International Contracts: 5 Key Considerations for Businesses and Investors

Disclaimer: This is not legal advice.

“What good is a misconceived contract?”

In today’s interconnected world, businesses and investors increasingly form relationships abroad, often encountering complexities due to differing legal systems, languages, cultures, and business practices.

Here are a few insights to keep in mind:

💬 Language and Translation

The contract may require translation if the parties speak different languages. To avoid ambiguity, the parties must stipulate in the contract which language version will be authoritative. Nuances in translation can significantly impact the agreement’s scope.

⚖️ Jurisdiction and Governing Law

Selecting where disputes will be resolved and which laws will apply provides clarity on rules to follow, aiding in appropriate strategic decisions-making during the contract and disputes.

Risk: The parties may not be legally permitted to choose the jurisdiction and governing law freely or those provisions might not be binding on all parties. This may result from the parties’ nationality (including physical person or legal entity) and residence, where the contract is deemed signed, the origin and destination of the goods, services, and/or capital related to the contract as well as, ironically, the law chosen by the parties. Ensure the contract complies with chosen and/or applicable law(s) to avoid surprises, or worse, unenforceable agreements.

Bonus: Parties may even opt for different jurisdictions and laws for various contract sections, a useful tool for reaching compromises. However, this requires caution and preferably expert guidance.

🤝 Choice of Forum for Disputes

Arbitration or litigation? Each option has its pros and cons. Arbitration is typically quicker and offers higher confidentiality and flexibility, while litigation allows challenging legal interpretations and generally offers more opportunities for appeal.

Bonus: Include pre-litigation procedures in the contract to reach amicable resolutions and preserve professional relationships.

💰 Payment Terms and Currency

Incorporate clauses specifying the currency and deadlines for payment as well as mechanisms for handling currency fluctuations.

Bonus: include provisions for instalment payments, escrow accounts, and/or the possibility to directly seek payment from the non-paying party’s creditors.

💥 Force Majeure

Recent events, like the COVID-19 pandemic, have highlighted the importance of force majeure clauses. These clauses address unforeseeable circumstances that may prevent parties from fulfilling their contractual obligations. Defining what constitutes unforeseen circumstances and their consequences can mitigate risks effectively. Ensure clauses identify force majeure events and their impact on obligations.