A Guide to Contracting Internationally

Are you thinking about forming an international contract? Not sure where to start or what to take into consideration? When contracting internationally, it is important to think about the various elements of the contract. This article examines some of the key aspects to consider when forming a cross-border contract.

International contracts are legally binding agreements between parties who are based in separate countries. As with any contract, it will require the parties to do or refrain from doing particular actions.

1. Governing Law

An important element to consider is the governing law. Cross-border contracts may involve multiple organisations operating under completely separate legal regimes. The main contracting parties might be headquartered in two different countries, and the contract’s performance could even take place in a third country, further complicating issues. This emphasises the need to determine which legal system will govern the contract.

Therefore, one of the most crucial things to consider is which country’s laws will apply to your agreement. In other words, which country’s laws should the contract comply with? This will be the contracts governing law.

2. Dispute Resolution

What if there is a dispute after the contract has been executed? International agreements frequently provide that the parties must first try to settle their disagreements before resorting to litigation or arbitration. There is usually a deadline by which parties should attempt to resolve their dispute. Then if the dispute cannot be resolved amicably within the allotted time period, it can be referred to litigation or arbitration.

3. Jurisdiction

Jurisdiction is an important factor and relates to the geographical limitations of a court’s power to hear cases, which can differ depending on the country. When a company does business in another country, the parties normally agree on which courts shall govern any disputes. This should not be confused with the governing law, as this is separate.

A jurisdiction clause in an international contract will specify which country’s courts will hear a dispute if one was to arise under the contract. Parties should give significant thought to how the legal systems in the differing countries operate. They should also consider whether one country is divided into state and federal government like the USA, and if so, be specific to which courts will hear the dispute.

There are three main types of jurisdiction clause:

1. Exclusive – the parties agree to a specific court’s exclusive jurisdiction. This provides assurance because the parties are aware of the exact jurisdiction and procedural rules that will be followed should a dispute arise.
2. Non-exclusive – the parties agree that a dispute may be determined in a particular jurisdiction, but without prejudice to any party’s ability to refer the case to the courts of another jurisdiction. The benefit of this is that it achieves flexibility in case, after further consideration, there is a more suitable jurisdiction in which to settle the dispute.
3. Unilateral – often referred to as an asymmetrical or one-sided jurisdiction clause, states that one party must file litigation against the other party in the court of a specific country while the other party is free to file litigation against the first party in the jurisdiction of its choice. These are usually found in finance agreements. It is sensible to seek advice regarding the enforceability of such clauses.

A successful jurisdiction clause will prevent a party from being sued in a potentially unknown jurisdiction helping to avoid unwanted costs, unpredictability and inconvenience.

4. Language

Although English is frequently used in international contracts, it should not be assumed that the contract and all correspondence with a foreign company will be in English. If the parties agree that the contract will be drafted in English, then the contract should expressly state that and if parties intend them to be, that all communications under the contract must be written in English.

It is crucial to address the language at the outset because if parties are not accustomed to communicating in English, it could lead to problems later down the line (after signing) when it could be argued that a party did not understand what they had agreed to.

5. Payment

Before contracting internationally you should ask questions about the payment. For example, how will payment be made to the parties? What currency will it be? How will currency conversions be determined? Will interest rates apply on late payments?

Payment terms are key considerations to take into account when contracting internationally.

6. Confidentiality

International business contracts frequently contain a confidentiality clause (also known as a non-disclosure clause), which forbids or limits the parties’ capacity to disclose sensitive information to other parties. The contract itself, correspondence and documents pertaining to the contract, and any other proprietary information defined by the parties may be considered confidential information. The obligation of confidentiality frequently continues after the contract expires or is terminated for a predetermined period of time (in some situations, indefinitely).

It is important to understand that confidentiality duties are taken more seriously in certain countries. Because it is typically expensive to enforce a confidentiality agreement, it is advised to disclose only a limited amount of confidential information with the fewest people as necessary.

Clarkslegal & TagLaw

If you are looking to contract internationally and would like advice or information, please contact our commercial contract solicitors.

Due to its founding membership of TAGLaw, Clarkslegal has access to a global network of the best legal experts working for independent law firms across the world. We are in a position to provide you with access to international advice.