International Contracts
Part One
Contracts can be complicated
Discrepancies
• Uniform Commercial
Code (UCC) of the
United State
=
• United Nations
Convention on
Contracts for the
International Sale of
Goods (CISG)
Concepts to know
• Businesses in international trade are
involved in contracts.
• Contracts in a country are governed by the
laws of that country.
• But how do companies in different
countries make a contract?
International
Contracts
Lex Mercatoria
International Sales Contracts and the CISG
Agency versus Distributorship Legal Issues
Elements of an Agency or Distributor Contract
Termination
What is Lex Mercatoria?
Arbitration and Mediation
Wasn’t he an enemy of Batman?
Lex Mercatoria
Definition
• Refers to all international trade laws and
conventions
• Is made up of a multitude of international
agreements and international trade customs
• Complements domestic laws
• Is used when the contract is between two parties
in different countries
International
Contracts
Lex Mercatoria
International Sales Contracts and the CISG
Agency versus Distributorship Legal Issues
Elements of an Agency or Distributor Contract
Termination
Arbitration and Mediation
How do we define an
“international contract?”
• Two basic requirements:
– Economic: Goods go from one country to
another and money is sent back from one
country to another.
– The transaction or sale is linked to the laws of
different countries.
Uniform Commercial Code
of the United States
Uniform Commercial Code
of the United States
Uniform Commercial Code
of the United States
• Several organizations wrote a code of
laws for dealing with personal property.
• They were not law in any state until the
state adopted them.
• All fifty states, the District of Columbia,
Guam, Puerto Rico, and the U.S. Virgin
Islands have adopted them.
• They provide a uniform legal system for
doing business in the United States.
Convention for the International
Sale of Goods – CISG
• Created in 1980
• Has become the Law of International
Contracts
• Adopted by most countries as part of their
Commercial Law
• The United States has not adopted all of
the CISG.
Discrepancies
• Uniform Commercial
Code (UCC) of the
United State
=
• United Nations
Convention on
Contracts for the
International Sale of
Goods (CISG)
Discrepancies
• Uniform Commercial
Code (UCC) of the
United State
• United Nations
Convention on
= Contracts for the
International Sale of
Making Goods (CISG)
You can withdraw your
offer at any time
before the expiration date
an offer
You cannot withdraw
your offer before the
expiration date
Discrepancies
• Uniform Commercial
Code (UCC) of the
United State
• United Nations
Convention on
= Contracts for the
International Sale of
Making Goods (CISG)
$195,000
I offer $200,000
Seller pays freight
Five
Six day
day delivery
delivery
an offer
Discrepancies
• Uniform Commercial
Code (UCC) of the
United State
• United Nations
Convention on
= Contracts for the
International Sale of
Making Goods (CISG)
I offer $195,000
Seller pays freight
Six day delivery
an offer
Discrepancies
• Uniform Commercial
Code (UCC) of the
United State
• United Nations
Convention on
= Contracts for the
International Sale of
Making Goods (CISG)
I offer $195,000
Seller pays freight
Six day delivery
an offer
I offer $200,000
Seller pays freight
Five day delivery
Discrepancies
• Uniform Commercial
Code (UCC) of the
United State
• United Nations
Convention on
= Contracts for the
International Sale of
Making Goods (CISG)
$195,000
I offer $200,000
Seller pays freight
Five
Six day
day delivery
delivery
Modification
of original
offer
an offer
Discrepancies
• Uniform Commercial
Code (UCC) of the
United State
• United Nations
Convention on
= Contracts for the
International Sale of
Making Goods (CISG)
$195,000
I offer $200,000
Seller pays freight
Five
Six day
day delivery
delivery
an offer
I offer $200,000
Seller pays freight
Six day delivery
Discrepancies
• Uniform Commercial
Code (UCC) of the
United State
• United Nations
Convention on
= Contracts for the
International Sale of
Making Goods (CISG)
$195,000
I offer $200,000
Seller pays freight
Five
Six day
day delivery
delivery
an offer
I offer $200,000
Seller pays freight
Six day delivery
Rejection
of original
offer
Discrepancies
• Uniform Commercial
Code (UCC) of the
United State
• United Nations
Convention on
= Contracts for the
International Sale of
Making Goods (CISG)
$195,000
I offer $200,000
Seller pays freight
Five
Six day
day delivery
delivery
an offer
I offer $200,000
Seller pays freight
Six day delivery
Changes are
a counteroffer
International Sales
Contracts
Differences Between CISG and UCC
Making an offer
Acceptance
• The second step in the formation of a contract
• Under the CISG, the second party must completely agree with all
the terms presented in the offer; otherwise, it is a rejection of the
offer.
Discrepancies
• Uniform Commercial
Code (UCC) of the
United State
• United Nations
Convention on
= Contracts for the
International Sale of
Making Goods (CISG)
an offer
I offer $200,000
Seller pays freight
Five day delivery
International Sales
Contracts
Differences Between CISG and UCC
Making an offer
Acceptance
• The second step in the formation of a contract
• Under the CISG, the second party must completely agree with all
the terms presented in the offer; otherwise, it is a rejection of the
offer.
• Under the UCC, the second party is considered to have accepted
the offer if it generally agrees with its terms, even if it wants
amendments to the quantity of the goods purchased, the delivery
dates, and other details.
Discrepancies
• Uniform Commercial
Code (UCC) of the
United State
• United Nations
Convention on
= Contracts for the
International Sale of
Making Goods (CISG)
I offer $200,000
Seller pays freight
Five day delivery
an offer
I offer $200,000
Seller pays freight
Five day delivery
Discrepancies
• Uniform Commercial
Code (UCC) of the
United State
• United Nations
Convention on
= Contracts for the
International Sale of
Making Goods (CISG)
I offer $200,000
Buyer
Seller pays freight
Five
Six day
day delivery
delivery
an offer
I offer $200,000
Seller pays freight
Five day delivery
Discrepancies
• Uniform Commercial
Code (UCC) of the
United State
• United Nations
Convention on
= Contracts for the
International Sale of
Making Goods (CISG)
I offer $200,000
Buyer
Seller pays freight
Five
Six day
day delivery
delivery
an offer
I offer $200,000
Seller pays freight
Five day delivery
International Sales
Contracts
Differences Between CISG and UCC
Written Agreements
• The CISG does not dictate that contracts of
sale have to be written.
• The UCC dictates that contracts have to be in
writing (for transactions above $ 500).
International Sales
Contracts
Differences Between CISG and UCC
Breach of Contract
• In the event that one of the parties to a
contract does not meet its obligation,
that party can be found in breach of the
contract.
Discrepancies
• Uniform Commercial
Code (UCC) of the
United State
• United Nations
Convention on
= Contracts for the
International Sale of
Making Goods (CISG)
I offer $200,000
Buyer
Seller pays freight
Five
Six day
day delivery
delivery
an offer
I offer $200,000
Seller pays freight
Five day delivery
Discrepancies
• Uniform Commercial
Code (UCC) of the
United State
I offer $200,000
Buyer pays freight
Six day delivery
• United Nations
Convention on
= Contracts for the
International Sale of
Breach of Goods (CISG)
contract
I offer $200,000
Seller pays freight
Five day delivery
Discrepancies
• Uniform Commercial
Code (UCC) of the
United State
I offer $200,000
Buyer pays freight
Six day delivery
• United Nations
Convention on
= Contracts for the
International Sale of
Breach of Goods (CISG)
contract
I offer $200,000
Seller pays freight
Five day delivery
Discrepancies
• Uniform Commercial
Code (UCC) of the
United State
I offer $200,000
Buyer pays freight
Six day delivery
• United Nations
Convention on
= Contracts for the
International Sale of
Breach of Goods (CISG)
contract
I offer $200,000
Seller pays freight
Five day delivery
Actually takes fifteen days
Discrepancies
• Uniform Commercial
Code (UCC) of the
United State
I offer $200,000
Buyer pays freight
Six day delivery
• United Nations
Convention on
= Contracts for the
International Sale of
Breach of Goods (CISG)
contract
Seller
$187,000
I offer pays
$200,000
Seller pays freight
Five day delivery
Actually takes fifteen days
End of Part One.
International Contracts
Part Two
Agency vs. Distributorship
Legal Issues
What’s the difference between an agency and a distributor?
Agency
http://www.worldofmaps.net/europe/maps_europe.htm
Agency
http://www.weltkarte.com/europa/deutschland/Deutschland_Staedte.gif
Agency
http://www.weltkarte.com/europa/deutschland/Deutschland_Staedte.gif
Agency
http://www.weltkarte.com/europa/deutschland/Deutschland_Staedte.gif
Distributor
http://www.weltkarte.com/europa/deutschland/Deutschland_Staedte.gif
Agency vs. Distributorship
Legal Issues
• There is no international agreement regarding
relationships between exporters and their agents or
distributors.
• Applicable law generally is that of the country where the
agent or distributorship is located.
• Basically, agreements between an exporter and an
agent/distributor are called distribution contracts.
Distributor
http://www.weltkarte.com/europa/deutschland/Deutschland_Staedte.gif
Agent
Agency vs. Distributorship
Legal Issues –Home Government
Restrictions
• Home governments sometimes regulate agents/distributors to
protect them from more powerful exporters.
• Home governments also may want to regulate the activities of
agents and distributors within their borders.
– They may have to register with the government.
– They may have to be nationals of the country.
– Government may inspect contracts.
– Commissions may be regulated.
– Agents/distributors may be limited to geographic area.
Important Elements of Agency or
Distributor Contracts
• Language in which contract is written.
– One language is considered primary contract
language.
– Other languages are considered “translations.”
• Good faith – participants agree to act in good faith, not
attempting to take advantage of one another.
• Force majeure (“overwhelming power”) – contract not
binding in event of catastrophe (ship sinking, hurricane,
strike).
Agency or Distributor Contracts
• Scope of appointment
– Is contract with an agent or distributor?
– What products are involved?
– What is the territory involved?
• Is the agent/distributor an exclusive representative?
– What is the status of corporate accounts?
Agency or Distributor Contracts
Term of appointment:
– Must always be a definite time period.
– Termination of contract is usually a bad
solution.
• May be problem to find a new representative.
• Fired representative may cause problems.
• Customers may think exporter is not committed to market.
– Better to not renew contract, but identify terms
that were not met.
• Failure to say this may mean a court may consider the contract an
evergreen, meaning it is of unlimited duration and nonperformance
cannot be used to terminate it.
Agency or Distributor Contracts
Term of appointment:
– Must always be a definite time period.
– Termination of contract is usually a bad
solution.
• May be problem to find a new representative.
• Fired representative may cause problems.
• Customers may think exporter is not committed to market.
– Better to not renew contract, but identify terms
that were not met.
• Failure to say this may mean a court may consider the contract an
evergreen, meaning it is of unlimited duration and nonperformance
cannot be used to terminate it.
Agency or Distributor Contracts
Choice of legal jurisdiction:
– International contracts always say which
country’s laws will govern disputes over the
contract.
• Exporter usually makes this choice.
– International Chamber of Commerce (ICC)
“Model Contracts for Agency and for
Distributorship” provide two choices:
• Traditional choice of specific country’s laws.
• Generally recognized international trade laws.
Agency or Distributor Contracts
• Choice of forum and arbitration
– Both parties agree on court to rule and laws to
apply in dispute.
– Increasing number of contracts call for an
arbitration panel to settle disputes.
• Profitability or commission
– Determines price/margin of products
distributor sells.
– Determines commission of agents.
Agency or Distributor Contracts
• Miscellaneous clauses
– Facilities and activities: size of retail site and
inventory, extent of employee training, complaint
handling.
– Advertising responsibilities of both parties.
– Competing lines agent/distributor can carry, if any.
– Use of trademarks, patents, and copyrights.
– Confidentiality of trade secrets, strategic information.
– Ownership of customers’ list.
Press “Page Down” to continue.
More on Termination
• Just cause termination.
– Exporter not fulfilling contract (rare).
– Agent/distributor not fulfilling contract.
– Even if there is failure to perform, the “guilty party”
may be legally entitled to a minimum notice and
compensation even though it is not so stated in the
contract.
• Convenience termination.
– Exporter may think agent/distributor is earning too
much.
– Exporter may be changing strategy.
– Best to include lengthy notice period and generous
goodwill compensation package.
Press “Page Down” to continue.
Arbitration
• Increasingly preferred way of resolving disputes
between international partners instead of going
to court.
• Venues for arbitration:
– International Chamber of Commerce Rules of Conciliation and
Arbitration.
– United Nations Conference on International Trade Law Rules of
Conciliation and Arbitration.
– London Court of International Arbitration.
– Stockholm Chamber of Commerce.
– World Intellectual Property Organization.
– American Arbitration Association.
– Individual law firms (many in Switzerland).
End of program.
End of Program