Is your business engaged in international commerce? If so, it is crucial that you have an understanding of international contract law. While many of the ordinary rules of contracts apply, there are some special considerations for cross-border agreements.
What You Need to Know About International Contract Law
Principle #1: Parties Have General Freedom to Contract
At the core of international contract law is the principle that parties have the general freedom to enter into contracts with one another. The freedom allows businesses to negotiate terms that best suit their needs and objectives—including with counterparties that are located across an international border. As long as terms do not contravene any laws or regulations—which can be an issue with cross-border agreements—businesses retain a general freedom of contract.
Principle #2: A Contract Requires an Agreement and Consideration
All businesses engaged in commerce in the United States—whether they are based in this country or located in another jurisdiction, such as Canada, the United Kingdom, or the European Union (EU)—should be aware that a contract requires an agreement (offer and acceptance) as well as consideration to be valid. In other words, there must be a meeting of the minds between the parties, and each of them must give up something valid in order for the contract to be binding. In this way, international contracts are similar to domestic agreements.
Principle #3: Compliance With International Trade Agreements is Required
One key thing that makes cross-border business different is that all contracts must comply with international trade agreements in order to be legally valid. These agreements can dictate terms related to tariffs, trade barriers, and other regulations affecting international trade. Compliance with international frameworks will ensure not only that contracts are legally valid but that the parties will not run into legal issues for (alleged) violations of international law.
Principle #4: INCOTERMS Rules Will Often Apply to the Agreement
As described by the International Trade Administration (ITA), INCOTERMS—the International Commercial Terms—is a set of standardized definitions for common terms used in international trade contracts. Most major commercial agreements that involve the exchange of goods will include references to INCOTERMS. These rules clarify the responsibilities of buyers and sellers regarding the delivery of goods, risk, and costs. Incorporating INCOTERMS into contracts helps prevent misunderstandings and disputes by providing clear, universally recognized terms.
Practice Points to Consider
Practice Point #1: Additional Due Diligence is Often Required
When engaging in international contracts, parties should conduct thorough due diligence to understand the legal, economic, and political environment of their counterparts. Along with other things, due diligence includes verifying the legitimacy of the business, understanding local laws that may affect the contract, and assessing potential risks.
Practice Point #2: A Contract Should Have a Choice-of-Law Provision
A cross-border contract will often have a choice of law provision. Why? The primary reason is that including a choice-of-law provision in international contracts specifies which jurisdiction’s laws will govern the contract. It is a form of clarity that is essential for preventing legal uncertainties and simplifying the dispute resolution process. By choosing applicable law, parties can ensure that their contract is interpreted and enforced consistently with their expectations.
Practice Point #3: Clear Dispute Resolution Provisions are a Must
Beyond a choice of law clause, it is a best practice for an international business contract to include clear provisions for dispute resolution. Dispute resolution clauses outline how conflicts arising from the contract will be handled. Clear, detailed language can help to expedite the resolution process and potentially reduce costs. Parties often opt for arbitration in international contracts. Mediation is also an option you can consider before arbitration or litigation.
Practice Point #4: Remedies Should Be Specified
Finally, it is a good idea for cross-border agreements to include specific remedies for a breach to the maximum extent practical. Remedies can include compensation, specific performance (available in some circumstances), or other forms of redress. Clear remedies ensure that parties understand the consequences of failing to meet their obligations and provide a more straightforward path to rectify such failures.
Contact Our Cross-Border Contract Attorney for Immediate Legal Help
At Global Link Law, our international business law attorney has extensive experience helping companies draft, negotiate, and review cross-border contracts. Our firm recognizes the unique challenges that global companies face. If you have any questions about an international contract, we are here to help. Contact us today to arrange your strictly private, no-obligation case review.
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The information provided on this website is for general informational purposes only and should not be considered legal advice. No attorney-client relationship is created by accessing or using this website. Please consult with a qualified attorney before making any legal decisions. Global Link Law is not liable for any reliance on the information provided. Prior results do not guarantee a similar outcome.
