International Contracts: Everything You Need to Know
International contracts are the primary legal tool put in place for companies to limit their risks when working in the global or international market. 3 min read
2. Negotiation of International Contracts
3. Types of International Contracts
4. Elements of Negotiating International Contracts
Updated October 28, 2020:
International contracts are the primary legal tool put in place for companies to limit their risks when working in the global or international market. When a company plans to expand its products or services into the global market, one or more contracts will most likely be required from several parties, such as freight forwarders and sales tax agents.
Information About International Contracts
When working with an international contract, expect to come across much of the same familiar language that is used worldwide. On the reverse side, there can be differences in the way things are approached legally and in the business environment when working with an international company.
It's important not to get too comfortable with the familiar and not to ignore the differences, so there are no unpleasant surprises.
It is commonplace for international contracts to be written in English, even if the parties involved are not from an English-speaking country.
The downside to contracts written in English by non-native speakers is problems that may arise after the contract is signed, and one or more parties disputing the contract because they didn't understand what they were signing.
To avoid disputes because of contracts written in English, it is possible to have the parties waive their rights to claiming they did not understand the contract, and thus it being invalid. The other option is having dual-language contracts with English as the governing language. You can always do a combination of both options.
Include a provision in the contract indicating the official language to be used in the dealings among or between the parties. It is advised to have any contract verified and validated with certified translations.
Negotiation of International Contracts
Negotiating international contracts requires that you give as much attention to the international contract as you do for contracting a deal in the United States. There may be additional issues and risks you encounter that aren't present when working with a domestic contract.
It is routine for the parties involved with an overseas contract to negotiate which of the party's courts will govern any dispute(s). In many cases, the parties opt for compromise, making English the governing law.
The provisions for jurisdiction and venue is critical because of:
- Legal processes
- Litigation expenses
- Enforcement of judgments.
It is advised to have a backup plan should their preferred governing law or jurisdiction not be accepted. Many times, parties from America defer to New York being the governing venue. African, Middle Eastern, and European parties may find English law acceptable, while laws in Australia and Singapore are more acceptable to Asian parties.
The law applied to an international business transaction contract can often be decisive. This is due to the variations in:
- Legal heritage.
For this reason, it is advisable that both parties choose a governing law acceptable to each. By doing so, both parties can better anticipate how provisions of the contract might be interpreted.
In the United States, domestic contracts are governed by the Uniform Commercial Code (UCC) in most states. For international contracts, the U.N. Convention on Contracts for the International Sale of Goods is the default governing law.
Types of International Contracts
Examples of international contracts include:
- International distribution agreements
- Intellectual property licenses
- Investment agreements
- International sales contracts
- Supply agreements
- Letters of credit
- Franchise agreements
- Joint venture agreements
- Development agreements
Elements of Negotiating International Contracts
International contracts usually involve multiple parties. Each party needs to be identified and its responsibilities outlined to minimize any risks.
- Clearly outline expectations and sales goals. This includes the performance expectations and requirements for satisfactory performance as it relates to volume or defined time periods.
- The dispute resolution section of an international contract should be clear about the rights and remedies of all parties involved with the agreement.
- An arbitration clause should be included, as it specifies how a dispute will be resolved.
- Include steps to be taken to terminate without creating a material breach of contract.
- Include a force majeure to allow a party to be excused from its obligations of an international business transaction contract because of circumstances beyond its control, such as a natural disaster.
- Include shipping and payment terms.
- Include a section covering the requirement to be in compliance with applicable laws.
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