In the global economy, international contracts play significant roles for businesses and individuals involving cross-border trade, services, or investments. However, their drafts require crossing many complex lands of law, culture, and commerce. So as to make the contract possible, enforceable, and beneficial to both parties concerned, proper planning, research, and attention to detail by each clause must be adhered to.

An international contract is a legally binding agreement between different parties coming from different countries with the guidelines for rights, obligations and relationships concerning cross-border transactions. The contracts enhance global trade, investments, and collaborations, allowing businesses and their individuals to operate in business across the jurisdictions.

It systematically covers the details surrounding the making of international contracts that offer firsthand experience to practitioners operating under cross-border agreements.

1. Foundation of International Contract

An international contract lays down the legal setting of a transaction between parties hailing from different countries. It serves the main purpose of:

• Defining rights and obligations of each party.

• Clarifying deliverables and timelines

• Minimising risks so that they become enforceable in jurisdictions

Before drafting, consider the following:

• Parties Involved: Identify the legal entities, including their full names, addresses, and jurisdictions. For example, distinguish between a corporation, partnership, or sole proprietorship.

• Purpose of the Contract: Outline the type of transaction (e.g., sale of goods, service provision, licensing, joint ventures) and the expected outcomes.

• Nature of the Relationship: Determine if it is a one-time transaction or an ongoing relationship, as this impacts the contract's complexity and duration.

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2. Selecting Governing Law and Jurisdiction

The choice of governing law and jurisdiction is one of the most important decisions that parties make in an international contract. These clauses govern the applicable law and venue of dispute resolution.

Key Considerations:

1. Governing Law: The country or system of laws according to which the contract is to be construed. This could be:

• Laws of one party's country.

• Laws of a neutral jurisdiction, such as Switzerland or Singapore.

• International conventions, including the United Nations Convention on Contracts for the International Sale of Goods (CISG).

2. Jurisdiction Clause: Identifies the courts or arbitration forum that shall resolve disputes. Examples include:

3. Exclusive jurisdiction: Only a specific court or forum can hear disputes.

4. Non-exclusive jurisdiction: Allows disputes to be brought in multiple forums.

5. Practical Tip: Confidentiality and enforcement through the New York Convention make the arbitration under rules, like ICC or LCIA's rule, more favourable to the parties.

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3. Language of the Contract

Language can also give cause for misunderstandings or quarrels. Address it even prior to the start:

• Specifying the Official Language: For example, "This contract shall be drafted and interpreted in English."

• Providing Translations: Specify which version wins in case of inconsistency when translations are required.

• Legal Terminology: Be sure to use law terminology correctly for terms that vary by legal system.

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4. Detailed Terms Payable

Payment terms represent one of the areas about which disputes often arise; be sure to include:

1. Determining Currency: Be specific as to currency and who bears the burden of fluctuation

2. Types of Payment:

• Direct Bank transfer.

• Letters of Credit are often used in international transactions;

• Escrow accounts add another level of security.

3. Payment Schedule: State payment due dates, such as "Payment shall be made within 30 days of invoice receipt".

4. Taxes and Duties: Clearly define the burden of taxes, including value-added tax, customs duties or withholding taxes.

5. Force Majeure and Hardship Clauses

International contracts are particularly vulnerable to unexpected events. Draft clauses that cover the following:

• Force Majeure: Events beyond the control of the parties involved, like natural disasters, war or pandemics that temporarily or permanently excuse performance.

• Hardship Clause: Allow renegotiation if performance becomes excessively onerous due to unforeseen changes, such as significant economic shifts.

6. Intellectual Property Rights (IPR)

When transactions involve intellectual property, address:

• Ownership: Specify whether intellectual property created during the contract belongs to one party or is jointly owned.

• Licensing: Include terms for IP usage, royalties, and sublicensing.

• Protection Mechanisms: Detail measures to prevent unauthorized use, including confidentiality obligations.

Example:

"For proprietary software delivered under this agreement, the provider retains all copyrights. The client is granted a non-exclusive, non-transferable license for internal use."

7. Compliance with Local Laws and International Standards

Every country has different legal requirements. Ensure compliance by:

1. Regulatory Compliance:

• Compliance with import/export regulations.

• Compliance with environmental and safety standards.

2. Data Protection Laws:

• Incorporating GDPR clauses for data belonging to EU citizens.

• Adherence to local data privacy laws, such as CCPA in California.

3. Employment Laws: Observe labour laws if hiring across borders, minimum wage, working hours, and employee benefits.

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8. Mechanisms for Resolution of Disputes

International contracts tend to prefer alternative dispute resolution methods so that litigation is not dragged out. Common methods include:

1. Arbitration:

• Benefits: Confidentiality, enforceability, and speed.

• Include clauses specifying arbitration rules (e.g., ICC Rules) and venue (e.g., London, Singapore).

2. Mediation: Promote amicable settlement of disputes.

3. Litigation: If necessary, specify the courts that have jurisdiction.

9. Confidentiality and Data Security

Global transactions often involve sensitive information. Guard it with:

1. Confidentiality Agreements: Outline what constitutes confidential information and how to handle it.

2. Data Security:

• Encryption and secure means of data exchange

• Adherence to laws related to the protection of data

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10. Termination and Renewal Provisions

The termination clause must be explicit so that there is no conflict later on

1. Grounds for Termination

• Failure to fulfil contractual obligations

• Bankruptcy

• Mutual consent

2. Notice Periods: Set the length of notice in relation to termination

3. Automatic Renewal: Confirm whether the contract automatically renews and what are the conditions for renewal.

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11. Key Clauses to Include

To guarantee an effective coverage, do the following:

• Definitions: Interpret technical terms and ambiguous words.

• Warranties and Representations: Specify each promise one party makes in its capability to perform.

• Indemnification: Detail which party is responsible to indemnify for damages or loss.

• Limitation of Liability: State any liability cap for damages

Example:

"Neither party shall be liable for indirect, incidental, or consequential damages, including lost profits."

Best Practices in Drafting

Certain practices should be followed to draft a clear and effective International Contract. Like:

1. Simplicity: Use plain language to ensure less ambiguity.

2. Logical Structure: Break the contract into sections with numbered clauses.

3. Customization: Avoid generic templates; the contract should be tailored to the specific transaction.

4. Professional Review: Seek legal counsel who is conversant with international laws and customs.

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Example: Sample International Contract Draft

Here’s an example of an international contract for a Sale of Machinery between a U.S.-based seller and an Indian buyer:

INTERNATIONAL SALE AGREEMENT

This Agreement is entered into on January 1, 2024, by and between:

• Seller: ABC Machinery Inc., a company incorporated under the laws of the United States, with its principal office at 123 Industrial Road, Houston, Texas, USA, hereinafter referred to as the "Seller."

• Buyer: XYZ Manufacturing Ltd., a company incorporated under the laws of India, with its principal office at 456 Industrial Estate, Mumbai, Maharashtra, India, hereinafter referred to as the "Buyer."

RECITALS

WHEREAS the Seller is engaged in the business of manufacturing and selling industrial machinery;
WHEREAS the Buyer desires to purchase machinery for its manufacturing operations;

NOW, THEREFORE, the parties agree as follows:

1. Goods and Specifications

The Seller agrees to sell, and the Buyer agrees to purchase, the following machinery:

1. Machinery Model: ABC-500X Precision Lathe.

2. Quantity: 5 units.

3. Specifications: As described in Annex A attached hereto.

2. Purchase Price and Payment Terms

Total Purchase Price: USD 250,000 (Two Hundred Fifty Thousand U.S. Dollars).

Payment Terms:

• 30% (USD 75,000) payable as advance upon signing this Agreement.

• 70% (USD 175,000) payable upon delivery and acceptance of the Goods.

Payment Method: Payments shall be made via SWIFT transfer to the Seller's bank account at Bank of America, Account Number: 123456789, Swift Code: BOFAUS3N.

3. Delivery Terms

1. Delivery Location: Mumbai Port, Maharashtra, India.

2. Delivery Terms: FOB (Free On Board) Houston Port, USA, as per Incoterms 2020.

3. Delivery Date: No later than March 15, 2024.

4. Inspection and Acceptance

1. The Buyer shall inspect the machinery within 7 business days of receipt.

2. If the machinery conforms to the specifications in Annex A, the Buyer shall notify the Seller of acceptance in writing.

3. Any defects or non-conformities shall be reported within the inspection period. The Seller shall have 30 days to rectify such defects.

5. Warranty

The Seller warrants that:

1. The machinery shall be free from defects in materials and workmanship for a period of 12 months from the date of delivery.

2. In case of defects, the Seller shall repair or replace the defective parts at its own expense.

6. Force Majeure

The Seller shall not be liable for delays or failure to deliver the Goods due to events beyond its control, including but not limited to natural disasters, strikes, war, or government restrictions.

7. Governing Law and Dispute Resolution

Governing Law: This Agreement shall be governed by the laws of the State of Texas, USA.

Dispute Resolution: Any disputes arising out of this Agreement shall be settled by arbitration in accordance with the rules of the International Chamber of Commerce (ICC).

• Arbitration Venue: Singapore.

• Language: English.

8. Termination

This Agreement may be terminated:

1. By mutual written consent of both parties.

2. By either party if the other materially breaches this Agreement and fails to remedy the breach within 30 days of receiving written notice.

9. Confidentiality

Both parties agree not to disclose any proprietary or confidential information received under this Agreement to third parties, unless required by law.

10. Entire Agreement

This Agreement constitutes the entire understanding between the parties and supersedes any prior agreements, communications, or understandings.

IN WITNESS WHEREOF, the parties have executed this Agreement on the date first written above.

SELLER:
ABC Machinery Inc.
By: ___________________________
Name: John Doe
Title: CEO
Date: January 1, 2024

BUYER:
XYZ Manufacturing Ltd.
By: ___________________________
Name: Arjun Mehta
Title: Managing Director
Date: January 1, 2024

Annex A: Specifications of Machinery

(Detailed technical specifications for ABC-500X Precision Lathe.)

Summing Up

Drafting international contracts is an art that requires balancing legal compliance, cultural sensitivity, and business objectives. By attending to the intricacies of governing laws, language, payment terms, and dispute resolution, parties can craft enforceable agreements that help protect their interests and foster successful cross-border relationships.

Drafting International Contracts FAQs

Q1. What is an international contract?

It is a legal agreement between parties from different countries.

Q2. Why is governing law important in international contracts?

Governing law determines the legal framework for interpreting the contract and resolving disputes.

Q3. What are force majeure clauses?

Force majeure clauses excuse non-performance due to uncontrollable events like natural disasters or war.

Q4. How are disputes resolved in international contracts?

Common methods include arbitration, mediation, and litigation in specified jurisdictions.

Q5. What should be covered by payment terms?

Payment terms should include currency, method, timeline, and tax responsibility.

Q6. Why is intellectual property important to protect?

It protects ownership rights and prevents unauthorized use of proprietary information.