INTERNATIONAL CONTRACTS
The topics are:
- international contracts categories
- international contracts laws
- international contracts content
- international contracts procedure
- international contracts drafting
- international contracts execution
- international contracts termination
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INTERNATIONAL CONTRACTS
CATEGORIES
International contracts can have 2 different
aspects:
- orders
- contracts
Orders are simple forms where it’s described
goods, buyer, seller, way of shipment and
payments, guarantees if requested, timing of
production, shipment and payment
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INTERNATIONAL CONTRACTS
LAWS
The rules governing international contracts are
established in international conventions
These rules try to respond to the lack of uniform
rules at international level, which creates difficulties
for the contracting parties
Without international rules operators have to rely on
national laws. Not only do these laws differ from
country to country, but do not take into account also
the international nature of the contract
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INTERNATIONAL CONTRACTS
LAWS
The most important international rules are:
- United Nations Convention on Contracts for the
International Sale of Goods (Cisg) of Uncitral,
known as Vienna Convention
- Unidroit principles of International Commercial
Contracts
- Icc (International Chamber of Commerce) model
contracts
- Rome Convention relating to contractual
obligations
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INTERNATIONAL CONTRACTS
LAWS
Uncitral's mission is the modernization and
harmonization of rules on international business
Uncitral (United Nations Commission on
International Trade Law) work produces:
- conventions, model laws and rules which are
acceptable worldwide
- legal and legislative guides and recommendations
of great practical value
- updated information on case law and enactments of
uniform commercial law
- technical assistance in law reform projects
- regional and national seminars on uniform
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commercial law
INTERNATIONAL CONTRACTS
LAWS
Vienna convention (Cisg) establishes rules about:
a) formation of the contract
b) obligations of the seller:
- delivery of the goods and handing over of documents
- conformity of the goods
- remedies for breach of contract
c) obligations of the buyer:
- payment of the price
- taking delivery
- remedies for breach of contract
d) passing of risk
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INTERNATIONAL CONTRACTS
LAWS
Unidroit (International Institute for the
Unification of Private Law) studies methods
for modernizing, harmonizing and
coordinating private, and in particular
commercial law, between States
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INTERNATIONAL CONTRACTS
LAWS
Unidroit principles, which have to be applied,
if contracts refer to them, are about:
a) formation of contract
b) validity of contract
c) interpretation of contract
d) content of contract
e) concepts of performance and non
performance and consequences of the latter
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INTERNATIONAL CONTRACTS
LAWS
Icc, based in Paris, has 3 main activities:
-rules-setting (model contracts, guidelines,
incoterms)
- arbitration (to solve litigations when contracting
parties insert an arbitration clause)
- policy maker
Its mission is to promote trade and investment across
frontiers and help business corporations meet the
challenges and opportunities of globalization
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INTERNATIONAL CONTRACTS
LAWS
The Icc model contracts implement the
concept of Lex Mercatoria (not written
official rules), that is a system of uses,
behaviours and traditions followed in the
international business environment
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INTERNATIONAL CONTRACTS
LAWS
The Rome Convention applies to any
contractual obligations arisen between Eu
contractors
It aims at ensuring that the courts of all EuMember States apply the same rules, in case
of a conflict of laws, to the dispute
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INTERNATIONAL CONTRACTS
CONTENT
International contracts are more complex than
orders, being made up of the following parts:
- title
- contracting parties
- introduction or preamble
- definitions
- articles, containing:
• general conditions (i.e. obligations and rights)
• specific conditions (i.e. applicable law)
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INTERNATIONAL CONTRACTS
CONTENT
The title defines the kind of contract
(i.e. sale, trademark license, distributorship)
It’s important to pay attention to the
coherence of title and content of the contract
The content prevails on the title
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INTERNATIONAL CONTRACTS
CONTENT
The correct identification of parties is fundamental
It means that in the contract you have to report:
- denomination, as it results from the register
- address
- name of the legal representative
It’s necessary to report the indication of respective
roles (i.e. buyer, seller) of parties, and the
abbreviated way of quotation in the remaining part
of the contract
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INTERNATIONAL CONTRACTS
CONTENT
About the legal representative, it’s advisable:
- to understand rules about representation,
which vary according to legislations
- to verify document stating the powers of the
representative (i.e. mandate)
- to check that the signature of the contract is
among representative’s powers
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INTERNATIONAL CONTRACTS
CONTENT
The introduction, or recitals, contains:
- parties’ will
- parties’ operational framework
- reasons of contract
- previous agreements or practices
If you want that this introduction is binding for the
parties, you must specify in the first article of the
contract that the introduction is integrating and
substantial part of the contract
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INTERNATIONAL CONTRACTS
CONTENT
The introduction is useful for the
interpretation of the articles
In order to read and implement correctly the
contract, definitions are of utmost importance
Definitions help to shun misunderstandings,
and to carry out provisions of contract,
explaining how to behave
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INTERNATIONAL CONTRACTS
CONTENT
Definitions, whose first letter is usual written in
capital letter, relate generally to:
- products
- transports
- guarantees
- payments
- abbreviations
The same word can have different meaning in
different countries
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INTERNATIONAL CONTRACTS
CONTENT
The text of a contract is composed of articles
An article can be split in paragraphs
Special effort has to be addressed to clarify parties’
obligations and rights
Each article is devoted to a topic (i.e. ways of
shipment, delay of payment)
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INTERNATIONAL CONTRACTS
CONTENT
The general conditions rule main aspects of the
agreement and relate to:
1) features of merchandise
2) Incoterms, including ways of shipment
3) date of delivery
4) date and ways of payment (including guarantees)
5) modalities of invoicing
6) duration and cases of termination of the contract
7) warranties and liabilities
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INTERNATIONAL CONTRACTS
CONTENT
The features of merchandise comprise:
- type and quality of goods
- price
- documents accompanying the merchandise
In distributorship contracts there are also articles
relating to:
- marketing of products
- support and training
- licence of trademarks and other Ipr
- confidentiality
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INTERNATIONAL CONTRACTS
CONTENT
The specific conditions rule particular aspects of the
relationship and relate to:
1) specifications (i.e. applicable law, dispute
resolution, ways of communication)
2) exceptions (i.e. late delivery and late payments)
3) weavers or derogations (i.e. force majeure, non
performance)
Usually specific conditions are placed in
attachments, so as to make easier a change
(no need to draft wholly the contract)
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INTERNATIONAL CONTRACTS
CONTENT
You must bear in mind that there are 2
different legal systems:
1) Common law: anglosaxons countries
2) Civil law: countries based on roman law
and Napoleon code
In Common law the reference is
jurisprudential norms, while in Civil law the
reference are rules in Civil Code
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INTERNATIONAL CONTRACTS
CONTENT
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INTERNATIONAL CONTRACTS
CONTENT
The different system implies that contracts drafted in
Common law countries are very long and full of
details, while contracts prepared in Civil law
countries can be short for, in the absence of a
regulation in the contract, the law clarifies which are
rights and obligations of parties
In Civil law system the reference to rules can be
explicit, pointing out the articles of law that parties
want to be considered for the regulation of their
relationship
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INTERNATIONAL CONTRACTS
CONTENT
In Common law systems it is considered
prevailing the regulations decided by the
parties, while it is considered residual the
protection provided by the law
This is the reason contracts are full of clauses,
rich in details and rules, which tackle all
possible aspects of relationship
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INTERNATIONAL CONTRACTS
CONTENT
In Civil law systems there can be relationships
which are not ruled by the law and therefore
parties are free to determine rules
On the contrary, where a relationship (i.e.
sale, licence) is ruled by the law, parties
cannot foresee rules which are different from
the ones established by the law when they are
underogable
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INTERNATIONAL CONTRACTS
CONTENT
At international level, missing a precise
regulation, contracts should be drafted,
possibly, in a very precise way, establishing
rules for every aspect of the relationship
Special attention has to be paid to definitions
in order to avoid misunderstandings and
different interpretation of rules
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INTERNATIONAL CONTRACTS
CONTENT
A useful example is the Icc (International
chamber of commerce) contracts (they are
available on sale)
Some suggestions:
- to draft light articles
- to draft changeable conditions in
attachments
- to draft a complete and self-sufficient text
- to use Icc contracts, adapting them to the
specific situation
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INTERNATIONAL CONTRACTS
PROCEDURE
A contract is the result of different phases:
- proposal
- negotiation
- agreement
- drafting
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INTERNATIONAL CONTRACTS
PROCEDURE
The proposal must be:
- clear
- precise
- complete
- understandable
- binding for the proponent
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INTERNATIONAL CONTRACTS
PROCEDURE
To prepare a winning proposal you have to:
- collect information (types of contract, laws, ways
of payment, international conventions)
- create a team, in charge of the contract, with
different competences (production, sale, finance,
law)
- single out the most delicate aspects of the contract,
so as to provide proper solutions
- draft the proposal according the best practices
- clarify the limits of prices and features of products
which cannot be exceeded during negotiations
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INTERNATIONAL CONTRACTS
PROCEDURE
Negotiations have to be managed carefully because
they can bring about a pre-contractual responsibility
This is the case of documents which are drafted
during negotiations, such as letter of intent and
memorandum of understanding
As a matter of fact the break of these pre-agreements
can pave the way for a lawsuit
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INTERNATIONAL CONTRACTS
PROCEDURE
The letter of intent is aimed at defining:
- the framework of negotiations (what has been done
in the past, and what has to be done in the future)
- the purposes of contracting parties
The memorandum of understanding is aimed at
declaring:
- commitment to agree a contract under specific
conditions
- aspects and rules already agreed
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INTERNATIONAL CONTRACTS
PROCEDURE
Furthermore parties have to behave correctly
(principle of good faith), and to provide
proper information (due diligence)
Being law systems different, it goes without
saying that time to be devoted to negotiations
is longer
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INTERNATIONAL CONTRACTS
PROCEDURE
The agreement can be reached in 2 ways:
a) signature of the contract in the same
moment by both parties during a meeting
b) exchange of mail containing the contract
(more frequently used)
The second solution presents a weakness
stemming from the uncertainty about the
moment when the contract enters into force
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INTERNATIONAL CONTRACTS
PROCEDURE
According to Italian law (art. 1326 c.c.) the
agreement is reached when the proponent
is aware of the approval from the counterpart
(but the counterproposal means that there is
no acceptance of the first proposal)
The date of the agreement is relevant for the
start of consequent activities
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INTERNATIONAL CONTRACTS
PROCEDURE
A problem could rise from the withdrawal of
the proposal, once it is accepted
The solution is that the proponent must pay
off damages born by the acceptor if he has
started to implement the contract, before
knowing the withdrawal
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INTERNATIONAL CONTRACTS
PROCEDURE
Specific rules on the agreement are spelt out in
Vienna Convention (1980)
According to art. 25, the agreement is reached when
the acceptance of the proposal arrives at proponent’s
headquarter
But the proposal has to be precise, addressed to
determined subjects, and binding for the proponent
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INTERNATIONAL CONTRACTS
PROCEDURE
Unidroit principles specifies that the
agreement is reached not only when the
counterpart accepts, but also when the
behaviour of parties are conclusive, that is
when the will to implement the contract is
shown
In both cases the agreement is valid when the
proponent is aware of the acceptance
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INTERNATIONAL CONTRACTS
DRAFTING
When all the content of a contract is decided,
the next step is drafting the text
In this respect you must choose:
a) language
b) proper law
c) jurisdiction and Court of justice or
arbitration
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INTERNATIONAL CONTRACTS
DRAFTING
As far as language is concerned, it’s advisable to use
English
About applicable law, you can choose among:
1) your law
2) the counterpart’s law
3) a third country law
The choice should be made before drafting the
contract, so as to determine the contents of rules in a
way which complies with the legal system chosen
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INTERNATIONAL CONTRACTS
DRAFTING
The Rome Convention (1980), recognised by
the Italian law 218/95, states that the choice is
free, and if there is no choice, the law to be
implemented is the one more linked to the
content of the contract
The Rome Convention applies only to
European countries
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INTERNATIONAL CONTRACTS
DRAFTING
Usually it’s recommended to choose your
national law but in some situations it could be
convenient to choose counterpart’s law, or
third countries law
This is not true for the choice of the Court,
being always advisable your own Court (i.e.
known lawyers, friendly procedures, reduced
costs)
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INTERNATIONAL CONTRACTS
DRAFTING
The contracting power influence the choice of
law and of the Court
The choice of the law determines also the
choice of the jurisdiction (but it’s not
compulsory)
In case of choice of other countries
jurisdiction, guarantees become advisable
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INTERNATIONAL CONTRACTS
DRAFTING
The choice of the Court means that you have
to point out which is the city where it is
located the tribunal
This implies that the Court will enforce the
law of its own country, which, in some cases,
cannot be overcome by agreements convened
by the parties
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INTERNATIONAL CONTRACTS
DRAFTING
Another problem is the enforcement of Court ruling
in other countries (that is in the counterparts’
country)
It depends on bilateral agreements between the
respective countries
An alternative to the Court is the Arbitration
Arbitration is faster than Court ruling, but it is more
expensive
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INTERNATIONAL CONTRACTS
DRAFTING
The Arbitration clause has to spell out:
- number of component of Arbitration council
- way of selection of components
- professional requirements of components
- arbitration procedure
- components’ powers (i.e. measures of
precaution)
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INTERNATIONAL CONTRACTS
EXECUTION
The execution of a contract can be carried out
in 2 ways:
a) in one moment
b) over the time
A problem which could arise is the change of
situation, which could produce the
impossibility or a serious difficulty to
implement the contract
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INTERNATIONAL CONTRACTS
EXECUTION
For this purpose it is useful to insert in the contract
some clauses:
- hardship clause: it describes situations (i.e. strikes,
fire, natural disasters, accidents, war, civil disorders)
which could hinder the implementation of that
contract, determining therefore the end of
obligations, without any penalty for the party in
default; it’s important to specify procedures to notice
the hardship
- price update clause: it allows to change prices
according to specific conditions
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INTERNATIONAL CONTRACTS
TERMINATION
The termination of a contract can occur in the
following circumstances:
- fulfilment of the performance foreseen by the
contract
- parties’ will
- expiry as foreseen in the contract (i.e. terms of
validity, facts leading to expiration, such as
impossibility, or the so called force majeure, and
frustration, the latter based on change of economic
conditions become not any longer convenient)
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INTERNATIONAL CONTRACTS
TERMINATION
- withdrawal of one party (having a reason,
and noticing it in advance), or default without
reason
- change of counterpart (on account of merger
or acquisition, or insolvency, if the
performance is strictly linked to the ability of
persons or characteristics of the product; so
called intuitus personae)
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