Is your business entering into a contract with a foreign entity? If so, you should be aware of certain legal terms that may be included — or are necessary to have — in the contract. These terms are important so you will not have difficulty pursuing or defending against potential claims with foreign entities.
Contracts are agreements that can be simple or complex and generally consist of various terms or clauses. The main terms are generally the price paid and the subject matter of the contract, for example, the goods or services provided and the amount that will be paid for them.
When you have cross-border agreements, international contract law comes into play. The parties entering into the contracts are bound by international contract law unless they agree to abide by the laws of one of the countries.
Contracts required for all types of sales of goods and services include:
- Descriptions of the goods;
- Terms of payment;
- Choice of law, and
- Dispute resolution.
The following are terms that you should consider necessary in your international contract:
Choice of law clauses specify what country, state, or administrative law governs both the contract and any disputes that arise from it.
Choice of forum clauses dictate what country, state, county, etc. where you will litigate a dispute and which court within that location will hear your case.
Arbitration clauses allow enforceable judgments in disputes across borders. This is governed by the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (also known as the New York Convention). The judgments are enforceable across borders, as long as the country’s government has signed on to the treaty. As most every developed nation in the world has signed onto the convention, arbitration is generally the way to go for inexpensive and efficient international dispute resolution.
Arbitration process clauses allow you to dictate how the arbitration process will proceed, how to choose an arbitrator and what language the proceedings will be in.
In addition you will want a CISG clause. International sales contracts are governed by the United Nations Convention on Contracts for the International Sale of Goods (CISG)
The CISG is an international treaty to which the United States and many other nations in the world are a part of. It supersedes a country’s own laws when the parties in the dispute are from different countries and the contract involves the sale of tangible goods.
When dealing with the CISG, you must explicitly state that you want to opt out of it in your choice of law clause. Otherwise, if the other side disputes your choice of law, the CISG will automatically govern how your contract will be analyzed.
Further, the International Chamber of Commerce (ICC) developed regulations known as Incoterms that have traditionally been used for international sale contracts; and sometimes for domestic sale contracts as well. There are different versions, and it is important that if the parties to a contract of sale wish incorporate a specific Incoterms, to clearly specify the chosen version so as to avoid any subsequent dispute as to which set of rules applies.
Before drafting or entering into an international contract, be sure to speak with your attorney about its terms. For international tax matters, contact the Sol Schwartz & Associates International Tax Team.