International Sales and Services ContractsInternational Sales and Services Contracts

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International Contracts’ Structure and Clauses

Contracts’ Structure and Clauses

International Business Contracts’ Structure (example)

• Heading (type of agreement e.g. contract for the sale of goods )• Parties (This agreement is made between A and B (“Parties” ) • Whereas (background parties, rationale, willingness, type of obligations)• Now therefore , the parties hereto agree as follows (details, clauses)• Miscellaneous: e.g. : • Governing law (choice of law, and exclusion, clause)• Disputes: amicable settlement, if not , competent court or arbitration• In Witness Whereof, the Parties have duly executed this Agreement in

twofold. By (name (authorised) representative and job title, place and date, signature.

International Dimensions

Examples International Business Contracts’ Clauses (See 8.5.2)• Exemption (exclude liability) • Indemnity (other holds you ‘harmless’ )• Warranty (what is guaranteed)• Time-is-of-the- essence (date not met = breach)• No-waiver (what I do now, or do not do, has no meaning for the future)• Reservation of ownership (conditional to payment)• Act of God (force majeure) and liquidated damages (to be paid if…. )• Penalty (interest on late payment)• Attorney fees (loser pays all costs winner)• Entire Agreement (in writing covers everything)• Change of Control (termination opportunity in case of a take over)• Incoterm (ICC trade terms for risks and costs)• Anti-corruption. (ICC options and CSR, see appendix Chapter 9)• Exhibits, or Appendices for details

Clauses to define and shift risks

IPL/PIL/Conflicts of Law

Fundamentals IPL

• Parties in different jurisdictions: legal relationship is international

• Contracting parties in different jurisdictions: international contract

• International private legal relationships: international private law (IPL) to resolve disputes, answer specific legal questions.

• IPL (civil law) = conflicts of law (common law)

• IPL = national law + regulations + conventions

• Party autonomy is a fundamental concept for IPL

• NL IPL = Book 10 DCC

Fundamentals Contracts

• Sales of goods contracts: define the terms of agreements aimed at transferring ownership of things against money.

• Services contracts (of instruction): define the terms for the performance of services against payment.

Fundamentals International Trade Risks

International Business & Legal Risks

International Business Risks• Currency exchange risk (transaction, translation exposure)• Country Risk (political, economic)• Credit Risk (payment)

International Legal Risks• General (compliance with foreign legal sytem)• Specific Contracts-related (formation, contents, breach etc.)• Legal System’s Risks • Specific IPL-related

Fundamentals System’s Risks

Foreign Legal Systems’ Risks:

• Judicial Independence (rule of law)• Efficiency (costs, time)• Effectiveness (quality courts, decisions enforceable)

• Info Sources: Doing Business(Contract Enforcement), WJP, WGI, IPRI

IPL and Contracting Risks

IPL-regulated risks in international contracting:

• Applicable law?• Competent court?• Foreign Recognition court rulings/arbitral awards?• Foreign Enforcement court rulings/arbitral awards?

EU & International IPL Regulation

Main IPL-tools to manage specific risks:

• Convention International Sale of GoodsCISG

• Applicable law EU Rome 1 Regulation

• Jurisdiction/ Competent court EEX Regulation (Brussels 1bis per 10-01-2015)

• Foreign Recognition/Enforcement court rulingsEEX Regulation

• Foreign Recognition/ Enforcement arbitral awards New York Convention 1958

• Private regulation: ICC’s Incoterms (2010)

Legal Risks & Management

United Nations Convention on Contracts for the International Sale of Goods (Vienna, 1980) (CISG)

SIGNATORIES

United Nations Convention on Contracts for the International Sale of Goods (Vienna, 1980) (CISG)

Key- facts CISG

Application:• Only applies to international b-t-b sale of goods (movables) contracts (not services)• Applicable when both parties in a contracting state, (or parties’ choice) or• As a result of referral to it by IPL rules (For EU see Rome 1)• What is not regulated in CISG is subject to a national legal system (the ‘back-up’ system)• Application can be excluded (art. 6 e.g. in standard conditions) for choice of law clause

Regulates: • Formation (verbal offer + acceptance, signatories may require in writing )• Seller’s obligations : delivery in conformity with contract, documents, transfer ownership• Buyer’s obligations : payment price and taking delivery• Non-performance remedies: performance, damages, avoid• Avoidance requires fundamental breach (more than just breach)

Not regulated:• Validity contract• Effect contract on ownership [applicable legal system to be used] • Transportation

United Nations Convention on Contracts for the International Sale of Goods (Vienna, 1980) (CISG)

Applicable Law: Sale of Goods

Sale of Goods

Contract? Yes

Both Parties in

CISG Country? Yes CISG excluded? No CISG applies

No

Both Parties

in EU

Yes

Choice + CISG

excluded

Yes

Chosen national

law applies

NoLaw Country

Seller CISG Country Yes

No

National Law

Country Seller

Topics

not in CISG

Applicable Law: Services Contracts

Applicable Law: Services Contracts

Services Contract Parties in EU Choice of Law Yes Choice applies

Law habitual

residence provider

Yes

No

Choice of Law

Court/Arbitrators

will accept or not

No

Yes

No

Court/Arbitrators

will decide

[Trade in Services Agreement ]

Contractual

DisputeParties in EU Consumer

Yes

ConsumerCompany

Sue in own

country or

defendant’s

Sue in

consumer’s

country

No ChoiceChosen Court

CompetentYes

Sales Contract Yes

Country

defendant or

place (to be)

delivered

Services

ContractYes

Country

defendant or

place (to be)

performed

No

Other

ContractYes See Sections

2, 3, 5, 6

Contracts :Competent Court/Jurisdiction in EU

Recognition and Enforcement

Recognition and Enforcement

IPL based Management Opportunities

• Make national law, or third country’s e.g. English law or law of NY, applicable.• Consider to agree on explicitly excluding CISG • When seller/provider in EU: risk of lack of choice of law is limited • Use Incoterms correctly and aligned to other clauses such as LC-payment • Include amicable solution and block court’s competence by arbitration• Arbitral awards ‘globally’ recognized and enforceable.• EU: recognition and direct enforcement of EU court’s rulings • Business outside EU, consider arbitration clause• See Chapter’s examples of miscellaneous clauses

Example form the General Conditions of Sale - Merck -Germany

1. Where the purchaser is an entrepreneur or a legal person under public law or a separate fund under public law, the exclusive court for all disputes resulting directly or indirectly from the contract is that of the registered office of Merck (Darmstadt).All obligations under the contract are deemed to be performed at the registered office of Merck.The place of performance for all claims resulting from the contract concluded between the purchaser and Merck is the registered office of Merck’s headquarters in Darmstadt.3. In any case, in particular also in international deliveries, German law (BGB) shall apply.

The law of the United Nations Convention on Contracts for the International Sale of Goods (CISG) of 11.04.1980 applies secondarily for foreign transactions.The above rules take precedence over the rules according to the CISG.

In carrier

At disposal carriers

Overviews: Costs, Risk Transfer, Documents

INCOTERMS MANAGEMENT DIMENSIONS• Containers : use FCA or CIP; not FOB or CIF• Ownership transfer: in contract or by applicable law• Align term to documents of payment conditions (L/C)• Assess (in/direct) effects on pricing • Transporters’ liability usually limited, extra insurance• Consider service element for value and competing

Sources of Model Contracts