International Commercial Contracts: Applicable Sources and Enforceability
When companies engage in business with counterparts located in different countries, the potential legal implications can be complex and daunting. International commercial contracts govern these transactions, and ensuring their enforceability requires a thorough understanding of the applicable sources of law.
The Sources of International Contract Law
International contracts are subject to multiple sources of law that may vary depending on the parties` nationalities, the place of performance, and the governing law clause in the contract. The primary sources of law applicable to international commercial contracts are:
1. The Contract
The contract itself is the first source of law governing the parties` relationship and obligations. The contract`s terms and conditions must be precisely drafted, clearly expressed, and unambiguous to avoid misunderstandings or disputes.
2. National Laws
The national laws of the parties` respective countries may apply to the interpretation and performance of the contract. Therefore, companies entering into international contracts must be familiar with the laws of the countries involved to ensure that their obligations are enforceable.
3. International Conventions
International conventions such as the United Nations Convention on Contracts for the International Sale of Goods (CISG) provide a framework for the interpretation and enforcement of international commercial contracts. The CISG applies to contracts for the sale of goods between parties located in different countries, and over 90 countries have adopted it.
4. Customary International Law
Customary international law refers to the unwritten rules and practices that are accepted as legally binding by nations. Although it may not be specifically stated in the contract, customary international law may apply to international commercial transactions.
Enforceability of International Commercial Contracts
The enforceability of international commercial contracts depends on several factors, including the governing law, the jurisdiction, and the dispute resolution mechanism chosen by the parties. Here are some critical considerations for ensuring the enforceability of international contracts:
1. Choice of Governing Law
The parties may choose the governing law for the contract, which will determine the applicable legal system and the courts that will have jurisdiction over any disputes. The choice of governing law should be made with careful consideration of the legal systems in the countries involved, as well as any international conventions or treaties that may apply.
Jurisdiction refers to the court or tribunal`s authority to hear and decide on a dispute. The parties may agree on a specific jurisdiction in their contract, or they may be subject to the laws of the country in which the dispute arises.
3. Dispute Resolution Mechanisms
International commercial contracts often provide for dispute resolution mechanisms such as arbitration or mediation. These mechanisms can be quicker, more cost-effective, and more flexible than litigation in traditional courts. However, the enforceability of these mechanisms depends on the governing law and jurisdiction chosen by the parties.
International commercial contracts must be carefully drafted to ensure their enforceability. Companies engaging in cross-border transactions must be familiar with the applicable sources of law and consider factors such as the choice of governing law, jurisdiction, and dispute resolution mechanisms. By taking these precautions, companies can protect their interests and ensure the successful execution of international commercial contracts.