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When you conduct business, you may do so with companies in other countries. Therefore, your commercial contracts may be a mixture of domestic and international contracts. Regardless of the type of commercial agreement, it is possible to fall into a commercial dispute, which may harm your business relationship. However, where there is an international contract, solving disputes can be a complex and difficult process. As a result, you need to ensure that you and the other party can negotiate efficiently. This article will explain points to consider for potential commercial disputes in international commercial contracts.
What Should I Consider for Potential Commercial Disputes Regarding an International Contract?
When you draft a commercial contract, you may base it on standard clauses, which you may hear others refer to as ‘boilerplate’ clauses. These are the typical essential clauses that a commercial agreement will need. However, when drafting an initial contract, these clauses must be carefully considered as you and the other parties are in different countries. This affects the content of the contract, as well as the processes for legally resolving a cross-border dispute if one arises. We explain these key considerations in more detail below.
Arbitration Clauses
If you are part of an international contract, you should consider arbitration and any potential arbitration clause. Arbitration is an alternative dispute resolution (ADR) method you and the other party may choose to resolve your commercial dispute. You use an expert arbitrator who reaches a binding decision. If you choose international arbitration, you must consider which type of arbitration clause you include. For example, you have a choice between:
- basic clauses;
- general clauses; or
- complex clauses.
Your commercial disputes lawyer will be able to help you decide what is required for your commercial contract.
Jurisdiction
A pivotal point for potential commercial disputes in international contracts is the jurisdiction in which any dispute will be heard. Jurisdiction refers to what court has authority geographically. This usually depends on the country the court is located in. When you choose the jurisdiction for any commercial dispute, you need to be specific. For example, if the country has a state or federal system, such as the United States, you will need to specify the particular state with jurisdiction. The same applies if you have an arbitration clause in your international contract. You will need to consider carefully the location (seat of arbitration) and venues for your hearing.
You may be clarifying this issue by having a jurisdiction clause in your international agreement. If so, you should consider what type of clause you will use, the main types being:
- Exclusive clauses: This means only the courts in one specified place have jurisdiction.
- Non-exclusive clauses: This clause allows more than one jurisdiction.
- Asymmetric clauses: Also called one-sided or unilateral clauses, they restrict one party to only one certain jurisdiction but allow the other to have more choice on jurisdiction.
Governing Law
For international agreements, you must also consider which laws you will apply and follow in the dispute. Because certain laws may be more advantageous than others, you should seek advice from a legal representative on this point. Usually, it makes sense to choose the same laws as the jurisdiction you select. Otherwise, the courts will need expert advice on the law you decide, which could be problematic if they get conflicting advice.
When considering which law to use, you should look for any arbitration clause in your international agreement. This is because different jurisdictions may have unique laws regarding arbitration rules and processes.
Claim Processes
When considering a potential dispute over your international contract, you need to carefully examine the requirements for requesting legal action against the other party. This is called issuing a claim. Different locations will demand you issue the claim in different ways, such as by:
- having permission from the court;
- serving it by post;
- issuing the claim through a judicial channel;
- using a consular channel.
You must serve a claim correctly. If you do not, the time period you are allowed to issue the claim (limitation period) may expire. When this period ends, you lose your chance to make a claim. It is important to note, however, that this consideration applies only if you intend to litigate your dispute. If you choose to pursue arbitration, this may not be a relevant point.
This fact sheet outlines how your business can manage a dispute.
Key Takeaways
International trade can be an exciting opportunity to expand your business. However, there is a risk that in using international contracts, a commercial dispute will arise. As such, you should ensure that your overseas business contracts include clear, specific terms about dispute resolution. Some key points to consider are:
- arbitration clauses for alternative dispute resolution;
- jurisdiction and jurisdiction clauses;
- the governing law you will apply; and
- relevant claim processes for litigation.
If you need assistance with a commercial dispute around an international contract, LegalVision’s experienced disputes lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.
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