International Contracts - A Walk Through
Contributed By: Anant Agarwal
Email id: anant@simplybiz.in
Introduction
International contracts are legal agreements made between two or more parties located in different countries. These contracts typically involve the exchange of goods, services, or money across national borders. International contracts can cover a wide range of areas, including trade, finance, intellectual property, technology transfer, and employment. These contracts often require the assistance of legal experts and translators to ensure that all parties fully understand the terms of the agreement. International contracts may also require compliance with international laws and regulations, such as those set forth by the World Trade Organization (WTO) or United Nations (UN). International contracts can be complex and require the assistance of legal professionals with expertise in international law, as well as a deep understanding of the cultural and business practices of the countries involved. It is essential to ensure that all terms and conditions are clearly stated in the contract to avoid misunderstandings or disputes that may lead to costly legal proceedings.
Purpose of International Contracts
These contracts cover a wide range of commercial activities, such as the sale of goods, services, intellectual property, or technology transfer. International contracts are subject to international law, and their terms and conditions may be governed by a specific legal framework, such as the United Nations Convention on Contracts for the International Sale of Goods (CISG). Some common types of international contracts include sales agreements, distribution agreements, licensing agreements, joint venture agreements, and employment contracts.
Necessary Pointers for International Contracts
- Parties- Before entering a contractual relationship with a company or individual from a different country, check whether the company or individual is authorized or has the capacity to enter into a contract with another company or individual from a different country. Apart from that, in case of a company it also needs to be verified that whether the person entering the contract on behalf of the company has the authority to do so and that the contract is accepted and signed strictly with adherence to legal formalities.
- Duties- It may happen that one party may expect several responsibilities and obligations to be fulfilled by the other party, and it may give rise to unnecessary conflicts. To keep things simple the parties should clearly mention the obligations and liabilities of the parties. For example, in the case of the international sale of goods, all the perils, costs, licenses and duties related to the sale of goods should be stated explicitly in the contract.
- Jurisdiction- If the nation is limited to a particular jurisdiction for its business, then the same should be specified by the company as to which jurisdictions it is limited to.
- Language- Contracts with a foreign country are generally in English. However, the parties can also use the dual-language format (i.e. the entire contract is written in English and another language is added in the dual language column) in that case it shall be communicated in explicit terms in the contract that the main language shall be English and in case of any inconsistency between the two languages, the English version shall prevail.
- Currency- The parties should make sure to state which currency they would be transacting in. Especially in the case of Dollars, the parties should clearly mention as to which country’s dollar they are referring to.
- Intellectual Property- If the parties wish to prevent the transfer of the rights or attain the rights as a part of the contract, the same needs to be stated in the contract. It should also cover the grant of any licenses and ownership of intellectual property rights which have been developed in the course of the contractual relation.
- Confidentiality- This is possibly one of the most important clauses of any commercial contract. It covers that the information relating to the business transactions is to be kept only between the contracting parties, this clause continues even after the contract ceases to exist. Apart from building clauses in the Agreement, it is advisable to enter into a detailed Non-disclosure Agreement separately.
- Term- The parties should have a clear understanding about the terms of the contract. A contract can be a one-time contract or a perpetual contract till the object is achieved. There may be certain clauses which need to be renewed at periodical intervals.
- Remedies- The contract should clearly mention the rights and remedies available to the parties in case of a breach of the contract from either side. For example, if the payment is delayed by one of the parties there may be a provision for penal interest to the payment amount to indemnify the other party.
- Governing Law- This clause shows the enforceability of the contract. Each party would like to be governed by their local jurisdiction therefore preference is always granted to the neutral law, no matter which jurisdiction it originates from.
- Dispute Resolution- The parties should avoid solving a dispute by litigation or arbitration in the first place. Rather, they should try resolving the matter amicably. In case of failure the parties can opt for litigation or arbitration as a final resort, out of which arbitration would be the preferable option because the arbitration proceedings are completely confidential. Whereas litigation makes the enforcement of the contract much more complicated and difficult.
The validating laws
When a contract or a particular clause in the contract is valid under the law of one country but invalid under the law of another country, the court may infer the choice of validating law on the basis that the parties had intended their contract to be valid from the beginning and not void. For example, in Missouri S.S. Co., there was an exemption clause in a contract that was void under the law of Massachusetts, however, the same was valid in English law. Thus, it was held that the English law was the proper law, as the parties must have intended that their contract as well as the exemption clause in question must be valid. Thus, until there appears anything contrary in the contract, the court will consider the proper law which validates, instead of invalidating the contract.
Conclusion
The international commercial contract has always been a complex topic when it comes to its proper drafting and choice of jurisdictional laws. This complexity is further amplified when the parties hold ambiguity about the fundamental business laws of that country. Hence, it is of utmost importance that the parties get to know the laws properly before submitting to their terms and conditions.
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