Are you thinking about forming an international contract? Not sure where to start or what to take into consideration? When contracting internationally, it is important to think about the various elements of the contract. This article examines some of the key aspects to consider when forming a cross-border contract.
International contracts are legally binding agreements between parties who are based in separate countries. As with any contract, it will require the parties to do or refrain from doing particular actions.
1. Governing Law
An important element to consider is the governing law. Cross-border contracts may involve multiple organisations operating under completely separate legal regimes. The main contracting parties might be headquartered in two different countries, and the contract’s performance could even take place in a third country, further complicating issues. This emphasises the need to determine which legal system will govern the contract.
Therefore, one of the most crucial things to consider is which country’s laws will apply to your agreement. In other words, which country’s laws should the contract comply with? This will be the contracts governing law.
2. Dispute Resolution
What if there is a dispute after the contract has been executed? International agreements frequently provide that the parties must first try to settle their disagreements before resorting to litigation or arbitration. There is usually a deadline by which parties should attempt to resolve their dispute. Then if the dispute cannot be resolved amicably within the allotted time period, it can be referred to litigation or arbitration.
3. Jurisdiction
Jurisdiction is an important factor and relates to the geographical limitations of a court’s power to hear cases, which can differ depending on the country. When a company does business in another country, the parties normally agree on which courts shall govern any disputes. This should not be confused with the governing law, as this is separate.
A jurisdiction clause in an international contract will specify which country’s courts will hear a dispute if one was to arise under the contract. Parties should give significant thought to how the legal systems in the differing countries operate. They should also consider whether one country is divided into state and federal government like the USA, and if so, be specific to which courts will hear the dispute.
