International contracts are the backbone of global commerce; they allow the rise of multinationals and international trade. Yet, international contracts suffer from many unique legal problems. These must be understood as the first step in carefully guiding an international contract through the many potential legal snags it can encounter. Historic frameworks of common and civil law must be understood, as must the many variations of each type of law around the world. After that, the contract’s many provisions must be examined in the light of the law of the countries involved and the historic and current legal cultures in those countries.
Understanding the Legal Framework Governing International Contracts
Steering clear of legal pitfalls begins with an understanding of the intricate web of laws and regulations that oversee international contracts. This web consists of:
- Choice of law clauses: Determining which country’s laws will apply to the contract.
- Jurisdiction for dispute resolution: Establishing where potential disputes will be heard.
- International treaties: Understanding relevant agreements like the UN Convention on Contracts for the International Sale of Goods (CISG).
International Contract Law Expert: “A well-crafted choice of law clause can provide certainty and predictability in international contracts, helping to avoid costly jurisdictional disputes down the line.”
If you don’t have a handle on these basic building blocks, you can easily end up with agreements that are ambiguous, high-cost, and potentially unenforceable. And much of that can be laid at the door of insufficient legal counsel.
Identifying Common Pitfalls in International Contracts
Even seasoned businesses can fall prey to common traps when contracting internationally. Some key areas to watch out for include:
- Language barriers: Ensure all parties have a clear understanding of contract terms.
- Cultural differences: Be aware of business practices and negotiation styles that can vary around the world.
- Currency fluctuations: Don’t let potential exchange rate risks undermine contract value. Address them up front in payment terms.
- Force majeure clauses: Assemble your best lawyers to carve out a definition that works for you.
- Protection of intellectual property rights: Make sure your IP stays yours, regardless of where it’s being used.
By hiring the best lawyers they can find (and UNESCO using such practices stretches the imagination), companies can significantly reduce their exposure to legal risks in international contracts. I imagine that such practices are also why many international NGOs pay top dollar for such services.
Best Practices for Drafting Clear International Contracts
International contracts must prioritize clarity. To best ensure your agreements seem clear and well-constructed, consider following these practices:
- Use language that is easily understandable and avoid jargon that is only understood by lawyers.
- Define critical terms with such exhaustive detail that there’s no way to interpret them wrongly.
- Include mechanisms for resolving any possible disputes that are understandable and easy to follow.
- Cover compliance with all pertinent laws and regulations so thoroughly that it obviously applies to the contract you’re writing.
- Specify the terms of payment, including the method and the currency, so that there’s no way to interpret any of it as a payment for something else at some other time.
- Clearly state the terms of delivery and transfer of risk. A well-drafted contract, after all, is the best way to prevent a dispute.
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