Best Practices in International Business Contracting – Part 1
All contracts are subject to certain laws. The beauty of contracting is generally being able to choose which laws become part of the contract. An international business contract, for instance, it should generally read like a sophisticated business contract that will be performed by two domestic, English speaking parties.
However, depending on the home countries of the contracting parties, the contract may contain specific additional provisions that try to encompass some of the ever-present ambiguity that exists between different legal systems, different business and cultural practices, and often, different languages.
For these reasons, each international business contract should generally take into consideration the following items, with particular attention to the wording of the contract and the cultural context within which the parties will be operating:
- Declaration of which language version of the contract will be authoritative. English should, whenever possible, be the language of the authoritative version of the contract except when the judiciary that may be interpreting the contract does not use English or will not enforce a contract where English is the governing language. As always, word choice matters! There is a famous international trade case regarding the definition of the word “chicken” between an U.S. and a German company where each party’s definition in their native language and culture differed.
- Depending on the native languages of the contracting parties, the contract should be in two languages, unless both parties are comfortable with English. However, in countries such as China, where the judiciary is not generally fluent in English, the contract language should be side-by-side or use alternate paragraphs in English and the other language. The contract language should, at minimum, be in the language of the country where you forecast you may need to bring enforcement proceedings post-judgment (i.e. a U.S.-based party contracting with a Chinese party will want to have the contract in both English and Chinese; a Chinese court will be more likely to enforce the contract in that instance).
- Be careful with definitions of (calendar vs. business) days and weeks. The location of the international date line and time differences between contracting parties can create a headache if one definitive time zone is not chosen for the contract for any time-sensitive notices or delivery of goods or funds.
- Determine which country’s laws will govern the contract and whether the contract should follow subsequent amendments to the laws in effect at the time the contract is signed. Also determine what effect a subsequent change in law may have on the contract’s performance, especially changes regarding currency controls.
- Decide whether email will be included as an authorized form of communication for the contract’s purposes. What is the acceptable form for giving notice under the agreement, including service of process?
- Set the tone early for the business relationship and try to identify potential problems early. Determine how payment should be made and enter into an initial contract to ensure everything is smooth on payment and performance. Determine the governing currency for the contract or take into account currency conversion and banking charges applicable to the payment method to be used, as well as a method to choose alternative currency if the governing currency ceases to be legal tender. Funds should not be deemed received (per the terms of the contract) until they have been cleared by the recipient’s financial institution.
- Determine where litigation can or must be brought and whether additional rights and remedies beyond those within the contract should apply by virtue of the contract’s governing law.
Each of the above items is a potential risk factor in the international contracting context, and the relative risk of each item should be weighed prior to entering into a business agreement with a foreign party. For more information, contact one of our qualified attorneys.