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INTERNATIONAL CONTRACTS

INTERNATIONAL CONTRACTS

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INTERNATIONAL CONTRACTS

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  1. INTERNATIONAL CONTRACTS The topics are: • international contracts categories • international contracts laws • international contracts content • international contracts procedure • international contracts drafting • international contracts execution • international contracts termination Massimiliano Di Pace

  2. INTERNATIONAL CONTRACTS CATEGORIES International contracts can have 2 different aspects: - orders - contracts Orders are simple forms where it’s described goods, buyer, seller, way of shipment and payments, guarantees if requested, timing of production, shipment and payment Massimiliano Di Pace

  3. INTERNATIONAL CONTRACTS LAWS The rules governing international contracts are established in international conventions These rules try to respond to the lack of uniform rules at international level, which creates difficulties for the contracting parties Without international rules operators have to rely on national laws. Not only do these laws differ from country to country, but do not take into account also the international nature of the contract Massimiliano Di Pace

  4. INTERNATIONAL CONTRACTS LAWS The most important international rules are: - United Nations Convention on Contracts for the International Sale of Goods (Cisg) of Uncitral, known as Vienna Convention - Unidroit principles of International Commercial Contracts • Icc (International Chamber of Commerce) model contracts • Rome Convention relating to contractual obligations Massimiliano Di Pace

  5. INTERNATIONAL CONTRACTS LAWS Uncitral's mission is the modernization and harmonization of rules on international business Uncitral (United Nations Commission on International Trade Law) work produces: - conventions, model laws and rules which are acceptable worldwide - legal and legislative guides and recommendations of great practical value - updated information on case law and enactments of uniform commercial law - technical assistance in law reform projects - regional and national seminars on uniform commercial law Massimiliano Di Pace

  6. INTERNATIONAL CONTRACTS LAWS Vienna convention (Cisg) establishes rules about: a) formation of the contract b) obligations of the seller: - delivery of the goods and handing over of documents - conformity of the goods • remedies for breach of contract c) obligations of the buyer: - payment of the price - taking delivery - remedies for breach of contract d) passing of risk Massimiliano Di Pace

  7. INTERNATIONAL CONTRACTS LAWS Unidroit (International Institute for the Unification of Private Law) studies methods for modernizing, harmonizing and coordinating private, and in particular commercial law, between States Massimiliano Di Pace

  8. INTERNATIONAL CONTRACTS LAWS Unidroit principles, which have to be applied, if contracts refer to them, are about: a) formation of contract b) validity of contract c) interpretation of contract d) content of contract e) concepts of performance and non performance and consequences of the latter Massimiliano Di Pace

  9. INTERNATIONAL CONTRACTS LAWS Icc, based in Paris, has 3 main activities: • rules-setting (model contracts, guidelines, incoterms) • arbitration (to solve litigations when contracting parties insert an arbitration clause) • policy maker Its mission is to promote trade and investment across frontiers and help business corporations meet the challenges and opportunities of globalization Massimiliano Di Pace

  10. INTERNATIONAL CONTRACTS LAWS The Icc model contracts implement the concept of Lex Mercatoria (not written official rules), that is a system of uses, behaviours and traditions followed in the international business environment Massimiliano Di Pace

  11. INTERNATIONAL CONTRACTS LAWS The Rome Convention applies to any contractual obligations arisen between Eu contractors It aims at ensuring that the courts of all Eu-Member States apply the same rules, in case of a conflict of laws, to the dispute Massimiliano Di Pace

  12. INTERNATIONAL CONTRACTSCONTENT International contracts are more complex than orders, being made up of the following parts: - title - contracting parties - introduction or preamble - definitions - articles, containing: • general conditions (i.e. obligations and rights) • specific conditions (i.e. applicable law) Massimiliano Di Pace

  13. INTERNATIONAL CONTRACTS CONTENT The title defines the kind of contract (i.e. sale, trademark license, distributorship) It’s important to pay attention to the coherence of title and content of the contract The content prevails on the title Massimiliano Di Pace

  14. INTERNATIONAL CONTRACTS CONTENT The correct identification of parties is fundamental It means that in the contract you have to report: - denomination, as it results from the register - address - name of the legal representative It’s necessary to report the indication of respective roles (i.e. buyer, seller) of parties, and the abbreviated way of quotation in the remaining part of the contract Massimiliano Di Pace

  15. INTERNATIONAL CONTRACTS CONTENT About the legal representative, it’s advisable: - to understand rules about representation, which vary according to legislations - to verify document stating the powers of the representative (i.e. mandate) - to check that the signature of the contract is among representative’s powers Massimiliano Di Pace

  16. INTERNATIONAL CONTRACTS CONTENT The introduction, or recitals, contains: • parties’ will • parties’ operational framework - reasons of contract - previous agreements or practices If you want that this introduction is binding for the parties, you must specify in the first article of the contract that the introduction is integrating and substantial part of the contract Massimiliano Di Pace

  17. INTERNATIONAL CONTRACTS CONTENT The introduction is useful for the interpretation of the articles In order to read and implement correctly the contract, definitions are of utmost importance Definitions help to shun misunderstandings, and to carry out provisions of contract, explaining how to behave Massimiliano Di Pace

  18. INTERNATIONAL CONTRACTS CONTENT Definitions, whose first letter is usual written in capital letter, relate generally to: • products • transports - guarantees - payments - abbreviations The same word can have different meaning in different countries Massimiliano Di Pace

  19. INTERNATIONAL CONTRACTS CONTENT The text of a contract is composed of articles An article can be split in paragraphs Special effort has to be addressed to clarify parties’ obligations and rights Each article is devoted to a topic (i.e. ways of shipment, delay of payment) Massimiliano Di Pace

  20. INTERNATIONAL CONTRACTS CONTENT The general conditions rule main aspects of the agreement and relate to: 1) features of merchandise 2) Incoterms, including ways of shipment 3) date of delivery 4) date and ways of payment (including guarantees) 5) modalities of invoicing 6) duration and cases of termination of the contract 7) warranties and liabilities Massimiliano Di Pace

  21. INTERNATIONAL CONTRACTS CONTENT The features of merchandise comprise: - type and quality of goods - price - documents accompanying the merchandise In distributorship contracts there are also articles relating to: - marketing of products - support and training - licence of trademarks and other Ipr - confidentiality Massimiliano Di Pace

  22. INTERNATIONAL CONTRACTS CONTENT The specific conditions rule particular aspects of the relationship and relate to: 1) specifications (i.e. applicable law, dispute resolution, ways of communication) 2) exceptions (i.e. late delivery and late payments) 3) weavers or derogations (i.e. force majeure, non performance) Usually specific conditions are placed in attachments, so as to make easier a change (no need to draft wholly the contract) Massimiliano Di Pace

  23. INTERNATIONAL CONTRACTS CONTENT You must bear in mind that there are 2 different legal systems: 1) Common law: anglosaxons countries 2) Civil law: countries based on roman law and Napoleon code In Common law the reference is jurisprudential norms, while in Civil law the reference are rules in Civil Code Massimiliano Di Pace

  24. INTERNATIONAL CONTRACTS CONTENT Massimiliano Di Pace

  25. INTERNATIONAL CONTRACTS CONTENT The different system implies that contracts drafted in Common law countries are very long and full of details, while contracts prepared in Civil law countries can be short for, in the absence of a regulation in the contract, the law clarifies which are rights and obligations of parties In Civil law system the reference to rules can be explicit, pointing out the articles of law that parties want to be considered for the regulation of their relationship Massimiliano Di Pace

  26. INTERNATIONAL CONTRACTS CONTENT In Common law systems it is considered prevailing the regulations decided by the parties, while it is considered residual the protection provided by the law This is the reason contracts are full of clauses, rich in details and rules, which tackle all possible aspects of relationship Massimiliano Di Pace

  27. INTERNATIONAL CONTRACTS CONTENT In Civil law systems there can be relationships which are not ruled by the law and therefore parties are free to determine rules On the contrary, where a relationship (i.e. sale, licence) is ruled by the law, parties cannot foresee rules which are different from the ones established by the law when they are underogable Massimiliano Di Pace

  28. INTERNATIONAL CONTRACTS CONTENT At international level, missing a precise regulation, contracts should be drafted, possibly, in a very precise way, establishing rules for every aspect of the relationship Special attention has to be paid to definitions in order to avoid misunderstandings and different interpretation of rules Massimiliano Di Pace

  29. INTERNATIONAL CONTRACTS CONTENT A useful example is the Icc (International chamber of commerce) contracts (they are available on sale) Some suggestions: - to draft light articles - to draft changeable conditions in attachments - to draft a complete and self-sufficient text - to use Icc contracts, adapting them to the specific situation \ Massimiliano Di Pace

  30. INTERNATIONAL CONTRACTSPROCEDURE A contract is the result of different phases: - proposal - negotiation - agreement - drafting Massimiliano Di Pace

  31. INTERNATIONAL CONTRACTS PROCEDURE The proposal must be: - clear - precise - complete - understandable - binding for the proponent Massimiliano Di Pace

  32. INTERNATIONAL CONTRACTS PROCEDURE To prepare a winning proposal you have to: - collect information (types of contract, laws, ways of payment, international conventions) - create a team, in charge of the contract, with different competences (production, sale, finance, law) - single out the most delicate aspects of the contract, so as to provide proper solutions - draft the proposal according the best practices - clarify the limits of prices and features of products which cannot be exceeded during negotiations Massimiliano Di Pace

  33. INTERNATIONAL CONTRACTS PROCEDURE Negotiations have to be managed carefully because they can bring about a pre-contractual responsibility This is the case of documents which are drafted during negotiations, such as letter of intent and memorandum of understanding As a matter of fact the break of these pre-agreements can pave the way for a lawsuit Massimiliano Di Pace

  34. INTERNATIONAL CONTRACTS PROCEDURE The letter of intent is aimed at defining: - the framework of negotiations (what has been done in the past, and what has to be done in the future) - the purposes of contracting parties The memorandum of understanding is aimed at declaring: - commitment to agree a contract under specific conditions - aspects and rules already agreed Massimiliano Di Pace

  35. INTERNATIONAL CONTRACTS PROCEDURE Furthermore parties have to behave correctly (principle of good faith), and to provide proper information (due diligence) Being law systems different, it goes without saying that time to be devoted to negotiations is longer Massimiliano Di Pace

  36. INTERNATIONAL CONTRACTS PROCEDURE The agreement can be reached in 2 ways: a) signature of the contract in the same moment by both parties during a meeting b) exchange of mail containing the contract (more frequently used) The second solution presents a weakness stemming from the uncertainty about the moment when the contract enters into force Massimiliano Di Pace

  37. INTERNATIONAL CONTRACTS PROCEDURE According to Italian law (art. 1326 c.c.) the agreement is reached when the proponent is aware of the approval from the counterpart (but the counterproposal means that there is no acceptance of the first proposal) The date of the agreement is relevant for the start of consequent activities Massimiliano Di Pace

  38. INTERNATIONAL CONTRACTS PROCEDURE A problem could rise from the withdrawal of the proposal, once it is accepted The solution is that the proponent must pay off damages born by the acceptor if he has started to implement the contract, before knowing the withdrawal Massimiliano Di Pace

  39. INTERNATIONAL CONTRACTS PROCEDURE Specific rules on the agreement are spelt out in Vienna Convention (1980) According to art. 25, the agreement is reached when the acceptance of the proposal arrives at proponent’s headquarter But the proposal has to be precise, addressed to determined subjects, and binding for the proponent Massimiliano Di Pace

  40. INTERNATIONAL CONTRACTS PROCEDURE Unidroit principles specifies that the agreement is reached not only when the counterpart accepts, but also when the behaviour of parties are conclusive, that is when the will to implement the contract is shown In both cases the agreement is valid when the proponent is aware of the acceptance Massimiliano Di Pace

  41. INTERNATIONAL CONTRACTSDRAFTING When all the content of a contract is decided, the next step is drafting the text In this respect you must choose: a) language b) proper law c) jurisdiction and Court of justice or arbitration Massimiliano Di Pace

  42. INTERNATIONAL CONTRACTS DRAFTING As far as language is concerned, it’s advisable to use English About applicable law, you can choose among: 1) your law 2) the counterpart’s law 3) a third country law The choice should be made before drafting the contract, so as to determine the contents of rules in a way which complies with the legal system chosen Massimiliano Di Pace

  43. INTERNATIONAL CONTRACTS DRAFTING The Rome Convention (1980), recognised by the Italian law 218/95, states that the choice is free, and if there is no choice, the law to be implemented is the one more linked to the content of the contract The Rome Convention applies only to European countries Massimiliano Di Pace

  44. INTERNATIONAL CONTRACTS DRAFTING Usually it’s recommended to choose your national law but in some situations it could be convenient to choose counterpart’s law, or third countries law This is not true for the choice of the Court, being always advisable your own Court (i.e. known lawyers, friendly procedures, reduced costs) Massimiliano Di Pace

  45. INTERNATIONAL CONTRACTS DRAFTING The contracting power influence the choice of law and of the Court The choice of the law determines also the choice of the jurisdiction (but it’s not compulsory) In case of choice of other countries jurisdiction, guarantees become advisable Massimiliano Di Pace

  46. INTERNATIONAL CONTRACTS DRAFTING The choice of the Court means that you have to point out which is the city where it is located the tribunal This implies that the Court will enforce the law of its own country, which, in some cases, cannot be overcome by agreements convened by the parties Massimiliano Di Pace

  47. INTERNATIONAL CONTRACTS DRAFTING Another problem is the enforcement of Court ruling in other countries (that is in the counterparts’ country) It depends on bilateral agreements between the respective countries An alternative to the Court is the Arbitration Arbitration is faster than Court ruling, but it is more expensive Massimiliano Di Pace

  48. INTERNATIONAL CONTRACTS DRAFTING The Arbitration clause has to spell out: - number of component of Arbitration council - way of selection of components - professional requirements of components - arbitration procedure - components’ powers (i.e. measures of precaution) Massimiliano Di Pace

  49. INTERNATIONAL CONTRACTS EXECUTION The execution of a contract can be carried out in 2 ways: a) in one moment b) over the time A problem which could arise is the change of situation, which could produce the impossibility or a serious difficulty to implement the contract Massimiliano Di Pace

  50. INTERNATIONAL CONTRACTS EXECUTION For this purpose it is useful to insert in the contract some clauses: - hardship clause: it describes situations (i.e. strikes, fire, natural disasters, accidents, war, civil disorders) which could hinder the implementation of that contract, determining therefore the end of obligations, without any penalty for the party in default; it’s important to specify procedures to notice the hardship - price update clause: it allows to change prices according to specific conditions Massimiliano Di Pace