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Businesses enter into contracts for almost every important business decision, whether written or verbal. This is essential because contracts clearly set out the terms of an arrangement, so it’s easy to refer to in case something goes wrong later.
This way, all parties are clear on their obligations.
However, the reality is that businesses expand internationally. This is great for their reach and profitability, but it also requires some adjustments to contracts and other aspects of the business.
Since other countries operate under different laws, this raises the question of which country’s laws apply to your contracts. So, how do international contracts work?
In this article, we’ll go through the clauses that are commonly used in international contracts and how they can be enforced in different jurisdictions. Read on to learn more.
What Is A Contract?
Before we go into how international contracts work, let’s take a quick look at how contracts work in its most basic form.
A contract is a legally binding agreement between two or more parties, and essentially sets out the details of an arrangement in writing for extra security and to mitigate risks (however, verbal promises can also be legally binding!).
The standard rule is that a contract needs to have the following elements to be binding:
- Offer/acceptance
- Intention
- Consideration
- Capacity
What Is An International Contract?
An international contract is a contract that applies overseas (and can be enforced overseas, too).
However, to ensure that it can be successfully enforced in another country, it needs to include certain clauses.
As the parties to the contract, you want to spend some time negotiating these terms as they may affect your ability to conduct business activities.
Let’s go through these below.
Which Country’s Laws Apply?
When it comes to international contracts, one of the most important questions to decide is which country’s laws will apply to your contract. In other words, which country’s laws should the contract be compliant with?
The first option here is to have international arbitration clauses.
Should I Have An International Arbitration Clause?
An international arbitration clause sets out the process for settling a dispute between parties to a contract. Usually, there will be an arbitrator (a third party) who will determine the outcome.
An international arbitration clause is highly encouraged when it comes to international contracts, as a third party makes it easier to navigate through different countries’ laws. It’s also as legally binding as a standard court judgment, and can be enforced in numerous jurisdictions.
Drafting an international arbitration clause requires some consideration of the following:
- Seat of the arbitration
- Venue of the arbitration
- Language to be used
- Choice of substantive law
- Number of arbitrators
If you need help drafting an international arbitration clause, our expert contract lawyers are happy to help.
New York Convention
If you’re a business who wants their contracts to be enforceable in multiple jurisdictions, you may want to look closely at the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (‘the New York Convention’).
This Convention allows you to enforce an award in any country that is a member to it. Australia is one of these countries.
If your international contract does not contain an arbitration clause, you may want to consider another option.
This includes consideration of the following:
- Governing law
- Jurisdiction
Governing Law And Jurisdiction In International Contracts
If an international contract does not have an arbitration clause, it should detail the governing law and jurisdiction instead.
In international contracts, governing law refers to the jurisdiction that actually regulates the contract itself. So, this should be the law of the country that the contract’s terms must comply with.
Jurisdiction, on the other hand, refers to the jurisdiction that will hear the disputes of parties. This means the contract will adopt the laws of this jurisdiction when interpreting the contract for the purpose of settling the dispute.
What Should I Look Out For In International Contracts?
Before you sign an international contract, it’s important to keep an eye out for certain clauses or terms that may affect your business activities.
One thing to be aware of is free trade agreements. These are basically treaties between countries which allow them to trade goods fairly and smoothly (for example, Singapore and Australia have SAFTA). It removes a lot of barriers that would otherwise exist when countries try to enter into contractual arrangements with each other in an international context.
You also want to look out for any conflicts in employment law between countries. This is particularly important if you engage overseas contractors or work with overseas suppliers.
What Else Should I Know?
At the end of the day, an international contract is still a contract. So, you still want to make sure it has all the correct details as a standard contract.
This includes checking that there are no unfair contract terms. This includes any terms that:
- Cause a significant imbalance in the rights and obligations of parties to the contract
- Are reasonably considered unnecessary to protect the interests of the party that is receiving the advantage
- Cause detriment
Should A Lawyer Review My International Contract?
When it comes to contracts, it’s always a good idea to have a lawyer review its terms to ensure you’re in a good position.
A lawyer can also pick up on any issues that may affect your business later down the track, or limit your ability to achieve your goals.
Furthermore, your international contracts need to be checked to ensure that it can be enforced in another jurisdiction.
If you need help, our lawyers are happy to chat with you and review your contracts.
Next Steps
International contracts are a common aspect of businesses during their growth stage. However, it’s essential that it includes certain clauses to ensure its enforceability in other jurisdictions.
However, drafting international agreements isn’t always easy, especially if your business has specific requirements and there are certain details to look out for.
Luckily, our expert contract lawyers can draft your international agreements to guarantee this enforceability. If you would like a consultation on your options going forward, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.
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