Types of international contracts
International contracts, designed to regulate commercial relationships that transcend national borders, include various types. The most fundamental and widespread among them is the international sale of goods contract. This type of contract governs the transfer of goods between parties with places of business in different States and raises particular issues concerning, for example, the risk of loss of goods during transport.
In this regard, the Vienna Convention of 11 April 1980 on the International Sale of Goods (CISG) aims to establish a uniform discipline for the formation of contracts and for the rights and obligations of the parties. It is important to note that the Convention applies only to sales between parties having their places of business in contracting States, and it exclusively governs commercial sales, thus excluding consumer sales and sales concerning specific categories of goods, such as ships, vessels, electricity, or judicial sales. One of the aspects addressed by the CISG is also the conformity of goods.
Negotiation and formation of the international contract
The negotiation phase of international contracts is complex and often fraught with pitfalls, mainly due to the need to harmonize different legal systems and the multiplicity of commercial and cultural habits. The failure of negotiations in this field often stems from insufficient preparation regarding the applicable law and the lack of clear rules governing the pre-contractual stages. To ensure a positive outcome and protect the company’s interests, it is essential to establish from the outset a behavioral framework based on good faith.
Before the final signing, the parties often resort to preparatory documents such as Letters of Intent (LOI) or Memoranda of Understanding (MOU). These documents may serve different purposes: outlining the objectives that guide the negotiation, defining the methods and timing of discussions, and even setting out elements of the future international commercial contract. It is crucial that the parties explicitly state whether the commitments undertaken in these documents are binding or not, because in the absence of such clarity, the court could interpret the LOI as a contract already concluded or as the basis for pre-contractual liability.
With regard to pre-contractual liability, it arises for the party who withdraws from negotiations without justification, causing damage to the counterpart who had legitimately relied on the conclusion of the contract. Such liability entails the obligation to compensate for the expenses incurred and for the losses resulting from the failed deal (actual damages and loss of profit).
Finally, the formation of the contract is completed when the acceptance of the offer becomes effective. While the Italian legal system adopts the principle of cognition (the contract is concluded when the offeror becomes aware of the acceptance), other systems, such as Common Law, apply the mailbox rule. It is necessary to distinguish between a true offer, which expresses a serious intent to be bound, and a mere invitation to offer, such as catalog displays, which do not bind the offeror. Proper management of offer and acceptance is vital to determine the exact moment when contractual obligations arise.
Essential clauses of international contracts
The drafting of international contracts is guided by the need to create documents that are as complete and self-sufficient as possible, following the Anglo-Saxon self-regulation approach. The main objective of international contracting is to minimize the supplementary intervention of national laws (the applicable law), making the contract both enforceable and understandable for the managers who must implement it. This practice results in the drafting of highly detailed texts, including accessory clauses known as boilerplate clauses, designed to safeguard the contract’s integrity.
A fundamental element is linguistic clarity and correct interpretation. Contracts are often drafted in English and later translated; in such cases, it is crucial to establish which language version shall prevail in the event of interpretative discrepancies. Generally, it is agreed that the original text is the only binding version, often opting for English as the reference language.
A recurring issue arises when the parties use their own General Terms and Conditions, giving rise to what is known as the Battle of the Forms. This conflict occurs when the parties exchange forms containing differing terms. The courts must then determine which set of terms applies to the international commercial contract. The most widely accepted international solution is the so-called knock-out rule: the contract is considered concluded, but only the matching clauses between the two forms remain valid, while conflicting ones cancel each other out, leaving it to the supplementary rules of the applicable law to fill in the gaps.
Regarding the management of non-performance, an essential clause is the pre-determination of damages. It is common to include liquidated damages clauses, through which the parties fix in advance the amount due in the event of a breach, in order to avoid the complex quantification of damages. However, the chosen national law (the applicable law) determines the limits of such clauses, such as the possibility, provided in many Civil Law systems, for the judge to reduce the amount if it is manifestly excessive.
Boschetti International Law Firm positions itself as a strategic partner for Italian companies engaged in internationalization processes, offering high-level expertise and a proactive approach essential for modern international contracting. Our role is not limited to handling litigation, but operates preventively, supporting the company from the initial stage of designing and structuring the international commercial contract, positioning ourselves as law makers.
This enables us to fully understand the client’s business objectives and the peculiarities of the target market, and to translate them into effective legal solutions. Our assistance is crucial for drafting tailor-made contracts that reduce business risks, avoiding the use of templates taken from uncertain sources or outdated practices. In particular, we provide specialized advice for: the optimal identification of the applicable law and competent forum in international contracts; the informed choice among various types of international contracts, such as international sales, distribution, or agency agreements, and the drafting of clauses protecting the company from unexpected indemnities (such as agent termination indemnities within the EU); verifying the compatibility of standard clauses (boilerplate) and guarantees with mandatory rules of the countries of execution; and managing disputes, guiding the client in choosing between institutional arbitration (safer and faster) and ordinary jurisdiction, with a prior assessment of the recognizability and enforceability of the decision in the counterpart’s country.
Choosing Boschetti Law Firm means ensuring your business a robust and well-informed contractual protection. We invite you to contact us to build your next international success together.
