Legal Advice – An outline of international contracts
Legal advice: why is it crucial to have well drawn-up contracts in international trade?
The early stages of a start-up or a project in a foreign market are characterised by great motivation and enthusiasm. However, at a certain point in the life of your business or project, you may end up having different views from those of your counterpart. In such cases, having a contract that clearly identifies one’s responsibilities and obligations, and which was designed to protect one’s own interests, is vital for the sustainability and the survival of your business.
First of all, what is an international contract?
The contract is the main legal instrument by which the circulation of wealth occurs and national and international trade is governed.
There is not a real definition of International Contract. However, all contracts that have foreign elements with respect to a national legal system are considered as such. Some of these elements constitute the structure of a contract. These elements are:
1. The nationality of the parties;
2. The registered office of each party;
3. The place where the contract was signed;
4. The place where the contract is to be carried out;
5. The place where the object of the contract is located;
6. The currency of payment;
7. The place of payment.
Oral or written contract?
An oral contract is binding; however, it creates evidentiary problems. Moreover, some essential clauses must be laid out in written form. Therefore, a written contract is highly recommended.
In what language should a contract be drafted?
A contract may be drafted in several languages. However, in order to avoid reaching an impasse due to different interpretations of some clauses, it is necessary to insert clauses in the contract that establish what the official language of the contract is, and which version shall prevail in case of dispute.
What law is applicable to the contract?
Contracts are legally binding between the parties. In the case of an International contractual relationship, it is necessary to establish the law which is applicable to the contract. The applicable law must be clearly stated in the contract or must be clear from the provisions of the contract or from the circumstances.
This must be done when concluding the contract; the parties, however, may agree to change the applicable law which governs the contract at any time.
In the case of an agency contract, and the relevant pay to be given to the agent in the event of termination of contract, for example, the aspect of the applicable law is extremely important. This is because, sometimes, there are significant differences between the various legal systems. Therefore, if the agent has worked for many years, and has generated considerable sales, the impact on the principal, who is obliged to pay a considerable sum of money, may be catastrophic.
If the applicable law has not been identified, or it cannot be deduced from the circumstances, for the countries which are party to the Rome 1 Regulation, Art. 4 establishes that: “the contract shall be governed by the law of the country with which it is most closely related”.
If that is not the case, i.e. for the countries which are not party to the Regulation, regulations concerning private international law have the goal of identifying the law which is applicable to those legal situations which have an international nature.
What is the competent court in the event of a dispute arising between the parties in an international contract?
Another significant problem concerning international contracts is the competent jurisdiction.
Having the competent court in your country is not always the best solution. Sometimes, due to the absence of a bilateral agreement that enforces the rulings of a foreign country at a later stage, or due to high costs, or to the sluggishness of a particular judicial system, it is better to choose the competent judge in the country of the other party or in a third country.
It all depends on the interests and the assets you wish to protect, the expected scenarios in relation to your business, and the evolution of the regulations both in the European Community and worldwide.
As to Jurisdiction, for the member countries, EC Regulation 44/2001, which replaced the 1968 Brussels Convention, governs the jurisdictional competence, the recognition, and the enforcement of judgements in civil and commercial matters.
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