massimiliano di pace1 international contracts the topics are: - international contracts categories -...

Massimiliano Di Pace 1

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


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


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



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



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 commercial law



Vienna convention (Cisg) establishes rules about:a) formation of the contractb) obligations of the seller:- delivery of the goods and handing over of documents- conformity of the goods- remedies for breach of contractc) obligations of the buyer:- payment of the price- taking delivery- remedies for breach of contractd) passing of risk



Unidroit (International Institute for the Unification of Private Law) studies methods

for modernizing, harmonizing and coordinating private, and in particular

commercial law, between States



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



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



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



The Rome Convention applies to any contractual obligations arisen between Eu

contractors

It aims at ensuring that the courts of all Eu-Member States apply the same rules, in case

of a conflict of laws, to the dispute


INTERNATIONAL CONTRACTSCONTENT

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)


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



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



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



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



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



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



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)



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



The features of merchandise comprise:- type and quality of goods- price- documents accompanying the merchandiseIn distributorship contracts there are also articles

relating to:- marketing of products- support and training- licence of trademarks and other Ipr- confidentiality



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)



You must bear in mind that there are 2 different legal systems:1) Common law: anglosaxons countries2) 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



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



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



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



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



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 CONTRACTSPROCEDURE

A contract is the result of different phases:

- proposal

- negotiation

- agreement

- drafting


INTERNATIONAL CONTRACTS PROCEDURE

The proposal must be:

- clear

- precise

- complete

- understandable

- binding for the proponent



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



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



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



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



The agreement can be reached in 2 ways:a) signature of the contract in the same moment by both parties during a meetingb) 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



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



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



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



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


INTERNATIONAL CONTRACTSDRAFTING

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


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 law3) 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



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



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)



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



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



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



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)


INTERNATIONAL CONTRACTS EXECUTION

The execution of a contract can be carried out in 2 ways:a) in one momentb) 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


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


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)


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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