When issues arise among parties to an international contract, language and legal differences can pose unique challenges. Special provisions in the contract can help prevent some of these challenges by specifying the language of the contract, the location where disputes will be settled and the substantive law that will be used. International contracts should also include provisions that define the certain actions that can excuse the parties from fulfilling their side of the agreement and whether disputes will be handled through arbitration or in a court of law.
1. Choice of Language Clause
An international contract between a U.S. company and a company located outside the U.S. often involves two languages. Sometimes, even a professional translator has difficulty translating certain phrases from one language into another language without taking away from some of the meaning. As a result, there are situations when one party in an agreement may interpret language differently than the other party. To reduce the risk of misinterpretation, an international contract should contain a choice-of-language clause that identifies what language will be used in the event of a difference.
2. Choice of Location Clause
When differences arise between parties of an international contract, the issue of jurisdiction can become a complicated issue. There are no universal rules concerning where the litigation should take place. Therefore, international contracts should include a clause that specifies the court, jurisdiction, or tribunal that will settle the dispute.
3. Choice of Law Clause
An international contract should also include a clause that specifies the legal system that will be used to settle disputes. For instance, will New York., Japanese or Chinese law be designated as the official law that will govern the contract.
4. Act of God Clause
An international contract should include an “Act of God” Clause that in unavoidable events (war, embargoes, major disasters, etc.), a party may be excused from performing their side of the agreement.