Contract negotiations and drafting can be pretty difficult in the domestic realm, so engaging in these activities on an international scale can add some additional complexities. Although there are some international business standards and norms, there are not really binding laws or governing bodies to enforce the rules. Parties may agree to submit to international arbitration, but ultimate recourse will really depend on the language of the contract. Thus, here are five tips for drafting international contracts.
1. Understand Cultural Nuances
Before entering into a contract with a foreign entity, it is imperative to understand cultural nuances that affect how the other side conducts their affairs. Simple things like the appropriateness of eye contact and acceptable body language vary quite significantly among different countries. As a result, the negotiations and ensuing drafting process could get pretty awkward if one side fails to acknowledge and respect these cultural differences.
2. Use Clear Language
In general, English is the international language of business and political matters. Most international contracts will be drafted in English regardless of whether the companies reside in an English-speaking country. For all contracts, and particularly for those drafted in an international context, it is absolutely critical for the language used to be very clear. There is no room for contractual misunderstandings related to misused or misconstrued words. It is important to ensure that all parties have a solid grasp of the meaning of the contract as intended at the time it is drafted.
3. Define Important Terms
In light of the potential language issues, it is also crucial for any key terms to be adequately defined. In the U.S., there are a lot of legal terms of art that may not translate in the same way across borders. Therefore, if there is any question as to the potential meaning of a word that is of significant importance, it absolutely must be well-defined, with written affirmation that all parties understand and will adhere to the meaning of the word as defined by the contract.
4. Clarify Jurisdictional Issues
One of the drawbacks to entering into an international contract is that it is not always clear which laws apply. In situations in which there is an American firm involved in the contract, that firm will often stipulate the specific U.S. state laws which will govern the contract. In many commercial contracts, New York is frequently chosen, with California usually taking the second spot. Of course, a company with roots in a foreign country may wish for its country's laws to apply, as their laws may offer more favorable terms. This may be acceptable in some circumstances, but the company that is not from that country has to do their due diligence to ensure that they understand the laws to which they will be subjecting themselves.
5. Consult Local Counsel
In the end, the best way to ensure that an international contract is legally sound is by retaining appropriate counsel. This may mean hiring lawyers both domestically and abroad to ensure that someone who is familiar with the laws on both sides of the border has reviewed the contract. In some cases, U.S. counsel may already have a relationship with an attorney from the other country with whom they can collaborate. If not, it will no doubt be a bit harder to find someone the company can trust, but efforts must be made to find someone who can provide solid legal advice to avoid ending up in some international contract catastrophe.
The Master Checklist for Contract Review & Management
Tips and best practices for a successful contract management process.