When two businesses decide to come to a mutually beneficial arrangement, it can be an exciting time that opens up a new world of opportunities. However, it can also be a risky venture if the details of the arrangement are not clarified and confirmed in a written contract. When you add in the complication of a contract between businesses in different countries, this risk is intensified. It should signal it is important to remember that you need to get legal advice on business contracts before committing to anything as they are complex and lengthy documents, but here are six essential elements to pay particular attention to.
- Overcoming language barriers
The first potential complication that needs careful attention is any language barrier between the companies. Even if the contract is written in a common language, legal terminology, unfamiliar words, and cultural differences can mean that the meaning of a contract can easily be lost in translation. To avoid confusion or miscommunication, employ a legal translation service to ensure every word in the contract is fully understood by both parties.
2. Payment terms and conditions
One of the most common issues which arises from improper international business contracts is a dispute over payment terms and conditions. It is essential that the contract clarifies which payment modes are acceptable under the contract. Often a good strategy is to permit the use of all payment modes such as letters of credit, documentary collection, open account, and payment in advance. In addition, any shipping agreements for products should be agreed upon, including costs and delivery times.
3. Termination clause
The contract should stipulate a duration during which the contract is valid. If either party wishes to have the option to terminate the arrangement before the stipulated term, the contract also needs to include a termination clause. The exact terms of how either party can bring the contract to an early end will be individual to each arrangement, but it should certainly cover what happens with regard to payment for work that has already been completed up to the point of termination.
4. Dispute resolution
Dispute resolution is another matter which needs to be addressed in all business contracts regardless of where in the world they are located. There should be a clear procedure to be followed should a dispute arise between the two parties. The contract should also stipulate how a dispute should be resolved, i.e., by litigation or arbitration. Arbitration involves an impartial person – the adjudicator – will resolve the dispute. The adjudicator’s decision is final and legally binding. If the parties choose arbitration as their dispute resolution method of choice, they should stipulate where and in what language the process will take place. Litigation is when a national or municipal court settles the dispute. Click here for more on arbitration and litigation.
5. Jurisdiction clause
Should a dispute arise between the two companies, a court may be required to adjudicate the matter. Because the two companies are based in different countries, the contract will need to stipulate which country’s court will handle the matter. Only the specified court can deal with the dispute. When deciding which country should have jurisdiction, it is important to consider how quickly the courts will typically resolve a matter, the likely costs, and any limitation periods.
6. Force majeure clause
The French term ‘force majeure’ means ‘superior force and refers to events beyond the control of one or both parties and prevents either party from being able to uphold their end of the contract. Meeting their contractual obligations might be impossible, illegal, or impracticable. For example, in the event of a natural disaster, terrorist attack, or pandemic, many businesses may find themselves unable to operate or meet their obligations to the other party. Under the force majeure clause, the parties cannot be held liable for fees or other penalties usually applicable under the terms of the contract.
In conclusion
The contract should also outline the sales goals and performance expectations of both parties over a specified time period, as well as the rights of both parties involved. It is also worth specifying that both parties will remain compliant with the relevant laws and regulations.
If you plan to enter into a business agreement with a company in a different country, you need to ensure that your contract is precise, clear, and fully understood by all involved. To do this, you should contact a legal professional with expertise in international business contracts to avoid serious and potentially costly disputes later.
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