The Negotiation and Drafting of International Contracts Course of Mr. Robert Simpson
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- 2. Drafting an International Contract
Anglo-Saxon and German lawIn German law, there is the notion of culpa in contrahendo that requires parties to negotiate in good faith. An abusive breaking off of negotiations can give rise to pre-contractual liability. The situation is somewhat less clear in Anglo-Saxon law. Normally an agreement to agree is not considered to be enforceable. However, notions such as detrimental reliance or unjust enrichment can lead to the granting of damages in appropriate situations. If the parties want a letter of intent or the like to be non-binding, they should so state clearly in the document. ii. Types of pre-contractual documents Letters of intent Terminology: gentleman’s agreement, deal memorandum, memorandum of understanding (MOU), heads of agreement, letter of intent (protocole d’accord). US practice is to state that the document is non-binding: The purpose of this letter is to present our proposal and outline the basic terms of the transaction. Except as provided otherwise herein, any pre-contractual liability or any express or implied business combination, partnership or venture of the parties under the principles outlined in this letter is expressly excluded. Offers (pollicitations) Under civil law, an offer can be binding on the offeror for a certain period, but requires consideration in the US. There is an issue as to when and how an offer may be withdrawn. Normally revocation must reach the offeree before acceptance has been dispatched (see, e.g. CISG 16.1, Unidroit 2.4 and PECL 2.202). Note that offers often contain conditions precedent (conditions suspensives). As a practical matter, the negotiator should be prepared to deal with two matters: escape clauses – ways to withdraw an offer and how to respond if an offer is rejected. Other pre-contractual documents Other pre-contractual documents include: right of first refusal (pacte de preference), exclusivity agreement, confidentiality agreement, non-competition agreement, agreement to reimburse expenses, options (promesses de vente ou d’achat). Each document should clearly state its meaning. Draft contracts In practice, there is rarely an offer followed by an acceptance. After a letter of intent, the parties usually exchange and negotiate successive drafts of the agreement in question. Try to submit the first draft and keep control of the drafting. Be the scribe for the parties. Remember, however, the contra proferentum rule. Use the parties’ existing models, if this is appropriate. Sometimes it is necessary to follow models, especially in certain financing documents. This is because of the presence of cross-default clause. When there are cross-default clauses, it is best to try to have the default conditions identical or similar in the different contracts. Keep all your successive drafts. Always be prepared to offer alternative language to provisions of a draft that are not acceptable. Keep notes which can be redone and perhaps even signed by the parties as formal minutes of a negotiating session. Keep detailed and organized archives. Remember Art. 1156 of the Civil Code: “On doit dans les conventions rechercher quelle a été la commune intention des parties contractants plutôt que de s’arrêter au sens literal des termes.” Compare with the notion of sanctity of contract in common law. If the contract is clear on its face, a court will usually not look behind a clear meaning to find another intent. Final draft In Anglo-Saxon practice, the final draft is usually not yet a binding contract. Be careful because under civil law, once there is an intent to contract and agreement on essential points, a contract is deemed to exist. When in doubt, state there is no contract. Swiss law contains an even more explicit provision (CFO Art. 2): “Si les parties se sont mises d’accord sur tous les points essentials, le contrat est reputé conclu, lors meme que des points secondaires ont été réservées. A défaut d’accord sur les points secondaires, le juge les règle en tenant compte de la nature de l’affaire. 2. Drafting an International Contract Remember that in an international contract, the contract is the law of the parties. An international contract should be able to stand alone without reference to any law. It is a check list for the drafter, a bible for those who carry out the contract and a guide in the event of dispute. Americans, in particular, have a tendency to live by the spirit and the letter of the written contract, especially when it has been heavily negotiated. It is usually better to opt for a long, rather than a short, contract, provided it does not contain useless verbiage and takes into account applicable custom and usage and local practices. Something that goes without saying goes better said. Use belts and suspenders, but do not overdo it. Set forth below is a general check list which can be used in most international contracts. The list covers the general contractual and miscellaneous typical contractual clauses. a. The contractual framework Form Requirements as to form depend on the lex situs (examples: “Statute of Frauds” requirements of the UCC requiring contracts involving more than a certain amount to be in writing; necessity of a notarized act for real estate transactions in France). Necessity of a writing. While, in certain cases a writing may not be necessary, it is always best to put an international contract in writing. Internet contracts There is an initial question as to when a contract is formed. The European Directive of February 28, 2000 on electronic commerce provides that a contract is formed upon the receipt of the acceptance (Art. 11). A French law of March 13, 2000 and a decree of March 30, 2001 integrated into the Civil Code provide that an electronic signature has the same value as a signature on paper. Article 1361-1 of the Civil Code, thus, now provides: L’écrit sous forme électronique est admise en prevue au meme titre qu l’écrit sur support papier, sous réserve que puisse être dûment identifiée la personne don’t il émane et qu’il soit établi et conservé dans les conditions de nature à en garantir l’intégralité. A second question relates to the law applicable to Internet contracts. As between professionals, the parties are free to stipulate what law is applicable and in the absence of any stipulation, The 1980 Rome Convention applies. Article 4.1 of this convention designates the law of the country with which the contract is “most closely connected”. Article 4.2 provides that it is “presumed the contract is most closely connected with the country where the party who is to effect the performance which is characteristic of the contract has, at the time of the conclusion of the contract, has his habitual residence, or, in the case of a body corporate or unincorporated, its central administration (siege). The CISG provides in Article 7 (2): Questions concerning matters governed by this Convention which are not expressly settled in it are to be settled in conformity with the general principles on which it is based or, in the absence of such principles, in conformity with the law applicable by virtue of the rules of private international law. In B to C contracts, the parties are free to determine the applicable law. However, their choice must not provide a consumer of protection afforded by the country in which he has his habitual residence. If the contract is silent, the law of the place of the consumer’s habitual residence is applicable. ii. Signature of contracts (the closing) It is best to have contractual packages of all the closing documents well prepared beforehand. At the closing, there are three considerations concerning signatures. First, the persons signing need to be clearly identified. Second, powers to sign on behalf of a company or other person need to be verified. For a company, there should be a certified resolution of the board of directors. Third, there is the question of where to sign. The European practice is to initial each page (including all annexes) and sign only the signature page or pages. The American practice is to sign only the signature page. British practice is to bundle all the pages into a bound package and sign only the signature page. There is a generally accepted practice of being able to sign contracts in counterparts. This is often stated in the contract. Remember the French practice of “lu et approuvé” or “bon pour” in certain contracts. Electronic signature is acceptable, but it is best to use a system that clearly identifies the signing party (e.g., Data Encryption System). See also European Directives of December 13, 1999 and June 8, 2000. Directory: FACULTY FACULTY -> Dsci 3870: Management Science FACULTY -> Handling Indivisibilities FACULTY -> Course overview FACULTY -> Curriculum vitae wei chen professor FACULTY -> Digital image warping FACULTY -> Samples of Elements Exam Question III contains All Prior Exam Qs III except FACULTY -> 【Education&Working Experience】 FACULTY -> References Abe, M., A. Kitoh and T. Yasunari, 2003: An evolution of the Asian summer monsoon associated with mountain uplift —Simulation with the mri atmosphere-ocean coupled gcm. J. Meteor. Soc. Japan, 81 FACULTY -> Ralph R. 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