How Do I Draft an International Contract?

Section 10 of the Indian Contract Act, 1872 lays down ten essential elements of the contract which include, Offer and acceptance, intention to create a legal relationship, lawful consideration, lawful object, free consent, the capacity of the parties, the certainty of meaning, the possibility of performance, not declared as void agreement and legal formalities. Thus, it's said, all contracts are agreements, but all agreements are not contracting. As for an agreement to be a contract, it is subjected to the aforementioned ten essential elements.

While considering international contracts, an international contract is an international agreement between 2 or more parties. It can be the sale of goods, leases, mortgages, guarantees, etc., made for business or commercial purposes. International contracts are enforced in foreign countries. There are various international contracts like transport contracts, finance, insurance, international distribution, license, commercial agency, joint venture, technical and production cooperation, etc.

However, when it comes to drafting an international contract, there is a conflict between laws in the sense of which jurisdiction to be followed? Along with other teething problems. One has to consider the following points if he intends to draft an international contract.

1) Conflict of Laws

International contracts are different from local contracts. Since the contract between parties involves more than one legal system, it becomes difficult to govern the contract, which leads to a conflict of laws. The solution to this problem is an international attempt to unify the conflict of laws.

For instance, The Hague Convention, 1955 is an attempt to extend the ambit of the international sale of goods. And The Rome Convention, 1980 is an attempt to extend the applicability of contractual obligations. Another method is to universalize substantive rules governing international trade. Once the laws are universal, there arises no possibility of a conflict of laws.

2) Determine the Applicable Law

An international contract between parties involving more than one legal system tends to clash in rights and obligations as a national legal system has no international uniform laws. To have definite contractual rights and obligations, it's convenient for international merchants/traders to determine the applicable law while making the contract so as to avoid ambiguity and equivocation regarding contractual rights and obligations and prevent the unfavorable burden of legal liabilities in the future.

3) Drafting

The first thing to consider while drafting an international contract is to establish the purpose of the contract and the systematic way it will be achieved. The contractual rights and obligations should be mentioned without any ambiguity to accomplish the contract's end adequately. Quid pro quo (something in return) should be vividly specified to avoid a legal impasse regarding liabilities in the future. One should refer to model contracts made by international organizations or multinational companies to prepare the draft.

4) Preliminary Agreements

Generally, while making a contract, parties negotiate before drafting contractual rights, obligations, and course of executing them. Sometimes in economic and social relations, parties can't negotiate before drafting the contract and thus, draft the contract instantaneously without prior detailed discussion. It's important to provide preliminaries to infer a mutual agreement abiding by the conditions made in the contract.

Preliminaries include a letter of the contract, promise, acknowledgment of agreement, memoranda of understanding, etc., clearly denoting the parties' intention to make a contract. Preliminary agreements are technically known as "preliminary contracts", "agreement to agree", "contract to contract", "contract to bargain", "contract to negotiate", "letter of intent", "letter of understanding", "protocol", "memorandum of understanding", "memorandum of intent" etc.

4) Formation of Contract

Contracts can be formed in any manner, both expressed or implied. Expressed are usually preferred in professional transactions so to assure liability; however, it's not mandatory. Contracts can be made by letter, e-mail, fax, or orally. What's important is the conditions of the contract are negotiated and mutually agreed upon before signing it. For years, international traders who have known each other can make a transaction with an implied contract made by phone. Nevertheless, international contracts are preferred to be written.

5) Contextualization of Contract

A contract can be made specifying minute details of the agreement and its execution, or it could be brief of mutually agreed conditions. A detailed contract includes rights and obligations of the parties, stipulated time to execute the contract, termination of contract, rewards and penalties, dispute settlement, governing law to interpret provisions in a contract, etc.

The brief contract includes rights and obligations, termination of a contract. The more brief contract, the less inference of governing laws to interpret provisions in the contract. The longer the contract, the higher its price would be. It will give every detail of rights, obligations, and systematic execution of the contract and provisions if any contractual grievances arise.

6) Drafting Definite and Clear Provisions

The primary principle of drafting a contract is that the contract's provisions are definite, transparent, and precise, stating the express intention of the said parties: more transparency, lesser ambiguity, and the possibility of potential disputes in the future. If the contract is transparent from the beginning, it would be much easier for the authority to interpret it and resolve the dispute expeditiously.

The contract should consist of provisions stating the meaning and definitions of certain entities/provisions that are ambiguous or prone to equivocation. It can be hard to interpret such provisions when there's a dispute in executing the contract or reckoning the liabilities. Thus, the draft should be definite and clear to make the functioning of the contract more efficacious.

Conclusion

One needs to consider the aforementioned points while drafting an international contract as there's a possibility of conflicts of the law, so there should be a prior determination of law, the quid pro quo (something in return) should be established explicitly, if there haven’t been any negotiations prior signing a contract, then preliminary agreements should be exchanged by the parties.

The format of the contract should be decided according to both parties' convenience (preferably expressed) in an international contract; the contract should be contextualized upon mutually agreed conditions in a definite and clear manner. Thus, one can draft an international contract.

Author: Shweta Singh