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One of the most important subjects in international trade is drafting international commercial contracts. International commercial contracts include 3 expressions: contract, commercial, and international.
Contract means an agreement which provides the relations between 2 or more parties. These relations can be in different fields such as sales and purchase of goods, lease, mortgage, guarantee, or granting financial facilities.
A commercial contract is a charter entered into for business purposes and commercial needs.
An international contract implies that the parties to the contract trade in foreign countries and/or the contract is to be enforced in foreign countries.
There are various kinds of international commercial contracts such as: transport contracts, insurance, finance, commercial agency, international distribution, license, technical and production cooperation, joint venture, build- operate- transfer (BOT), and different kinds of counter-trade contracts.
4-1-Governing Law of Contract
4-1-1-Conflict of Laws
International contracts contrary to local contracts are related to more than one national legal systems and whereas a single contract can not be governed by different national legal systems, conflict of laws occurs.
If the states have the same conflict of laws rules, governing law of a contract can be chosen easily. Attempts have internationally been made to unify the conflict of laws rules of the countries.3 examples of these efforts are as follows:
The first and most successful attempt is Convention on the Law Applicable to Contractual Obligations(Rome Convention 1980).The second one is Convention on the Law Applicable to International Sales of Goods(The Hague 1955) and the third one is an Inter-American Convention on Conflict of Laws Concerning Checks(1975).
Another activity is to unify the substantive rules governing the subjects of international trade. When the laws and rules of all states concerning one subject are uniform, it doesn’t matter which state’s law governs the contract.
4-1-2-Determination of Applicable Law
In principle since the national legal systems have no uniform rules, a single contract may lead into different rights, obligations and consequences in different legal systems.
The international merchants seriously wish to determine their contract rights and obligations safely and assuredly not vaguely. Determination of the applicable law of contract makes it possible for the parties to predict the contract effects more safely and avoid unfavourable and unexpected consequences.
4-2-Main Points in Drafting Contracts
There are many points in drafting international contracts which shall be taken into consideration. Some of these points are as follows:
4-2-1-Preparation of Primary Draft
The first step in drafting international contracts is determination of the purposes and how to achieve them. At first, to achieve a contract’s ends must be planned and then based on which, contractual conditions must be drafted.
When the contract general framework was determined, usually one of the parties undertakes to prepare the primary draft of the contract for the future negotiations.
In preparation of primary draft, the previous contracts entered into concerning the same or similar contract subject are very important. The model contract specially those prepared by international organizations or famous companies are very useful.
However, to make the use of the standard and sample contracts must be precisely adapted to present conditions.
4-2-2-Preliminary Agreements
In daily and usual transactions, negotiations and drafting the contract are basically performed simultaneously.
However, there are several cases in economic and social relations where the parties can’t for some reasons finalize and draft their considered contract promptly and it’s necessary to provide preliminaries before entering into the contract and/or conduct negotiations to reach the mutual agreement concerning their accepted conditions.
Preliminary agreements are a set of letters of promise, contracts, memoranda of agreement, memoranda of understanding, protocols and so on denoting the parties’ intention on conducting negotiations and/or finalizing one or more contracts in the future.
There are different phrases or expressions for preliminary agreements and contracts in English language such as “contract to contract”, “contract to bargain”, “agreement to agree”, “contract to negotiate”, “preliminary contracts”, “letter of intent (LOI)”, “letter of understanding(LOU)”, “heads of agreement(HOA)”, “memorandum of understanding(MOU), “protocol”, “memorandum of intent(MOI)”, and “agreement in principles”.
4-2-3-Contract Forms
International contracts may be entered into in different forms. An international contract may be formed orally and/or by letters, fax, or e-mail. In important contracts, at first, the text of contract is negotiated and then signed by the parties.
But the merchants who trade with each other for the years may make their orders only on the phone. However, almost all international contracts are in writing.
4-2-4-A Contract Text: Brief or Detailed
A contract may be formed in detail or briefly. A detailed contract provides the subjects including rights and obligations of the parties, contract termination, rewards and penalties, dispute settlement, governing law and other details.
The less brief a contract, the more interference of governing law to interpret and supplement the contract provisions.
The more contract price or the longer contract term, or the more complicated the contract subject, the more details must be predicted in the contract.
4-2-5-A contract text: Simple or Complicated
A principle in drafting a contract is that the contract provisions must be transparent and precise as much as possible to express the parties’ intention clearly.
Transparency in a contract avoids the future disputes and in case of disputes, the dispute settlement authorities can interpret the contract simpler and more definite.
If the usual meaning of the words and expressions are not clear, it is suggested to make clear the meaning of those words in definition section of the contract.
When a phrase is defined in a contract, it must be identified in what part of the contract those words and phrases are used in their defined meaning and in what part in their usual meaning.
In English contracts, the defined words and phrases are usually written in capital letters.
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