The goal of a contract is to conclude an agreement that aims to protect the interests of all parties involved. Considering the differences between Canadian laws and those of other countries, drawing up an international contract can prove much more complex than drawing up an internal commercial contract. Establishing a proper contract in due form helps you avoid disputes or litigation as much as possible when you’re buying or selling goods or services outside of Canada.
The bases of an international contract
It’s quite possible to protect yourself effectively when drafting international contracts. First of all, the contracting parties must be properly identified. The agents, affiliates, and/or representatives must also be included in the contract if they’re part of the agreement. Then, to avoid disagreements, the contract should specify which country’s laws apply to it; indeed, Canada’s trade laws differ from those applicable to foreign markets, so it’s best to add a specific clause that will remove any doubts in case of disputes. Along the same lines, the contract must be detailed – that is to say, it should include all the determining clauses to which the two parties have agreed. Finally, it’s essential not to neglect the clarity of any of the sections in the contract, since evasive formulations often lead to disagreements and disputes. It’s often desirable to do business with a seasoned professional in this field in order to avoid future surprises and frustration.
Incoterms
Since the wording of a contract can sometimes cause confusion, the international trade community has selected several official terms whose meaning is often recognized, known as Incoterms. These concern the responsibilities related to international trade (control, cost, responsibility, etc.). These very precise terms should be used as much as possible to avoid using ambiguous terms in sales agreements.
The elements that should appear in an international commercial contract
Many elements should appear in an international commercial contract in order to make it as clear as possible. It’s therefore essential to specify (non-exhaustive list):
- all parties to the contract and their company names;
- the currency that will be used;
- whether the price is fixed or variable;
- the total amount to be paid;
- the date on which the full payment falls due;
- proportional payments (and their amounts);
- the payment method (letter of credit or open account, for example);
- the presence or absence of holdback payments;
- the payment terms (“Net in X days”);
- the fact that your client has a purchase obligation while you have a sales and delivery obligation, or vice versa;
- a detailed description of what you’re buying or selling;
- any potential reductions;
- the premiums that you will be paid if you fulfill your contractual obligations with advance and volume discounts;
- the interest applicable in case of late payment;
- the documents that result in a payment obligation;
- the delivery method;
- the party responsible for the transfer of risks and the party responsible for the fees associated with customs clearance, insurance, and transportation;
- the place of delivery;
- the timeline and the applicable penalties in case of delay;
- etc.
In order to be clear and effective, the drafting of international contracts should — if possible — be supervised by an experienced lawyer. Seek assistance from our law firm today and see how a professional can save you time and help you avoid potential disputes and litigation that could result from a poorly written or overly vague contract.
NOTE: This article does not constitute legal advice from or legal opinion. It is only used to inform readers about certain aspects of commercial law.
