International Agreements and Contracts
Involving in a contract is often fundamental for a business to function
effectively. It involves a plethora of responsibilities and liabilities which
need to be fulfilled by both the contracting partners as a part of their mutual
transactions. However, at times, there is a breach of responsibility from either
end which often ends in a dispute.
This becomes more intricate while entering
into cross-border transactions. If the procedures for resolving such disputes
become cumbersome and bureaucratic it affects the smooth functioning of
businesses thus affecting the economic growth tremendously. So we know that
International Contracts are agreements between two parties from different
territorial jurisdictions. When the contract is between two different countries,
it is known as a bilateral agreement while it is termed as a multilateral
agreement when the contract is between more than two countries.
In case if you are quite perplexed about the enforceability of an international
agreement, read on! This article is going to address the issues, faced while
drafting an international contract that shall make enforceability convenient.
Negotiation of International Contracts
Negotiating an international contract requires much more vigilance than one
would require for penning down a domestic one. This is due to the reason that
there may be some further issues that may be encountered in an international
contract but may not be witnessed in a domestic contract.
It is the sine qua non to negotiate which court's jurisdiction shall be involved
in determining the issues, should there be any dispute while enforcing an
international contract. The issue of coming with a singular jurisdiction and
venue is often difficult since it takes many aspects into its ambit. Such
legalities may include the legal procedure, the legal expenses, and the
enforceability of judgments.
However, in case of any unfavorable situation of unmatched jurisdiction before
the door, the parties should always be ready with recourse. It has often been
acknowledged that European parties may find the English law suitable, while
those from Asian countries often favor Singapore and Australian laws, while
African, European, and Middle Eastern people may find English Law more feasible.
It is very crucial to note that the parties should always select a law that
shall be favoring each of them so as to eliminate any kind of barriers related
to language, culture, or legal tradition for the days to come.
Kinds of International ContractsInternational contracts can take any form and may cover any of the types
- Intellectual property licenses
- Supply agreements
- Investment agreements
- International distribution agreements
- International sales contract
- Letters of credit
- Joint venture agreements
- Development agreements
- Franchise agreements
Salient points to keep in mind while negotiating an International Contract
Each of the parties in a bilateral or multilateral contract should make sure to
chisel out the rights and the obligations that need to be fulfilled by both of
them in order to prevent any kind of unnecessary complexity in the future.
the process, the parties should pay close heed to the following points:
- The parties should highlight the anticipations and the sale targets
effectively. This would include the expected business performance as well as
involve significant business decisions.
- The rights and remedies of the parties should be articulated properly
under the dispute resolution section.
- The involvement of an arbitration clause is indispensable as it states
explicitly the dispute resolution procedure in case of any rising conflicts
in the future.
- The involvement of important measures to be taken aid of, in case of
termination without the breach of contract.
- The inclusion of force majeure, so as to enable the parties to exit
from their obligations in case of any natural mishap or forces beyond the
- The payment and shipping provisions should also be annexed in the
- The necessary inclusion of a section that would incorporate the
requirements to be in accordance with the applying laws.
Knowing International Commercial Arbitration
Arbitration is basically an alternative dispute resolution process where the
dispute between the contracting parties is resolved by a third party, popularly
known as an arbitrator, without the interference of a court of law. In the end,
the arbitrator comes to a decision, determining the rights and liabilities of
both the parties, which can be enforced.
The arbitral award can be enforced in the same way as an award pronounced by the
court of law. Also, an arbitral award can be enforced in all jurisdictions
un-biasedly. This is the major reason behind the popularity of arbitration in
resolving cross-border disputes and so much so that it is often preferred more
than the normal litigation process of the court.
This is expedited by The Convention on the Recognition and Enforcement of
Foreign Arbitral Awards (The New York Convention) which ensures that the
arbitral award can be enforced on all the member states that are part of this
convention. This means that an arbitral award can be enforced in any country
that is a part of the convention, in the same way as an award passed by the
national court of the country. As many as 157 countries are part of this
Choice of governing law and jurisdictional provisions in an International
These clauses face constant negotiations while drafting an international
commercial contract. The reason behind this is each of the contracting parties
would desire each of their country's laws to be included as a part of the
In case if the parties are unable to reach a conclusion regarding the governing
law and the jurisdiction then they may settle down to deciding upon a uniform
international convention that has been ratified by their countries respectively.
One simple example may be, the countries Australia and Germany are a member of
the International commercial framework called Contract for the International
Sale of Goods (commonly known as the CISG or Vienna Convention) and can
therefore adopt the same as the governing law while entering into a contract.
This could be the best compromising choice since it is in alignment with the
commercial laws of both countries.
In the case of Vita Food product Inc v Unus Shipping Co Ltd
, it was held by
the Privy council that the parties are free to choose any law to govern their
contract, whether it is in nexus to the contract or not. However, the law should
be bona fide, legal, and in line with public policy.
Necessary particulars for Negotiating International Contracts
An International Contract should necessarily adjoin the following elements in
Elementary clauses present in every International Contract
Prior to entering into a contractual relationship with a company from a
different country, due diligence should be performed on that country to
check for the qualifications that whether the company is authorized to carry
on a business with a different country and whether it holds a good stance
with various appropriate governmental authorities. Apart from that it also
needs to be verified that whether the person entering into the contract on
behalf of the company is authorized to do so and also that the contract is
to be accepted and signed strictly with adherence to legal formalities. Thus
the first necessary components of any contract are the contracting parties.
At times it may so happen that one party may expect a score of
responsibilities and obligations to be fulfilled by the other party, which may
give rise to unnecessary conflicts. To keep things simple and uncomplicated the
parties should be clear about the obligations and the liabilities that need to
be performed by the parties amongst themselves. They should pen down the same as
clear and specific as possible. For example, in the case of the international
sale of goods, all the perils, costs, and duties related to the sale of goods
should be stated explicitly in the contract, when shipped from one national
territory to the other. Also, in cases where the government license will be
mandatory for importing the goods from one country to another (like some
sensitive goods and software technologies), there it should be mentioned clearly
as to which party shall take up the responsibility of government licensing.
- Geographic scope:
If the country is limited to a particular jurisdiction
or territory for its business (like in the case of distributorship) then the
same should be specified by the company as to which particular jurisdictions it
is limited to, for the purpose of carrying on its business. This mention is very
much important for the smooth enforcement of an international contract.
While contracting with a foreign country, the contracting
language is generally English. However, the parties to the contractual
relationship should not assume anything on their own that the complete gamut of
the contractual transactions shall be completed in English. However, if it
remains the main medium then it should be specified distinctly in the contract
that any kind of correspondence that forms a part of the contract shall be
completed in English. Where the parties use the dual-language format (i.e. the
entire contract written in English and another language added in the dual
language column) then the same shall also be communicated in explicit terms in
the contract that the main controlling language shall be in English and that the
notices and communications to that effect shall also be communicated in English
The contract should also contain the information regarding the
number of notices to be given and particulars of contact with each and every
organization (for instance, name, title, address, email address, etc). Along
with that, the contract needs to specify the language in which the notice shall
be initiated (it may be in English or any other language as per the choice of
When entering into a contractual relation, nothing should be
presumed but communicated expressly. The same holds notably with regards to the
currency. The parties should mandatorily state which currency they would
transact with rather than assuming it. In the case of Dollars (since it is
used by many countries like the US, Canada, Hong Kong, Taiwan, etc), the
parties should state in clear-cut terms as to which currency they would like
to transact with like USD.
- Intellectual Property:
Whether the parties want to bequeath the
intellectual properties or prevent the transfer of the rights as a part of the
contract, the same needs to be articulated in the contract. In such a case there
has to be a provision that establishes the intellectual rights of the parties,
taking into consideration the grant of any licenses and ownership of
intellectual property rights which has been developed in nexus to the business
transaction or the contractual relation.
- Audit Rights:
If the payment of the contract is contingent, i.e, after
fulfillment of a certain condition then there should be a separate provision to
maintain a track of the same by the receiving party and ensure regular audits by
the paying party. This is a necessary provision as such provisions maintain
pertinent and indispensable information relating to the audit such as the cost
of the audit, the frequency of the audit, the conduct of the audit, the
procedural enforcement of the audit rights with respect to the expiration and
termination of the contract and so on.
At times the language of the audit may be
in any other language but English. In such scenarios, there shall be a need for
translators as well as the right amount of cooperation from the party being
audited. Substantially a cross-border audit is considered to be high-budgeted
than an audit at a domestic firm.
An important business clause in the presence of
confidentiality is often known as the nondisclosure provision. That means the
information relating to the business transactions is to be kept clandestine
between the contracting parties. This means a third should not have knowledge
about confidential business information. In many cases, there is no expiration
of this confidentiality. It continues even after the contract ceases to exist,
till many years or till perpetuity in certain cases.
It is often expensive to maintain confidentiality provision internationally.
Thus businesses limit the amount of information that needs to be shared with and
also keep the number of audiences to share, limited. Also, encryptions are
performed at such regular intervals as may be necessary and possible.
The parties should be clear and specific about the terms of the
contract. A contract may be a one-time contract or a contract that needs renewal
every year or a contract that shall take years to be performed. If the contract
is silent regarding the term of the contract, then there may be a possibility of
a dispute later. It may so happen that one party would desire to terminate the
contract, maybe years later, then a conflict may arise as to how many months
prior to the termination of the contract, notice should be served to the
The contract should be clear on the term whether a cause is
mandatory for the termination of the contract or the contract can be terminated
even without a proper cause. In the former case, the contract should articulate
the exact grounds or components that act as the driving force for the
termination of the contract. Nonetheless, the termination of international
contracts is often complicated and exorbitant.
The contract should clearly state the rights and remedies
available to the parties in case of breach or failure of performance of the
contract from either end. Likewise, if the payment is delayed by the other part
or there is some damage or loss of any goods then there may be a soothing
provision of adding interest to the payment amount so that the other party is
indemnified in case of any kind of loss suffered. This will ease down
unnecessary complications in the contract. Nevertheless, the governing law of
the contract will supervise the enforcement of such remedial provisions.
- Governing Law:
Governing law sees to the enforceability of the contract.
Thus each and every company would like to be governed by their local
jurisdiction. Then the other party shall decide whether that party's laws are
neutral in nature or not like that of England or Singapore. Therefore preference
is always granted to the neutral law, no matter which jurisdiction it originates
from. The parties who are member states to a particular convention can settle
down with choosing the laws of that convention so as to eliminate disparities in
- Dispute Resolution:
The parties should avoid solving a dispute by
litigation or arbitration prima facie. They should try resolving the matter
amicably. In case if the subordinates of the companies are unable to solve the
matter among themselves the superior managerial personnel of the contracting
companies may step in to resolve the matter within a stipulated frame of time.
In case of failure of the first resort the parties may opt for litigation or
arbitration as a final resort.
However, the parties should choose arbitration in
place of litigation for two major reasons. First of all, arbitration proceedings
are completely confidential. There is no involvement of the public in any of its
proceedings and neither it is recorded for public purposes. Secondly, the New
York Convention facilitates a proper process for the enforcement of arbitral
awards. Whereas, litigation makes the enforcement much more complex and
The venue of the dispute resolution should be included in the
contract. The venue also forms an important part of the contract just like the
method of dispute resolution and the governing law. If the parties choose to
resolve their dispute through the arbitration process then the city for the
arbitrational proceedings shall also be stated clearly. On the contrary, if the
parties choose to litigate their conflicts then the designated state of the
court of litigation, which shall decide any matter of conflict arising as a
result of the contract, shall be stated in clear terms.
A well-drafted commercial contract is a key to half of the complications that
form a part of the business contract. To ensure that the transactions are
hassle-free and the relations between the contracting partners are quite smooth
and amicable, the parties should make sure that some of the very important
clauses are present in the business agreement.
Some of the key clauses which
should form a part of every business agreement are enumerated below:
- Recitals/parties clause:
This is the primary step to setting up a
legally enriched contract. This clause recognizes the parties who come together
to enter into an agreement. It also states clearly, the purpose behind the
formation of the contract between the parties. Thus it summarizes who are the
parties to a contract and what is their purpose behind entering into such a
- Confidentiality Clause:
Once the parties enter into a contract, they
need to share some confidential business information amongst themselves. To make
sure that both parties maintain secrecy for the sensitive information, it is
very important to introduce this confidential clause. This prevents any of the
parties from divulging confidential information and in case of any breach of
trust, the other party can make the defaulting party liable before the competent
However, to enforce this clause efficiently, the parties should make
out what information needs to be kept secret and what is not required to be
kept. This facilitates the parties to make sure that there is no spilling out of
important information, thus keeping the trade secrets intact.
- Force Majeure Clause:
This clause holds great importance after what
the Covid19 pandemic has left us with. Force Majeure translates as 'greater
force'. This clause comes into the role when a situation that is unforeseeable
and out of human control, comes into play. According to this clause if one of
the contracting parties is unable to perform his business obligations due to
some unpredictable and uncontrollable events then such part is exempted from any
kind of business liability.
This highlights the importance of this clause in
international contracts. Whatsoever, this clause has no perfect legal
definition. Consequently, the parties should include in the agreements what are
the forces that can be accounted for under Majeure. Some of the examples which
can bring under its ambit can be an act of God, embargoes, riots, pandemics,
- Termination of the clause:
The termination clause is also one of the
most important clauses and is often counted at the end of the contract. Every
single contract needs to be concluded maybe after fulfillment of the contracting
purpose or failure to perform obligations by any of the contracting parties. For
the smooth exit from the contract by the contracting parties, a termination
clause should necessarily be present.
It lays down a set of pre-defined terms
and conditions that can bring a contract to an end. Once any of such condition
is satisfied the contract can be terminated. Thus as much as possible, the
termination clause should be vivid and specific to leave no ground for any kind
of ambiguities in the future. Also, before the termination of the contract,
prior notice should be served prior to the termination of the contract.
- Dispute Resolution Clause:
Disputes are inevitable. However, we should
try to avoid them as much as possible. This clause is therefore a very important
clause for a business contract. In case of any kind of dispute arises then this
clause helps to settle down the disagreement between the contracting parties. It
is often seen that a friendly way of solving disputes is often preferred in any
business conflict since the parties would prefer to maintain a long-term
business relation amongst them rather than becoming complete rivals.
dispute resolution clause should be drafted properly. Parties should first try
alternate dispute resolution processes before moving on to stringent dispute
resolution techniques. Following this particular technique parties now opt for
multi-tier dispute resolution techniques such as which generally are initiated
by mediation and negotiation followed by arbitration.
The alternate dispute
resolution techniques are always preferred more because of their cost-effective
and less time-consuming nature. The best dispute resolution method should always
be decided by the parties vigilantly, which would be catering to their needs.
The arbitration clause should also contain information regarding the
jurisdiction which shall take care of the dispute resolution process.
Challenges faced while enforcing an arbitral award
An arbitral award carries no weightage if it is limited just to paper and cannot
be enforced. An arbitral award is significant only when it can be enforced.
Sometimes the presence of some inefficient legal or technical issues during the
drafting stage makes the enforcement of the arbitral award really complex. Let's
look at some of the issues which pose a challenge towards enforcement of an
- Location of assets:
Before signing a contract it is important to know
the location of the other party's assets. This shall ease complications in the
future. This shall be influencing important clauses in the contract such as the
venue, jurisdiction, and the governing law in the process of negotiation. For a
better advantage, one should have the proceeding to be occasioned at the place
where the other part's assets are located so as to have seamless enforcement of
the arbitral award.
This would prove to be a great stance for the winning party
if the defaulting party fails to comply with the arbitral award. This is
basically because if the defaulting party fails to comply with the amount then
the winning party would know which of the assets of the defaulting party can be
attached so as to extract the arbitral amount and to offset the claim.
enforce this process the winning party shall apply to the court where the
defaulting party's assets are located, to freeze the orders so that the
defaulting party cannot transfer his assets to another location. These needs are
set forth properly before the award is announced.
On the contrary, if knowing the location of the other party's asset is
impossible then some kind of surety, like a bank guarantee should be demanded
from the opposite party.
- Laws governing arbitration at the place of arbitration:
into a contractual relation one should hold no ambiguity about the legal grounds
for objecting to an arbitral award in the process of arbitration. Secondly,
whether there are any disputes that cannot be settled by an arbitration process
and what are those. Thirdly, whether the jurisdictional courts discriminate
between nationals and non-nationals and treat them unequally.
The proper answers to all of the above issues are very important because the
legal requirement in various countries are unanimous and needs to be known to
the roots before entering into a contractual relationship.
- Vigilant selection of restrictions in the international arbitration
The restriction in the contract should be chosen with utmost vigilance.
One should be careful enough not to include such stringent restrictions which
shall sabotage the enforcement procedure. Examples of such may be, being very
rigid about the qualifications of the arbitrators or setting a particular time
frame within which the arbitration proceedings are to be completed.
This can prove to be detrimental with enhancing the chances of getting away with
the arbitral award by the defaulting party.
Such loopholes in the contract can help the defaulting party to circumvent the
arbitral award in scenarios where such conditions are not complied with.
- Inability of parties in arbitration proceeding:
An arbitral award
shall have no effect if the contracting parties lack the legal capacities to
participate in the legal proceedings.
One should make sure that all the legal obligations that are needed to ensure
the proper legal capacity are confirmed. This may be a difficult task but if
taken care of properly, it shall be a bonus point in the future.
Legal challenges faced while enforcement of an arbitral award
The intervention of the court is indeed necessary in many cases for the
enforcement of an arbitral award. It cannot be enforced on its own. There might
be some legal challenges that can make enforcement difficult.
Examples of such challenges may be incapacity of a party, the invalidity of an
arbitration agreement under any particular clause, the opposite party not being
informed about the arbitration proceedings or appointment of an arbitrator, an
arbitral award obtained by fraud, corruption, is against the fundamental
principles of natural justice, enforcement of arbitral award not taken up in the
arbitration proceedings and is such enforcement is made then it shall be
contrary to the public policy.
The countries which have ratified the New York Convention may have the same
things included in the list more or less. This is the unity between
international territories that seek to enter into commercial relations with
different countries under the same set of rules.
How an international contract can be illegal
Before entering into a contract it is very crucial to know whether a contract is
legally enforceable or not. Not all contracts are enforceable. There are a few
cases in which the court chooses not to enforce a contract. For instance, the
parties entering into a contract should be legally competent, which means they
should have the mental capacity to understand their rights and obligations and
should be a major. If a person is entering into a contract without understanding
its gravity, the court may conclude that he lacks the capacity to enter into a
Also, contract for any illegal goods is also prohibited and is illegal. However,
the legal structure is varied in different countries. Thus what is illegal in
one country might be very much legal in another country and in that way
rightfully enforceable in that court of law.
Civil Enforceability of Agreements with regards to Specific Relief Act 1963
The Specific Relief Act, 1963 deals with the remedies available to the parties
for the civil enforcement of individual rights. Especially, when a breach of
contract comes into play the general remedy provided is to compensate the party
for the loss suffered by him.
Specific Performance of Contracts: Specific performance of Contracts makes sure
that the parties comply with the actual terms and conditions that have been
stated in the contract. Section 10 of the Specific Relief Act, 1963 states
explicitly the grounds when the specific performance of contracts can be
enforced by a court of law.
When there exists no standard for ascertaining the loss suffered: In such cases
where the plaintiff is unable to determine the loss suffered by him there this
principle applies. For example: where there has been a contract for buying a
painting of a painter which is just one and only left then in such cases the
price of the painting may be unascertainable.
When the amount being compensated with is not adequate enough: If the amount
that is being paid as a part of compensation is not adequate enough to satisfy
the claims. Such instances may include:
- Where the contracting property is a movable property, or
- Where the contracting property is an immovable property, and
- The property is of such a nature that it cannot be easily available in
the market for buying or purchasing
- The property is of a value or interest specific to the plaintiff
- The article is unique or rare and generally is not available for sale in
an open market.
- The goods or property is generally entrusted with the defendant as an
agent or trustee for the plaintiff.
In the case of Ram Karan v Govind Lal,
 the plaintiff had paid the full
consideration amount for the execution of a sale deed for a plot of land but the
seller refused to execute the sale as per the terms of the agreement. The buy
brought a suit against the seller for specific performance of the contract and
the court also concluded that paying the compensation to the buyer shall not
suffice the buyer adequately and the seller in that case was directed to execute
the sale deed in favor of the buyer.
Contracts that cannot be specifically enforced
According to Section 14 of the Specific Relief Act 1963, there are some
contracts that cannot be specifically enforced.
These may be:
- Contracts which have a minute or innumerable details:
These are basically the contracts which depend upon the personal skills and
qualifications of the contracting party and their violation cannot ever be
satisfied in terms of money. An instance of this may be a dancing contract
in a concert where the violation to perform on a stipulated date cannot be
made well in terms of pecuniary value.
- Where money compensation stands to be an adequate relief:
court shall not ask for specific performance of contract since it believes that
the defaulter can pay compensation to the plaintiff as a remedy.
For example, contract for the sale of immovable property, contract for repair of
- Contracts of determinable nature:
Determinable contract means a
contract that can be revoked or terminated by any of the contracting parties.
- Contract of arbitration:
A contract that refers to present or future
differences to arbitration will not be enforced specifically. This has been
stated under Section 14(2).
The international commercial contract has always been a complex topic when it
comes to the proper drafting and choice of jurisdictional laws of a contract.
This complexity is further enhanced when the parties hold ambiguity about the
fundamental business laws of that country. It is of utmost necessity that the
parties get to know the laws properly before submitting to their terms and
Thus the object of this article is to solve the simple complications
and queries faced commonly while introducing certain nuances which would help
the contracting parties to enforce the contract rightfully against the other
party. Moreover, the very crucial decision of the choice of law stays in the
hands of the parties, to choose the best governing law while keeping the
autonomy and interests of the parties unharmed. An international contract
perhaps is a pathway for more international business relations in the future
among the contracting parties if it is enforced evenly.
- (1939 UKPC 7)
- Civil Second Appeal No 402 of 1998
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