
The inclusion of force majeure, so as to enable the parties to exit from their obligations in case of any natural mishap or forces beyond the party’s control.
The payment and shipping provisions should also be annexed in the contract.
The necessary inclusion of a section that would incorporate the requirements to be in accordance with the applying laws.
Knowing International Commercial Arbitration
Arbitration is basically an alternative dispute resolution process where the dispute between the contracting parties is resolved by a third party, popularly known as an arbitrator, without the interference of a court of law. In the end, the arbitrator comes to a decision, determining the rights and liabilities of both the parties, which can be enforced.
The arbitral award can be enforced in the same way as an award pronounced by the court of law. Also, an arbitral award can be enforced in all jurisdictions un-biasedly. This is the major reason behind the popularity of arbitration in resolving cross-border disputes and so much so that it is often preferred more than the normal litigation process of the court.
This is expedited by The Convention on the Recognition and Enforcement of Foreign Arbitral Awards (The New York Convention) which ensures that the arbitral award can be enforced on all the member states that are part of this convention. This means that an arbitral award can be enforced in any country that is a part of the convention, in the same way as an award passed by the national court of the country. As many as 157 countries are part of this Convention.
Choice of governing law and jurisdictional provisions in an International Commercial Contract
These clauses face constant negotiations while drafting an international commercial contract. The reason behind this is each of the contracting parties would desire each of their country’s laws to be included as a part of the contract.
In case if the parties are unable to reach a conclusion regarding the governing law and the jurisdiction then they may settle down to deciding upon a uniform international convention that has been ratified by their countries respectively. One simple example may be, the countries Australia and Germany are a member of the International commercial framework called Contract for the International Sale of Goods (commonly known as the CISG or Vienna Convention) and can therefore adopt the same as the governing law while entering into a contract. This could be the best compromising choice since it is in alignment with the commercial laws of both countries.
Necessary particulars for Negotiating International Contracts
An International Contract should necessarily adjoin the following elements in it.
Parties:
Prior to entering into a contractual relationship with a company from a different country, due diligence should be performed on that country to check for the qualifications that whether the company is authorized to carry on a business with a different country and whether it holds a good stance with various appropriate governmental authorities. Apart from that it also needs to be verified that whether the person entering into the contract on behalf of the company is authorized to do so and also that the contract is to be accepted and signed strictly with adherence to legal formalities. Thus the first necessary components of any contract are the contracting parties.
Duties:
At times it may so happen that one party may expect a score of responsibilities and obligations to be fulfilled by the other party, which may give rise to unnecessary conflicts. To keep things simple and uncomplicated the parties should be clear about the obligations and the liabilities that need to be performed by the parties amongst themselves. They should pen down the same as clear and specific as possible. For example, in the case of the international sale of goods, all the perils, costs, and duties related to the sale of goods should be stated explicitly in the contract, when shipped from one national territory to the other. Also, in cases where the government license will be mandatory for importing the goods from one country to another (like some sensitive goods and software technologies), there it should be mentioned clearly as to which party shall take up the responsibility of government licensing.
Geographic scope:
If the country is limited to a particular jurisdiction or territory for its business (like in the case of distributorship) then the same should be specified by the company as to which particular jurisdictions it is limited to, for the purpose of carrying on its business. This mention is very much important for the smooth enforcement of an international contract.
Language:
While contracting with a foreign country, the contracting language is generally English. However, the parties to the contractual relationship should not assume anything on their own that the complete gamut of the contractual transactions shall be completed in English. However, if it remains the main medium then it should be specified distinctly in the contract that any kind of correspondence that forms a part of the contract shall be completed in English. Where the parties use the dual-language format (i.e. the entire contract written in English and another language added in the dual language column) then the same shall also be communicated in explicit terms in the contract that the main controlling language shall be in English and that the notices and communications to that effect shall also be communicated in English only.
Notices:
The contract should also contain the information regarding the number of notices to be given and particulars of contact with each and every organization (for instance, name, title, address, email address, etc). Along with that, the contract needs to specify the language in which the notice shall be initiated (it may be in English or any other language as per the choice of the parties).
Currency:
When entering into a contractual relation, nothing should be presumed but communicated expressly. The same holds notably with regards to the currency. The parties should mandatorily state which currency they would transact with rather than assuming it. In the case of Dollars (since it is used by many countries like the US, Canada, Hong Kong, Taiwan, etc), the parties should state in clear-cut terms as to which currency they would like to transact with like USD.
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Legal Compliance For Enforcement Of An International Contract
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International Agreements and Contracts
Involving in a contract is often fundamental for a business to function effectively. It involves a plethora of responsibilities and liabilities which need to be fulfilled by both the contracting partners as a part of their mutual transactions. However, at times, there is a breach of responsibility from either end which often ends in a dispute.
This becomes more intricate while entering into cross-border transactions. If the procedures for resolving such disputes become cumbersome and bureaucratic it affects the smooth functioning of businesses thus affecting the economic growth tremendously. So we know that International Contracts are agreements between two parties from different territorial jurisdictions. When the contract is between two different countries, it is known as a bilateral agreement while it is termed as a multilateral agreement when the contract is between more than two countries.
In case if you are quite perplexed about the enforceability of an international agreement, read on! This article is going to address the issues, faced while drafting an international contract that shall make enforceability convenient.
Negotiation of International Contracts
Negotiating an international contract requires much more vigilance than one would require for penning down a domestic one. This is due to the reason that there may be some further issues that may be encountered in an international contract but may not be witnessed in a domestic contract.
It is the sine qua non to negotiate which court’s jurisdiction shall be involved in determining the issues, should there be any dispute while enforcing an international contract. The issue of coming with a singular jurisdiction and venue is often difficult since it takes many aspects into its ambit. Such legalities may include the legal procedure, the legal expenses, and the enforceability of judgments.
However, in case of any unfavorable situation of unmatched jurisdiction before the door, the parties should always be ready with recourse. It has often been acknowledged that European parties may find the English law suitable, while those from Asian countries often favor Singapore and Australian laws, while African, European, and Middle Eastern people may find English Law more feasible.
It is very crucial to note that the parties should always select a law that shall be favoring each of them so as to eliminate any kind of barriers related to language, culture, or legal tradition for the days to come.
Kinds of International Contracts
International contracts can take any form and may cover any of the types elucidated below:
Intellectual property licenses
Supply agreements
Investment agreements
International distribution agreements
International sales contract
Letters of credit
Joint venture agreements
Development agreements
Franchise agreements
Salient points to keep in mind while negotiating an International Contract
Each of the parties in a bilateral or multilateral contract should make sure to chisel out the rights and the obligations that need to be fulfilled by both of them in order to prevent any kind of unnecessary complexity in the future.
In the process, the parties should pay close heed to the following points:
The parties should highlight the anticipations and the sale targets effectively. This would include the expected business performance as well as involve significant business decisions.
The rights and remedies of the parties should be articulated properly under the dispute resolution section.
The involvement of an arbitration clause is indispensable as it states explicitly the dispute resolution procedure in case of any rising conflicts in the future.
The involvement of important measures to be taken aid of, in case of termination without the breach of contract.
The inclusion of force majeure, so as to enable the parties to exit from their obligations in case of any natural mishap or forces beyond the party’s control.
The payment and shipping provisions should also be annexed in the contract.
The necessary inclusion of a section that would incorporate the requirements to be in accordance with the applying laws.
Knowing International Commercial Arbitration
Arbitration is basically an alternative dispute resolution process where the dispute between the contracting parties is resolved by a third party, popularly known as an arbitrator, without the interference of a court of law. In the end, the arbitrator comes to a decision, determining the rights and liabilities of both the parties, which can be enforced.
The arbitral award can be enforced in the same way as an award pronounced by the court of law. Also, an arbitral award can be enforced in all jurisdictions un-biasedly. This is the major reason behind the popularity of arbitration in resolving cross-border disputes and so much so that it is often preferred more than the normal litigation process of the court.
This is expedited by The Convention on the Recognition and Enforcement of Foreign Arbitral Awards (The New York Convention) which ensures that the arbitral award can be enforced on all the member states that are part of this convention. This means that an arbitral award can be enforced in any country that is a part of the convention, in the same way as an award passed by the national court of the country. As many as 157 countries are part of this Convention.
Choice of governing law and jurisdictional provisions in an International Commercial Contract
These clauses face constant negotiations while drafting an international commercial contract. The reason behind this is each of the contracting parties would desire each of their country’s laws to be included as a part of the contract.
In case if the parties are unable to reach a conclusion regarding the governing law and the jurisdiction then they may settle down to deciding upon a uniform international convention that has been ratified by their countries respectively. One simple example may be, the countries Australia and Germany are a member of the International commercial framework called Contract for the International Sale of Goods (commonly known as the CISG or Vienna Convention) and can therefore adopt the same as the governing law while entering into a contract. This could be the best compromising choice since it is in alignment with the commercial laws of both countries.
In the case of Vita Food product Inc v Unus Shipping Co Ltd [1], it was held by the Privy council that the parties are free to choose any law to govern their contract, whether it is in nexus to the contract or not. However, the law should be bona fide, legal, and in line with public policy.
Necessary particulars for Negotiating International Contracts
An International Contract should necessarily adjoin the following elements in it.
Parties:
Prior to entering into a contractual relationship with a company from a different country, due diligence should be performed on that country to check for the qualifications that whether the company is authorized to carry on a business with a different country and whether it holds a good stance with various appropriate governmental authorities. Apart from that it also needs to be verified that whether the person entering into the contract on behalf of the company is authorized to do so and also that the contract is to be accepted and signed strictly with adherence to legal formalities. Thus the first necessary components of any contract are the contracting parties.
Duties:
At times it may so happen that one party may expect a score of responsibilities and obligations to be fulfilled by the other party, which may give rise to unnecessary conflicts. To keep things simple and uncomplicated the parties should be clear about the obligations and the liabilities that need to be performed by the parties amongst themselves. They should pen down the same as clear and specific as possible. For example, in the case of the international sale of goods, all the perils, costs, and duties related to the sale of goods should be stated explicitly in the contract, when shipped from one national territory to the other. Also, in cases where the government license will be mandatory for importing the goods from one country to another (like some sensitive goods and software technologies), there it should be mentioned clearly as to which party shall take up the responsibility of government licensing.
Geographic scope:
If the country is limited to a particular jurisdiction or territory for its business (like in the case of distributorship) then the same should be specified by the company as to which particular jurisdictions it is limited to, for the purpose of carrying on its business. This mention is very much important for the smooth enforcement of an international contract.
Language:
While contracting with a foreign country, the contracting language is generally English. However, the parties to the contractual relationship should not assume anything on their own that the complete gamut of the contractual transactions shall be completed in English. However, if it remains the main medium then it should be specified distinctly in the contract that any kind of correspondence that forms a part of the contract shall be completed in English. Where the parties use the dual-language format (i.e. the entire contract written in English and another language added in the dual language column) then the same shall also be communicated in explicit terms in the contract that the main controlling language shall be in English and that the notices and communications to that effect shall also be communicated in English only.
Notices:
The contract should also contain the information regarding the number of notices to be given and particulars of contact with each and every organization (for instance, name, title, address, email address, etc). Along with that, the contract needs to specify the language in which the notice shall be initiated (it may be in English or any other language as per the choice of the parties).
Currency:
When entering into a contractual relation, nothing should be presumed but communicated expressly. The same holds notably with regards to the currency. The parties should mandatorily state which currency they would transact with rather than assuming it. In the case of Dollars (since it is used by many countries like the US, Canada, Hong Kong, Taiwan, etc), the parties should state in clear-cut terms as to which currency they would like to transact with like USD.
Intellectual Property:
Whether the parties want to bequeath the intellectual properties or prevent the transfer of the rights as a part of the contract, the same needs to be articulated in the contract. In such a case there has to be a provision that establishes the intellectual rights of the parties, taking into consideration the grant of any licenses and ownership of intellectual property rights which has been developed in nexus to the business transaction or the contractual relation.
Audit Rights:
If the payment of the contract is contingent, i.e, after fulfillment of a certain condition then there should be a separate provision to maintain a track of the same by the receiving party and ensure regular audits by the paying party. This is a necessary provision as such provisions maintain pertinent and indispensable information relating to the audit such as the cost of the audit, the frequency of the audit, the conduct of the audit, the procedural enforcement of the audit rights with respect to the expiration and termination of the contract and so on.
At times the language of the audit may be in any other language but English. In such scenarios, there shall be a need for translators as well as the right amount of cooperation from the party being audited. Substantially a cross-border audit is considered to be high-budgeted than an audit at a domestic firm.
Confidentiality:
An important business clause in the presence of confidentiality is often known as the nondisclosure provision. That means the information relating to the business transactions is to be kept clandestine between the contracting parties. This means a third should not have knowledge about confidential business information. In many cases, there is no expiration of this confidentiality. It continues even after the contract ceases to exist, till many years or till perpetuity in certain cases.
It is often expensive to maintain confidentiality provision internationally. Thus businesses limit the amount of information that needs to be shared with and also keep the number of audiences to share, limited. Also, encryptions are performed at such regular intervals as may be necessary and possible.
Term:
The parties should be clear and specific about the terms of the contract. A contract may be a one-time contract or a contract that needs renewal every year or a contract that shall take years to be performed. If the contract is silent regarding the term of the contract, then there may be a possibility of a dispute later. It may so happen that one party would desire to terminate the contract, maybe years later, then a conflict may arise as to how many months prior to the termination of the contract, notice should be served to the opposite party.
Termination:
The contract should be clear on the term whether a cause is mandatory for the termination of the contract or the contract can be terminated even without a proper cause. In the former case, the contract should articulate the exact grounds or components that act as the driving force for the termination of the contract. Nonetheless, the termination of international contracts is often complicated and exorbitant.
Remedies:
The contract should clearly state the rights and remedies available to the parties in case of breach or failure of performance of the contract from either end. Likewise, if the payment is delayed by the other part or there is some damage or loss of any goods then there may be a soothing provision of adding interest to the payment amount so that the other party is indemnified in case of any kind of loss suffered. This will ease down unnecessary complications in the contract. Nevertheless, the governing law of the contract will supervise the enforcement of such remedial provisions.
Governing Law:
Governing law sees to the enforceability of the contract. Thus each and every company would like to be governed by their local jurisdiction. Then the other party shall decide whether that party’s laws are neutral in nature or not like that of England or Singapore. Therefore preference is always granted to the neutral law, no matter which jurisdiction it originates from. The parties who are member states to a particular convention can settle down with choosing the laws of that convention so as to eliminate disparities in the future.
Dispute Resolution:
The parties should avoid solving a dispute by litigation or arbitration prima facie. They should try resolving the matter amicably. In case if the subordinates of the companies are unable to solve the matter among themselves the superior managerial personnel of the contracting companies may step in to resolve the matter within a stipulated frame of time. In case of failure of the first resort the parties may opt for litigation or arbitration as a final resort.
However, the parties should choose arbitration in place of litigation for two major reasons. First of all, arbitration proceedings are completely confidential. There is no involvement of the public in any of its proceedings and neither it is recorded for public purposes. Secondly, the New York Convention facilitates a proper process for the enforcement of arbitral awards. Whereas, litigation makes the enforcement much more complex and difficult.
Conclusion
The international commercial contract has always been a complex topic when it comes to the proper drafting and choice of jurisdictional laws of a contract. This complexity is further enhanced when the parties hold ambiguity about the fundamental business laws of that country. It is of utmost necessity that the parties get to know the laws properly before submitting to their terms and conditions.
Thus the object of this article is to solve the simple complications and queries faced commonly while introducing certain nuances which would help the contracting parties to enforce the contract rightfully against the other party. Moreover, the very crucial decision of the choice of law stays in the hands of the parties, to choose the best governing law while keeping the autonomy and interests of the parties unharmed. An international contract perhaps is a pathway for more international business relations in the future among the contracting parties if it is enforced evenly.
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