International Contract Drafting: A Complex Headache

It’s not outlandish to say that the American legal system is extremely complicated.  And it’s no surprise why people tend to be more comfortable staying out of it if they can and settling their disputes out of court or better yet writing up a good contract to hedge any disputes from arising at all.  The problem is people still breach contracts all the time and somehow always seem to get away with it.  There always seems to be some sort of wording or clause ambiguity that lets a person slip away even though there John Hancock is on the dotted line.

But if you think American contracts are complicated, just be glad you don’t have an international business because the complexity jumps up tenfold.  And if you do, then well, make sure you have a good lawyer.  Except that due to the scope of issues that can arise in international law, what with things like national sovereignty and foreign export controls (two terms which I’m sure are already putting you to sleep and invoking feelings of dread), even a good lawyer can sometimes write up a contract that may not be as ironclad as you’d like it to be.  So what should you do?  Once again the magic of the internet comes to the rescue.

The following are terms that most international business transaction lawyers agree should be in every international law contract.  So if you don’t see something like one of the following terms in your contract, be sure to go ask you attorney “what the dilly yo?

Choice of Law Clause: This is the most basic of basic contract terms, whether you are drafting a contract to buy 1000 pairs of loafers from a manufacturer in Italy, or you’re making a purchase from a guy in Scranton, Ohio.  The choice of law clause specifies exactly what it sounds like: it allows a party to choose what country, state, or administrative law governs both the contract and any disputes that arise from it.  In international law, this is a big deal because not only can foreign law be sometimes different and perhaps more complicated than American law, it can also be incredibly more expensive and difficult to find and hire an attorney here in the States that’s familiar with another country’s legal system.  Save yourself the headache and please make sure this clause is in there.

Choice of Forum Clause: Another one of those basic terms.  This clause dictates what country, state, county, etc. your dispute will be litigated along with which court within that location will hear your case.  A choice of forum clause is important because the last thing you want to do is cover the expense of having to fly all the way to Mexico to argue your case.

Arbitration Clause: You may be thinking that you don’t want to arbitrate and prefer to have your case go to court.  Though this isn’t a bad option, even if you win your case, you may have some trouble getting a foreign party to pay an American court’s judgment.  Why?  Because they are from another country and generally unless that party’s home court is also willing to uphold the American court’s judgment (which would usually mean that you’d have to argue your case again in another country), a foreign party can just hop onto a plane back home and leave you with the bill.  But under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (aka the New York Convention), judgments handed down by arbitrators are enforceable foreign court across borders as long as the country’s government has signed on to the treaty.  Most every developed nation in the world has signed onto the New York Convention, which make arbitration the way to go for cheap and efficient international dispute resolution.

Arbitration Process Clause: This clause is important because it’s where you can dictate not only what disputes are subject to arbitration (breach of contract, refusing to pay, etc.), but it’s also where you get to establish how the arbitration process will proceed.  Things like how to choose an arbitrator, what language the proceedings will be in, and so forth are all covered here.  Be sure to make sure your lawyer writes this part up in your favor.

CISG Clause: Short for United Nations Convention on Contracts for the International Sale of Goods, the CISG is an international treaty to which America and virtually every nation in the world is a part of.  The CISG supersedes a country’s own laws when the parties in the dispute are from different countries and the contract involves the sale of tangible goods (such as cars, television, computer, food, etc.).  There are both negative and positive benefits to adopting the laws set out in the CISG, which you’ll need a good attorney to explain to you.  But one thing is certain: when dealing with the CISG, you must explicitly state that you want out of it in your choice of law clause.  Otherwise, if the other side disputes your choice of law, the CISG will automatically govern how your contract will be analyzed.

Confused?  Don’t worry, you’re not alone.  International law is complex for sure, but if you’re dealing with citizens from other countries in your business transactions, it will inevitably come up.  The best way to deal with it is to take the tips I mentioned to heart and, of course, get yourself a good lawyer.

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