International Agreements: 5 Things to Know

We are more connected than ever, right now, at this very moment.  We can thank the internet and other telecommunications advances for this. Arguably, these advances are so pervasive that they are also fueling broader societal acceptance of alternative work arrangements, including working remotely and working from home (or perhaps from a hammock on Matira Beach?).  These advancements and acceptance bring an exponentially expanded ability to procure products and services from anywhere across the globe, and with that–expanded opportunities to enter into international agreements.

By international agreements, I’m referring to contracts, where there is a legal basis for different international jurisdiction to be applicable to the contract, based on either the locations of the contracting parties or given where the performance of the agreement occurs.

With the progression of globalization, certain barriers that once existed to entering into international commercial agreements, no longer exist, and international contracts are continually on the rise. It is increasingly common for a U.S. based business (particularly one here in Miami, Florida) to decide that a company in Latin America can meet its needs just as well as a U.S. based vendor, developer, or manufacturer, and do this at the right price.

If you are thinking about entering into an international agreement here are five things to know.

1)    First, choice of law matters.  There may be special circumstances in your case, but when more than one jurisdiction has a connection to the contract, choice of law is usually an issue that should be discussed by the parties and not left up to chance.  Choice of law means what law will govern our agreement.  Some of the benefits of agreeing on choice of law is that it provides certainty, predictability, and consistency in results for the contracting parties.  Specifically, the parties have the ability and the benefit to know in advance which laws will apply in the event of a dispute.  With that, the parties can also formulate better business strategies and understand the legal consequences of their actions under the agreement.

2)    Second, if it’s an international contract for the sale of goods, the CISG may apply.  If the contract is for the sale of goods and the parties have principal places of business in different countries that have executed the United Nations Convention on Contracts for the International Sale of Goods (the “CISG”), the CISG may automatically apply, unless the parties expressly opt out (this opting out, ties back into choice of law—yes it’s all connected.) Whether this default rule is a good thing or not will depend on the specific circumstances surrounding the parties and your transaction. If you are interested in knowing which countries are members of the CISG, you can check it out here.

3)    Third, if it’s an international contract for services, international private law may apply. Domestically and internationally, contracts for services typically outnumber contracts for goods.  This trend continues to grow rapidly in the Information Age as there is a greater emphasis on production and transfer of intangible property, including software (source code, apps, other programs, your name it), data, technology, and intellectual property along with the associated IP rights. Based on the odds, chances are that if you are planning to enter into an international agreement, it is likely one for services.  However, since the CISG applies to only to goods it will not apply here.  Without the CISG or some other international convention applying, domestic law will apply.  But which domestic law? Again, this goes back to importance of agreeing on choice of law (Noticing a pattern?), because without saying so ahead of time, Conflict of Laws Rules will have to be used to determine which domestic law will actually apply to the situation. Choice of Law Rules conflicts can become high stakes, particularly when the laws of the different applicable foreign jurisdictions will produce drastically different outcomes.  This is where a trusted business attorney can be useful ahead of executing the agreement.  You can explore the differences in contract law for the jurisdictions or even discuss model international contract law options. There are many ways to create legal certainty in international services contracts.

4)    Fourth, arbitration clauses may be a happy medium. Another tool for a contracting party is international arbitration. There may be anxiety by a party to litigate in a foreign court due to concerns of unfamiliarity of “the unknown” or potential bias.   Whether or not these concerns are always valid, international arbitration may be a fair and reasonable alternative to overcome some of the concerns, and it has become a widespread method used to solve international contract disputes.  There are several options to explore in terms of institutional arbitral bodies that govern arbitrations, such as the International Chamber of Commerce (“ICC”) and its International Arbitration Court (“IAC”) or the American Arbitration Association (“AAA”) and its International Centre for Dispute Resolution (“ICDR”), to name a couple.

5)    Finally, location is key.  Decide where the parties will litigate, mediate, or arbitrate disputes. Possible locations may be based on location of the parties, location of performance under the agreement, or even convenience compromises such as half-way points.  It is up to you, when agreed on in advance.  Another consideration is that if you have received a company’s “standard” agreement, which may be used in multiple situations, thoroughly check for references to dispute resolution location.  (Although this was not in the context of an international agreement, I recently encountered an agreement where the contracting parties were both U.S. based but the Governing Law section of the agreement stated that the parties “irrevocably consent to the exclusive personal jurisdiction of the federal and state courts located in Hong Kong SAR.”  It goes without saying, I was pretty surprised to this while reviewing the contract.)   

If you made it all the way to five, you probably noticed some themes. Plan ahead.  Know how different laws will impact your goals and desired outcomes.  Make informed choices and advocate for governing law and dispute resolution locations that will help you achieve your objectives.  Work collaboratively with other party  to reach a consensus on these points.  Good luck.

This post is not intended to be a substitute for legal advice.  Consult a licensed Florida business law attorney for specific business law questions that you may have.