International Contracts: Lawyer Expertise Required

The Legal Complexity of International Contracts: Why the Expertise of a Business Lawyer Is Needed

French companies developing their activities internationally face contractual issues of unprecedented complexity. Negotiating a distribution contract with a German partner, signing a joint venture agreement with a Singaporean company or acquiring a US subsidiary raise legal questions that go well beyond the scope of French law. This situation calls for legal expertise in the field, which alone can secure these cross-border transactions. The lawyer practising in international business law then becomes an essential player in controlling risks and optimising contractual structures.

The legal particularities of international contracts

Determining the governing law: a major strategic issue

The first difficulty with international contracts lies in identifying the law that will govern the contractual relationship. This question, far from being technical, determines all of the parties' rights and obligations. The Rome I Regulation of 17 June 2008 on the law applicable to contractual obligations establishes a clear hierarchy: priority to the parties' choice, then application of subsidiary connecting rules where there is no express choice.

An international sale contract without a choice-of-law clause will be governed by the law of the country of the seller's habitual residence for a contract for the sale of goods, under Article 4 of the Rome I Regulation. This automatic rule may be unfavourable to the French buyer, who could find itself subject to Chinese or Brazilian commercial law, for example.

The international business lawyer analyses the implications of each legal system that could be chosen. Common law favours freedom of contract and limits the possibilities of annulment for defective consent, whereas French civil law offers broader protection against unfair terms. This comparative analysis makes it possible to steer the choice towards the law most favourable to the client's interests.

Constraints of form and validity under national laws

Each legal system imposes its own formal requirements. German law requires writing (Schriftform) for certain types of commercial contract, in particular exclusive agency contracts. English law recognises the validity of oral contracts in many situations, but imposes strict rules on documentary evidence.

The question of the parties' capacity is also of particular importance. A French simplified joint-stock company (société par actions simplifiée) has broad legal capacity under Article L. 227-1 of the French Commercial Code, but may run up against restrictions imposed by the law of the counterparty's country. Some legal systems limit the capacity of foreign companies to contract on their territory or require prior authorisations.

The interplay between national law and international conventions

Application of the Vienna Convention on contracts for the international sale of goods

The United Nations Convention on Contracts for the International Sale of Goods, adopted in Vienna on 11 April 1980, is a uniform body of rules applicable in 94 States. This convention prevails over national laws for international sales between professionals whose places of business are in different contracting States.

The Vienna Convention has major particularities compared with French law. It does not recognise the notion of cause of the contract (cause), which is central in our legal system under former Article 1131 of the French Civil Code. It takes a broad view of acceptance of the contract and accepts the validity of material modifications of the offer under certain specific conditions.

The expertise of a lawyer practising in this field makes it possible to identify the areas where the Convention applies and those that remain governed by the chosen national law. Contractual liability, termination for non-performance and damages fall within the Convention, whereas the validity of the contract, defects of consent and the parties' capacity are governed by the applicable national law.

Incoterms and the allocation of risk

The International Commercial Terms, published by the International Chamber of Commerce, define the allocation of costs, risks and obligations between seller and buyer in international sale contracts. The Incoterms 2020 version comprises eleven terms divided into four families according to the mode of transport used.

The choice between the terms EXW (Ex Works), FCA (Free Carrier), CIF (Cost, Insurance and Freight) or DDP (Delivered Duty Paid) determines the moment at which risk passes and the allocation of insurance obligations. This technical decision engages the company's financial liability for sometimes considerable amounts.

A contract providing for CIF Marseille delivery requires the foreign seller to take out transport insurance on behalf of the French buyer. This obligation, if not properly anticipated, may lead to costly disputes in the event of damage during sea transport.

The essential clauses of international contracts

Hardship and force majeure clauses adapted to the international context

International contracts must take account of the particularities of cross-border trade, in particular the increased exposure to unforeseeable events. Hardship clauses (economic upheaval) allow the contract to be renegotiated where exceptional circumstances make performance excessively onerous for one of the parties.

These clauses draw on the UNIDROIT Principles of International Commercial Contracts, which provide in Article 6.2.2 that there is hardship where events fundamentally alter the equilibrium of the contract. This approach differs from the French theory of unforeseeability (imprévision), codified in Article 1195 of the French Civil Code since the ordinance of 10 February 2016. The regime of unforeseeability and the drafting of hardship clauses in contracts between professionals are detailed in our article on Article 1195 of the French Civil Code.

International force majeure goes beyond the traditional framework of French law. It must encompass geopolitical risks (economic sanctions, embargoes), monetary instability or major regulatory changes in the countries concerned. The 2020 health crisis showed the importance of precise clauses covering government restrictions and their consequences for international supply chains. On the criteria for identifying a force majeure event, see our article devoted to them.

Dispute resolution clauses: arbitration or State courts

The choice of dispute resolution method is a strategic element of international contracts. International arbitration, governed by the UNCITRAL Model Law or by institutional arbitration rules (ICC, LCIA, SIAC), offers significant advantages: neutrality of the tribunal, confidentiality of the proceedings, technical expertise of the arbitrators and easier recognition of awards.

The arbitration clause (clause compromissoire) must designate precisely the arbitration institution, the seat of arbitration, the language of the proceedings and the law applicable to the merits of the dispute. Imprecise drafting may lead to pathological situations in which arbitration becomes impossible or ineffective. The scope of the arbitration clause and recourse to arbitration in commercial and property contracts are covered separately in our dedicated article.

"Any dispute arising out of or in connection with this contract shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with those Rules."

This standard ICC clause provides maximum legal certainty but must be adapted to the nature of the contract and the particular features of the parties.

The technical expertise required in particular sectors

Technology transfer and intellectual property contracts

International patent licence, know-how transfer or franchise agreements require thorough mastery of national intellectual property regimes. Terms of protection, filing formalities and statutory exceptions vary considerably from one country to another.

A licence of a French patent to the United States must take account of the particularities of the US system: the first-to-file system since the America Invents Act of 2011, separate post-grant opposition procedures, and a particularly severe product liability regime.

Warranty clauses on quiet enjoyment take on a particular dimension in international law. The licensor must undertake not only that there is no infringement in its country of origin, but also as to the validity and enforceability of the rights in all the territories covered by the licence.

International joint ventures and governance structures

International partnerships in the form of a joint venture require sophisticated contractual engineering. The structure may take the form of a joint company, a European economic interest grouping or a simple partnership contract, depending on the objectives pursued and local regulatory constraints.

The governance of the joint venture must balance powers between partners while preserving decision-making efficiency. Deadlock resolution mechanisms classically include escalation procedures, recourse to an independent expert or exit options (buy-sell clauses).

Non-compete and non-solicitation clauses must respect the limits imposed by each national law. French law strictly regulates these restrictions under Article L. 420-1 of the French Commercial Code, whereas US law applies the rule of reason with different criteria of assessment.

Managing financial and regulatory risks

Currency clauses and hedging of fluctuation risks

International contracts denominated in foreign currencies expose the parties to exchange rate variations. This exposure can considerably affect the profitability of transactions, particularly in long-term contracts or those performed in stages.

Contractual hedging techniques include automatic indexation clauses, currency corridors with the risk shared between the parties, or the use of stable reference currencies. These mechanisms must comply with French exchange control regulations, in particular the reporting obligations to the Banque de France for large transactions.

The lawyer coordinates the legal approach with the financial hedging strategies (forward contracts, options, currency swaps) to optimise the company's overall protection.

Compliance with export control regulations

Contracts for the export of sensitive goods or technologies are subject to national and international export control regulations. The European dual-use Regulation No. 2021/821 of 20 May 2021 lists the goods and technologies with both civil and military uses that are subject to prior authorisation.

International economic sanctions, in particular those imposed by the European Union and the United States, create obligations to carry out prior checks on counterparties and end users. Failure to comply with these regulations exposes companies to severe criminal and administrative sanctions.

Contractual due diligence must include specific representations and warranties on compliance with embargo and sanctions regulations. Automatic termination clauses in the event of changes to sanctions lists protect the parties against unforeseeable regulatory developments.

The importance of legal support

Pre-contractual analysis and structuring of negotiations

The legal expertise of an international business lawyer comes into play from the stage of structuring the transaction. This preliminary analysis identifies the applicable legal and regulatory constraints, assesses the potential risks and proposes optimal structuring solutions.

The letter of intent (letter of intent) or pre-contractual memorandum of understanding calls for particularly careful drafting. These documents, often neglected, may create binding legal obligations depending on the applicable law. Common law distinguishes non-binding heads of terms from binding term sheets, a distinction that is fundamental to the parties' legal certainty.

Legal support also includes training in-house teams on the particularities of international business law. This educational dimension allows companies to better understand the issues and optimise their negotiation processes.

Securing contractual performance

The performance of international contracts raises specific practical difficulties that only thorough legal expertise can resolve effectively. Contractual amendments, frequent in long-term commercial relationships, must comply with the forms and conditions laid down by the applicable law.

International recovery procedures require a thorough knowledge of the enforcement routes available in each jurisdiction concerned. European Regulation No. 1215/2012 of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters facilitates cross-border enforcement within the European Union, but the procedures remain complex.

Frequently asked questions

When is it mandatory to use a lawyer practising in international law for international contracts?

There is no legal obligation to use a lawyer to draft international contracts, but this expertise becomes indispensable as soon as the transaction presents significant legal complexity. Warning thresholds include the diversity of applicable laws, exposure to specific regulatory risks or significant amounts being at stake. A lawyer practising in this field provides legal certainty that a general adviser cannot offer.

How should the governing law be chosen in an international contract between a French company and a foreign partner?

The choice of governing law must result from a comparative analysis of the advantages and drawbacks of each legal system that could be chosen. The decision criteria include the predictability of the rules, the protection offered against unfair terms, the possibilities of early termination and the liability mechanisms. French law generally offers a satisfactory balance between legal certainty and commercial flexibility, but the choice of a neutral law may be necessary in certain configurations.

What is the difference between international arbitration and national courts for resolving contractual disputes?

International arbitration has specific advantages: neutrality of the arbitral tribunal, confidentiality of the proceedings, technical expertise of the arbitrators and ease of enforcement of awards in the 168 countries party to the 1958 New York Convention. State courts offer broader remedies and generally lower costs, but expose parties to risks of partiality or of a lack of understanding of the technical issues. The choice depends on the nature of the dispute, the amounts at stake and the commercial relationship between the parties.

How should currency risk be managed in long-term international contracts?

Managing currency risk combines contractual and financial techniques. Automatic indexation clauses, currency corridors with risk sharing or the use of reference currencies are the main contractual solutions. These mechanisms are supplemented by financial hedging instruments (forward contracts, currency options, swaps), which require coordination with the company's finance departments.

Can SMEs obtain international business law expertise suited to their size?

Expertise in international business law adapts perfectly to the needs and budgetary constraints of SMEs. The approach consists of identifying priority risks and concentrating legal effort on the critical points of the contract. Solutions include the use of pre-established contract templates for standardised transactions, training in-house teams in the basics of international law, or occasional use of outside expertise for the most technical clauses.

What are the main errors to avoid when drafting international dispute resolution clauses?

The most frequent errors concern imprecision in designating the arbitration institution, failure to specify the seat of arbitration or the language of the proceedings, and inconsistency between the law applicable to the merits and the procedural rules chosen. A defective arbitration clause may make arbitration impossible or create costly jurisdictional conflicts. The drafting must also provide for how the arbitrators are appointed and the powers of the arbitral tribunal.

How can compliance with economic sanctions regulations be ensured in international contracts?

Compliance with economic sanctions requires systematic prior verification of the parties to the contract and of the ultimate beneficiaries against European, US and international sanctions lists. This due diligence must be updated regularly throughout the life of the contract. The contractual clauses must provide for specific representations and warranties, notification obligations in the event of a change of situation and automatic termination mechanisms if a party is added to sanctions lists.

The expertise of an international business lawyer is a strategic investment for companies engaged in cross-border transactions. This technical expertise makes it possible to secure international contracts legally while optimising their commercial effectiveness. Given the growing complexity of national and international regulations, recourse to this expertise becomes a key success factor for French companies in their international development.