Before You Sign on the Dotted Line
How Do International Contracts Work?
The simple answer to this question is the same way they work when you enter into them domestically. However, there are so many more factors you (or more appropriately a business attorney) should be considering before signing an international contract. The reason additional precautions should be taken is in case one of the parties fails (in whole or in part) to perform the contract. We’ve broken down some of the main components of an international contract to highlight the areas most prone to problems.
Choice of Law Clause
One of the biggest things to think about is the choice of law clause. A choice of law clause dictates the law (e.g. California) that will govern that dispute. If there is no choice of law provision within the contract, the court (where the initial dispute is filed) will do a balancing test to assess where the proper venue for the matter is. As a general rule, you don’t want to get to this point in a contract dispute. Courts are somewhat unpredictable and their ruling on a choice of law issue could preclude you from receiving a favorable judgment at all.
Related to the choice of law clause but slightly different is the choice of forum or jurisdiction clause. Maybe somewhat obviously, the choice of forum or jurisdiction clause prescribes where the contract dispute will be settled in case any issues arise. Before signing any contract, make sure you check for a jurisdictional clause. In the event of a dispute, the last thing you want to do is be dragged overseas in order to receive a remedy for the other party’s breach.
Terms of Art & Boilerplate Language
Commercial contracts often contain terms of art and boilerplate language that are unique to one or both of the transacting parties. However, distinctions in the interpretation of these terms may vary from country to country. For example, the term “warranty” in the United States might mean something completely different in Spain. The inherent room for discrepancies in the interpretation of contract terms means that there should be written clarification of each term of art or generic boilerplate language in which ambiguity may arise. In our Spanish- United States example, this would simply mean stating the particulars of what is covered in the warranty provision of the contract.
Arbitration & Alternative Dispute Resolution (ADR) Clause
Other countries use arbitration or ADR clauses less frequently than we use these clauses in the United States. Logically, a boilerplate contract with a company outside the United States might not contain such terms. However, this might be something you definitely want to add to your contract. Arbitration and ADR is often a much faster way to mediate any issues and saves the parties the headache (and a sizable amount of money) associated with going to court.
The International Convention for the Sale of Goods
All of these issues may be further complicated if you are entering into a contract for the sale of goods, since the United States is a signatory to the CISG (UN Convention on International Sale of Goods). The CISG provides filler language for parties that are from countries that are signatories to the treaty or invoke the CISG in the contract. The courts of whatever country the dispute is being adjudicated in will be bound to the terms and interpretation of the CISG unless the parties have unambiguously opted out of the it’s terms.
If you have any questions about entering into international or domestic contracts, give us a call at (310) 883-7923 or email us at email@example.com.