Defining an international contract
An international contract is first of all a contract.
A contract is a concept existing within a legal system, that defines its existence, its validity, its effects (its legal regime). A contract is generally defined as a legally binding agreement between two or more parties, outlining the rights and obligations of each party. It involves the intention to create legal relations. The terms of a contract may be written, spoken, or implied through the conduct of the parties involved. The contract creates freely agreed legal obligations for the parties. The parties are free to conclude the contract, subject to compliance with the applicable mandatory rules. Once concluded, the contract is binding on the parties. Indeed, the contract creates reciprocal obligations: each party to the contract undertakes to assume obligations in return for the commitments entered into by the other party or the other parties.
On the other hand, a unilateral act, such as a promise or an offer, implies the undertakings of a single party. An offer that has not been accepted can be modified or revoked before its acceptance, in accordance with its terms as the case may be, unlike a contract, which becomes binding upon acceptance by all the parties.
Basically, a contract is international if it produces effects in several States or concerns operations in several States.
This definition is relatively simple, but in practice qualifying a contract as international may be complex. There are several criteria to consider.
Criteria for qualifying a contract as international
The criteria for qualifying a contract as international are:
- subject matter of the agreement
- currencies / exchange rates
- place of residence of the parties
- nationality of the parties
- languages used to negotiate / draft the contract
- place of conclusion of the contract
The main criterion is the subject matter of the contract. The contract is international if its subject matter is international, that is to say if the contract has effects in several States or concerns operations in several States.
The other criteria generally give a good indication as to whether the contract is international or not, but they are not as conclusive. Thus, if all of these other criteria seem to indicate an international character, but the subject matter of the contract unambiguously indicates that it is not, the contract will not be international. Conversely, if all these other criteria seem to indicate a non-international character, the contract will nevertheless be international if its subject matter indicates unambiguously that it is international. In fact, the other criteria are useful when the subject matter of the contract is ambiguous and does not allow the contract to be formally qualified.
It is important to correctly qualify the contract, because the legal regime of the international contract has many specificities.
Legal regime of the international contract
The legal regime of the international contract is characterized by greater contractual freedom than for an internal contract. The international contract must nevertheless comply with the
international public order
In French: ordre public international ou loi de police. Also known as international public policy or overriding mandatory provision. Mandatory rules that a State will always apply, refusing any any derogation on which the parties to a contract could agree.International public order
Law governing the contract
The governing law is the law under which the contract exists. Remember that a contract is a concept existing within a legal system, that defines its existence, its validity, its effects (its legal regime).
The parties may choose:
- that the contract will be governed by the law of a State connected with the contract;
- that the contract will be governed by the law of a State which has no connection with the contract (i.e., a neutral law);
- that the contract will be governed by an international convention, provided it is a substantive law defining a legal regime of contracts;
- that some parts of the contract will be governed by the law of one State and others by the law of another State;
- that the contract will be governed by certain State laws or certain freely defined stipulations of international conventions (to the exclusion of other provisions of said State laws or conventions);
- that the contract will be governed by optional rules proposed by private organisations or intergovernmental organisations such as UNIDROIT;
- to free the contract from all State rules, with the exception of mandatory rules (such an international contract is known as autonomous contract / lawless contract); indeed, exceptionally, judges generally accept that an international contract may exist outside any legal system, that is to say without any governing law.
The governing law shall be a substantive law providing for a legal regime of contracts.
Therefore, the governing law cannot be a treaty, private rules or other rules that do not provide for a legal regime of contracts. Notably, the governing law cannot be a conflict rule or Incoterms.
If the parties did not choose the governing law of the contract:
- in the European Union, EU
regulation
n° 593/2008 determines which State law should govern the contract (this regulation provides conflict rules);
Regulation
1 – Regulations are legally binding rules issued by an authority, usually a government or regulatory body, to implement, interpret, or supplement statutes. They provide detailed provisions on how laws should be applied in practice and often have the same enforceability as statutes. Regulations are typically adopted by executive agencies rather than legislatures. Regulations should comply with laws that are higher in the normative hierarchy.
In French, “regulations” can be translated as “réglementation” (referring to the general body of rules) or “règlements”(referring to specific regulatory texts).
2 – In the European Union, regulations are a type of binding legislative act that has direct effect in all Member States without the need for national implementation. Unlike directives, which require transposition into national law, EU regulations apply uniformly across the EU as soon as they enter into force. They are used to ensure legal harmonisation in areas such as competition law, consumer protection, data protection, and product standards.
- for an international sale of goods, the Convention of Vienna on the International Sale of Goods (CISG) often applies as of right, since it is in force in 97 States (this convention is a substantive law providing for a legal regime of contracts);
- otherwise, it is necessary to check whether a treaty is applicable or, failing that, to check the rules of the States concerned by the case.
Applicable laws
The governing law is also known as the applicable law. These terms are often used synonymously. However, beyond the terms, two concepts must be distinguished.
The governing law in the meaning of the law governing the contract refers to the specific legal system that defines the existence, validity and effects of the contract. This governing law is the foundation that defines the legal framework for the contract.
The applicable laws, in the meaning of the laws potentially applicable to the operations provided for in the contract, encompass the various legal provisions that could affect the operations outlined in the contract. This may include State laws and generally all mandatory
regulations
1 – Regulations are legally binding rules issued by an authority, usually a government or regulatory body, to implement, interpret, or supplement statutes. They provide detailed provisions on how laws should be applied in practice and often have the same enforceability as statutes. Regulations are typically adopted by executive agencies rather than legislatures. Regulations should comply with laws that are higher in the normative hierarchy. In French, “regulations” can be translated as “réglementation” (referring to the general body of rules) or “règlements”(referring to specific regulatory texts). 2 – In the European Union, regulations are a type of binding legislative act that has direct effect in all Member States without the need for national implementation. Unlike directives, which require transposition into national law, EU regulations apply uniformly across the EU as soon as they enter into force. They are used to ensure legal harmonisation in areas such as competition law, consumer protection, data protection, and product standards.Regulations
While the governing law dictates the overall legal rules that govern the contract itself, the applicable laws pertain to the potential legal implications and requirements that may arise from the operations outlined in the contract, extending beyond the contract’s formation and execution.
Jurisdiction
Jurisdiction
1 – In French: compétence. Refers to the extent of the powers of a court, its ability to adjudicate a dispute.
2 – In French: juridiction. Refers to the territory in which an institution is competent.
– Competent courts
Jurisdiction
1 – In French: compétence. Refers to the extent of the powers of a court, its ability to adjudicate a dispute.
2 – In French: juridiction. Refers to the territory in which an institution is competent.
The parties to an international contract may choose:
- to confer exclusive jurisdiction on the courts of a State;
- to confer non-exclusive jurisdiction on the courts of one or more defined States;
- to resort to institutional or ad hoc arbitration.
The parties may, for the same international contract, combine any of the choices of law governing the contract with any of the choices concerning jurisdiction.
Drafting an international contract
In order to ensure the validity, lawfulness and effectiveness of an international contract, legal analyses should be carried out with regard to each legal order (jurisdiction) in which the contract is likely to be performed or to produce effects.
It is essential to carefully define the various clauses and in particular the applicable law and the competent courts, to secure the contractual relationship as much as possible.