International ContractingGatot Soemartono, Ph.DMariske Myeke Tampi, S.H., M.H.

INTERNATIONAL BUSINESS TRANSACTION

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www.ita.doc.gov/td/tic – International Trade Administration www.lexmercatoria.org – modern lex mercatoria www.unidroit.org – sponsored conventions www.dti.gov.uk/access/unfair/part4.htm – United Kingdom Department

of Trade and Industry www.coe.int – Council of Europe

Key Terms

Abus de droit Battle of forms Breach of confidentiality Contract of adhesion Convention on Contracts for the

International Sale of Goods (CISG) Culpa in contrahendo Customary international business law Doctrine of arrhes English Unifair Contract Terms Act of 1977 European Union Directive on Unfair Terms

Foreign Economy Contract Law of the People’s Republic of China

French Civil Code Genuiness of assent German Civil Code Hardship International Chamber of Commerce (ICC) UNIDROIT Principles of International

Commercial Contracts Uniform Commercial Code Written modification clause

INTERNATIONAL CONTRACT LAW Substantive law rules and principles Solid foundation for drafting a sales contract Uniform Commercial

Code General principles of contract law The law of the country of foreign contracting party Knowledge of other’s party culture Language differences Negotiating style Business behavior

Requirement of Contract

Mutual AssentOfferManifest an intent to enter into contract.AcceptanceA positive and unequivocal expression of an offeree’s intent to enter into a contract on the terms set out in the offer.

Consideration Capacity Legality Form

Negotiating An International ContractBefore contract: Legal differences The nuances of language and culture The trust developed early in contractual relationship

“The story about Japanesse contracting that emerges is that law is largely irrelevant. Instead, the business relationship is paramount and the Japanese favor unwritten, or very brief agreement; do not regard themselves bound by letter of such agreements but rely on the notion of changed circumstances to seek renegotiation; and in the case of dispute, will seldom, if ever, allow the matter to proceed to court.”

After contract: reconcilement and restore harmonious relationship

Doing Business Internationally:Contract characteristics in Japan

“Contract” assumes not opposition of parties, but cooperation

Parties attach more importance to establishing collaborative human relationship than preparing highly formal, legalistic written contract

Contract provisions are written not to be rigid, but flexible and changeable

Parties prefer clauses that in case of changed circumstances require the parties to act in good faith to renegotiate the term, rather than including detailed clauses to cover anticipated disputes

Contracts generally are simple, considering of view short clauses

There is an implied understanding that clauses are to be applied leniently in the area of performance and non-performance

In case of dispute, the preferred means of resolution is the giving of mutual concessions and not litigation

To conclude a negotiation often means not to sign a written contract, but to establish a personal and cordial relationship

Principles of International Contract Law Tremendous similarities among the different legal system in how the law

supports commercial transactions. Most differences are a matter of style and not substance The growth of customary international business law Universal adoption of the international Chamber of Commerce’s standards

in the area of terms (Incoterms) and letter of credit (Uniform Customs and Practises for Documentary Credits)

The increased of publication and citation of international commercial arbitration

Development of an international commercial jurisprudence United Nations Convention on Contracts for the International Sale of Goods International Sales Law

Principles of Lex Mercatoria that can be used in the interpretation of contracts

Public International Law Uniform Laws General Principles of Contract Law Rules of International Organizations Custom and Usage Standard Form Contracts Arbitral Decision

Principles of Lex Mercatoria that can be used in the interpretation of contracts: Public International Law: Vienna Convention on Treaties Uniform Laws: The Hague Rules (COGSA) and the Convention on

Contracts for the International Sale of Goods (CISG) are examples of succesul attempts at uniform international law

General Principles of Contract Law: The best examples or a general principle f contract law found in most national legal system is pacta sunt servanda or what is referred to in the common law as sanctity of contract

Rules of International Organizations: Courts may look to nonbinding rules published by such international organizations as the United Nations Organizations as the United Nations Organization for European Cooperation and Development (OECD) and the International Institute for the Unification of Private Law (UNIDROIT)

Principles of Lex Mercatoria that can be used in the interpretation of contracts: Custom and Usage: The clearest examples of custom and usage or

customary international law that has reached a level of almost universal acceptance are the standard and rules published by the International Chamber of Commerce in the area f trade terms (INCOTERMS) and letter of credit (Uniform Customs and Practises for Documentary Credits, or UCP)

Standard Form Contracts: the ICC publishes standard of model forms of Distributionand Agency Agreements. They also publish a manual to be used in the drafting of force majeure and hardship clauses

Arbitral Decision: Although not widely reported, arbitral decisions provide an outstanding resource for principles.

---“Common Law sources are to be found in the usage, habits and manners, and customs of the people. The common law of the country will be modified, and extended by analogy, construction, and custom, so as to

embrace new relations, springing up from time to time, from an amelioration or change of society”---

Justice Turley, 1842 in Jacob v. State, grassroots metamorphosis

Selected Contract Provisions of the Russian Civil CodeArticle 429. Preliminary ContractUnder a preliminary contract the parties shall be obliged to conclude in future a contract concerning the transfer of property, fulfillment of work, or rendering of services (principal contract) on the conditions provided for by the preliminary contract.The preliminary contract shall be concluded in the form established for the principal contract has not been established, then in written form. The failure to comply with the rules concerning the form of the preliminary contract shall entail its being void.A preliminary contract must contain conditions enabling the establishment of the subject, and also the other material conditions, of the principal contract.A preliminary contract shall specify the period in which the parties are obliged to conclude the principal contract. If such period has not been determined in the preliminary contract, the principal contract shall be subject to conclusion within a year from the moment of concluding preliminary contract.

Selected Contract Provisions of the Russian Civil CodeArticle 451. Change and Dissolution of Contract in Connection with Material Change of CircumstancesA material change of circumstances from which the parties proceeded when concluding a contract shall be aground for the change or dissolution thereof unless provided otherwise by the contract or it arises from the essence thereof. A change of circumstances shall be deemed o be material when they have changed such that if the parties could reasonably foresee this the contract would not have been concluded on significantly differing conditions.If the parties have not reached agreement concerning bringing the contract into conformity with the materially changed circumstances or the dissolution thereof, the contract may be dissolved, and on the grounds provided by point 4 of the present Article, changed by a court at the request of the interested party when the following conditions are present:

Selected Contract Provisions of the Russian Civil Code(1) At the moment of concluding the contract the parties proceeded from the fact that

such a change of circumstances would not occur;(2) The change of circumstances has been caused by reasons which the interested

party could not overcome after they arose with that degree f concern and care which are required of him by the character of the contract and the conditions of turnover;

(3) The performance of the contract without a change of its conditions would so violate the correlation of property interests of the parties which correspond to the contract and entail for the interested party such damage it would be deprived to a significant degree of that which it had the right to count on when concluding the contract;

(4) It does not arise from the customs of business turnover or the essence of the contract that the risk of the change of circumstances is norne by the interested party.

Selected Contract Provisions of the Russian Civil CodeIn the event of the dissolution of a contract as a consequence of a material change of circumstances the court at the demand of any of the parties shall determine the consequences of the dissolution of the contract by proceeding from the need for a just distribution between the parties of the expenses incurred by them in connection with the performance of this contract.The change of contract in connection with a material change of circumstances shall be permitted by decision of a court in exceptional instances when dissolution of the contract is contrary to social interests or entails damage for the parties which significantly exceeds the expenditure needed to perform the contract on the conditions changed by the court.

China’s Foreign Economic Contract LawThe Foreign Economic Contract Law indicates that the written contract should display a high degree of certainty of terms. Article 12 states that contracts should contain the following provisions:• Title, name, nationality, and place of business of the parties• The date and place of its signing• The contract type, along with the category and scope of contractual objectives• Objectives regarding technology terms, quality, standard, spacifications, and

quantity• The time limit on, place of, and method of performance• Conditions on price, amount, and method of payment• Terms and conditions for assignment• Compensation and liabilities for breach• Methods of settlement • Language of contractArticle 37, although not mandating alternative dispute resolution, encourages the mediation and then arbitration of any disputes.

Main Sources Dimatteo, Larry A. The Law of International Business

Transactions. 2003. Ohio: Thomson – South Western Poole, Jill. Textbook on Contract Law. 9th edition. 2008. New York:

Oxford