International Transactions

Finding a lawyer for international contract law is not easy. Galaniuk Law offers you the answers and competent, straightforward advice. As a law firm, we help our clients to protect themselves against legal pitfalls in international projects by providing advice on international contract law. This is because international supply contracts raise issues that are less common in non-cross-border business. As a lawyer specializing in international contract law, I would like to outline the main features below:

Choice of law and court

Examples of this are Which law applies? Which court has jurisdiction? It is advisable to agree these questions from the outset by means of appropriate choice of law and choice of court clauses in the contract. Choice of law and choice of court agreements are permitted under the legal systems of most OECD countries.

With regard to the applicable law, the parties should consider whether the UN Convention on Contracts for the International Sale of Goods (CISG) should apply. CISG applies to sales transactions between parties located in different countries (cross-border) insofar as the conflict of laws leads to the application of the law of a contracting state (contracting state). However, UN sales law can be excluded. To date, this has very often been done due to ignorance. But CISG was developed precisely against the background of the international sale of goods transaction. In addition, CISG is already available in several official languages. A contracting party therefore does not have to deal with a foreign/foreign-language sales law.

However, if the focus is on the production of an overall result that goes beyond this, then it is not the UN Convention on Contracts for the International Sale of Goods that applies, but the national law on contracts for work and services. Most contracts that deal with the construction of machinery or plant tend to be characterized by sales contract law, although assembly obligations (e.g. connection, assembly, installation at the agreed location, installation) may be owed. Here it is recommended to include a clause in the contract according to which assembly obligations are made dependent on suitable conditions on site; formulate the conditions clearly; otherwise the supplier has the burden of proof.

Terms of delivery

Furthermore, delivery clauses are of particular importance when drafting contracts in international business. The Incoterms 2020 are the current set of rules published by the ICC on the subject of delivery terms. However, the respective delivery clauses not only regulate costs and the transfer of risk. Rather, each of the 11 different clauses, be it EXW, FCO or DAP, contains further delivery-relevant provisions in the official notes and assigns responsibility to the respective parties (i.e. buyer or seller) accordingly.

It is therefore advisable to familiarize yourself with the Incoterms so that the correct delivery clause is included in the contract. An economic aspect is often overlooked. The more responsibility the seller assumes, the more this risk must be calculated and priced into the offer. There are also special features of Incoterms. A specialist lawyer for international commercial law, such as Galaniuk, can help to take these into account when concluding the contract.

General terms and conditions and international contract law

In German B2B business, a reference to a possible inspection of the General Terms and Conditions (GTC) is sufficient to effectively include them in the contract. However, this is usually not sufficient for international contracts. The inclusion must normally be part of the contractual agreement. The situation of competing GTCs also frequently arises in international business. However, it is not so easy to resolve the problem here. So how does a validity clause, exclusivity clause or defense clause behave in international contracts?

Under CISG, the theory of the last word applies if no objection is raised; it is unclear whether a defense clause (objection in advance) is sufficient. Under the U.S. Convention on Contracts for the International Sale of Goods (UCC), amendments or additional terms and conditions are considered binding if there is no defense clause from the first user or if they are not rejected and as long as the amendments are not material. However, both the CISG and the UCC are based on the “materiality” of the amendment by competing general terms and conditions and only allow “immaterial” amendments (last shot) to apply. It is advisable to include important agreements in the individual contract in order to avoid GTC inclusion requirements and competition.

Advice on international contract law: Securing claims

As soon as payment terms are agreed or other payment instruments are considered, the question of securing receivables arises. Payment security obligations such as documentary collection or letters of credit must be expressly included in the purchase agreement and it is advisable to follow the ICC standard guidelines on documentary collection or letters of credit. In addition, security agreements such as personal securities (surety or guarantee) or physical securities, in particular retention of title, are possible.

However, retention of title should be treated with caution in international supply contracts. Although most of Germany's major trading partners, with the exception of the USA, are familiar with retention of title, there are important differences.

Rights to an item are subject to the law of the country in which the item is located. The form (justification, effect, enforcement) of the right of retention of title will therefore depend on the law in which the goods are located. In many countries, retention of title is not recognized by general terms and conditions; exceptions are, for example, Switzerland, Austria and the Netherlands. When doing business abroad, you should therefore not blindly rely on the principle of retention of title as an instrument for securing claims.

International contract law: Special features of distribution law

Special features apply to international contracts that have a distribution agreement as their object. Depending on the form of cooperation, the contract must regulate the agreement very precisely. Otherwise, misunderstandings, disappointments and even losses can occur very quickly. Possible forms of distribution are commercial agents, authorized dealers, franchising, but also consulting constellations in which the partner develops the market. Important areas that can be partially regulated in the contract are, for example, customer affiliation, compensation claims and waiting compensation, as well as regulations on minimum turnover, territorial protection and exclusivity. In addition, the relevant competition law for vertical agreements as well as international tax law and permanent establishment risk should also be taken into account.

By presenting complex cross-border issues in an understandable way, the firm helps to optimize decision-making processes. GL knows how the different legal systems affect your project. Our broad knowledge of the business cultures in the USA and Germany makes our service particularly valuable when it comes to questions relating to international company headquarters and their branches. In situations that run unsatisfactorily, GL can help you pinpoint the root of the problem in order to successfully realign your course. GL's international experience will ultimately help you to successfully combine different legal systems, languages and cultures.

International contract law: Force majeure

In the wake of the coronavirus pandemic and the associated supply chain difficulties, the issue of delays in delivery due to force majeure in international contracts has gained a great deal of attention. Each legal system deals with the issue slightly differently. Under German commercial law, a renegotiation obligation may arise in the event of force majeure.

CISG also contains reservations in the event of force majeure. As with everything in contract law, the devil is in the detail and it may depend on the text of the contract whether relief can be claimed in the event of delay in delivery or force majeure. It is therefore advisable: i) to clearly define the circumstances under which the contract must be amended and when no indemnifiable delay should occur; ii) to include a self-supply clause in the event that your own suppliers fail; iii) to use ICC force majeure model clauses if necessary.