1. Planning an International Business Contract

2. Contract is enforceable as agreed “Pacta sunt servanda”
Letter of intent => NOT a contract
Consideration doctrine => unilateral acts are NOT binding

3. INTERNATIONAL CONTRACT Whereas Recitals (Preamble)
General conditions of the contract
Definition of the concepts
List of the relevant previously made agreements
Details of the agreement
Goods, price, terms of delivery, terms of payment etc.
Settlement of disputes
Signatories

4. LIFECYCLE OF A CONTRACT
Planning
the offer and the contract
Negotiations
and documents
Concluding the contract
Enforcement
payments,
supervision,
additional work and changes
Delivery and reception
Use,
maintenance
period of warranty and liability
Source: Modified from Haapio et.al. Yritysten sopimus- ja vastuuketjut. Tietosanoma Oy. Pieksämäki 2005.

5. ISSUES TO CONSIDER Target of the contract Resources Time
No uncontrolled risks
Time
Marketing conditions
Competition
Company’s position on the market
Product, service etc. in question
Legal restrictions
Economic fluctuation

6. GOOD CONTRACT Written Comprehensive Unambiguous Financially safe
Credible
Leagally valid
Enforceable

7. ANALYZE THE RISK • Identify, characterize and assess risk
Describe possible events based on the contract clauses as applied to the contractual relation
• Estimate the likelihood and consequences of each identified risk
Consider both the likelihood of facts and the likelihood of a relevant interpretation of the contract clauses
• Evaluate the risks, distinguishing between acceptable risks and those risks that should be considered for treatment
• Consider how risks can be treated through practical measures or a suitable contract amendment

8. MANAGE THE RISK Prioritize risk reduction measures based on a strategy
Strategies to manage risk :
Avoiding the risk
Eliminating the risk
Withdrawing from the situation
Sharing the risk
Transferring the risk to the other party
Taking insurance
Reducing the negative effect of the risk
Accepting some or all of the consequences of a particular risk

9. INTERNATIONAL BUSINESS CONTRACTS: HIERARCHY OF NORMS
National law (mandatory)
Contract clauses
International treaties and conventions
United Nations Convention on Contracts for the International Sale of Goods, CISG
National law (dispositive)
Conventional norms, common trade practices
Court rulings
Authorities supplementary provisions

10. PRACTICE AND USAGE
Any practice the contracting parties have agreed and any usage they have established between themselves, is binding to them
Any usage, which in the trade is widely known and which the parties should have known, becomes part of the contract
Therefore the contracting parties (and especially those who are negotiating the contract) should be aware of the trade usage of the industry and of any practice and standard processes the companies do have established for normal day-to-day business.

11. United Nations Convention on Contracts for the International Sale of Goods, CISG
PARTS:
1. Sphere of application and general provisions
2. Formation of a contract
3. Sale of goods
4. Final provisions

12. FORM OF A BUSINESS CONTRACT
To avoid problems, a business contract should be
in writing
or at least
an oral agreement should be confirmed in writing
there should be some documentation giving evidence on what has been agreed
In many countries the validity of an oral contract is limited
CISG includes no requirements as to the form

13. PROBLEMS OF INTERPRETATION
CISG
COMMON LAW
1. SUBJECTIVE INTENT OF A PARTY
”Meeting of minds”
Applied if the other party knew or could not have been unaware of the intent
2. OBJECTIVE INTENT
”The understanding that a reasonable person of the same kind as the other party would have had in the same circumstances”
OBJECTIVE INTERPRETATION
Interpretation must go by the externals
=>
the conduct of the parties
SUBJECTIVE APPROACH
- rejected completely by some common law countries => ”The law has nothing to do with the actual state of the parties’ minds. In contract, as elsewhere, it must go by the externals, and judge parties by their conduct”
CISG and many civil law countries accept it
All relevant circumstances of the case
Practices and usages
the parties have established between themselves or
widely known and regularly observed in international trade

14. CONTRACT CLAUSES (1) Contracting parties Definitions
Clear definition of names and terms used in the contract helps avoiding problems
Important especially when the parties have different backgrounds
Preferential order of documents
Important in case of contradictory documents
General rule: recent documents override older ones

15. CONTRACT CLAUSES (2) Entire agreement – principle
Only what is stated explicitly in the contract can be referred to
Standard contract terms
Can be used in the process of drawing up an offer/a contract
To facilitate the process and to make sure nothing is forgotten
Must be explicitly included in the contract
Interpretation to the detriment of the composer

16. CONTRACT CLAUSES (3) Supplier’s obligations Buyer’s obligations
Exactly what to supply, how, when
Other obligations
Buyer’s obligations
How much to pay, how, when
Confidentiality

17. GOOD CONTRACT IN A NUTSHELL
When
When
Where
Where
How
How
What if…
What if not…
What
What
What if…
What if not…
Payment
Delivery
Source: Modified from Haapio et.al. Yritysten sopimus- ja vastuuketjut. Tietosanoma Oy. Pieksämäki 2005.