In the wake of rapid globalization in the commercial sector is a push towards international harmonization of commercial law.
Under general the international legal principle of sovereignty of states, a Nation State’s authority, absent a transfer of authority, is absolute and indivisible over such State’s people and territory. With regard to law, this means that every country is entitled to exercise its own laws within its own countries. The problem arises when subjects of two Nation States are involved in disputes, as may be the case in International Business Transactions.
When two or more parties from different countries do business and a dispute occurs, two common questions that arise are “what law?” and “what court?” While to an extent these questions were traditionally answered contractually by using “choice of law” and “choice of forum” clauses. These international business contracts, however, were by no means full proof. For example, the contract law of one country could invalidate those clauses; or, even if they were enforced, a party that prevailed in his own court would be unable to enforce the court’s decision in the other party’s country.
While the situation is still far from perfect, many Nation States have come to realize that it is in their interests and those of their subjects to ensure the efficiency of cross border transactions. The United States itself is a party to a number of multilateral treaties that promotes efficiency in the contract process in international business. Two of the most significant multilateral treaties in international commercial law are the 1980 United Nations Convention on Contracts for the International Sale of Goods (CISG), and the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (also known as the “New York Convention”).
The CISG eliminates “choice of law” issues by applying a substantive contract law where businesses located in two different countries that are parties to the treaty are involved in the purchase or sale of goods. The CISG applies by default unless the contract for the sale of goods states otherwise. While a huge majority of the world’s Nation States are parties to the Treaty, there are a number of outliers such as the United Kingdom and Taiwan.
The New York Convention makes arbitration clauses in contracts involving cross border transactions binding on the parties, and makes monetary arbitral awards enforceable in the courts of any Nation State that is party to the Convention. This helps eliminate problems faced with “choice of forum” and contract enforcement. However, as arbitral procedure itself is a matter of contract, it is still important for arbitration clauses to be properly drafted. Some mistakes can be particularly costly, for example, depending on whether to arbitrate claims “arising out of” or “in connection with” a contract could determine whether a claim actually goes to arbitration.
Have your business contracts evolved with the global expansion of commerce? Whether or not it concerns a sale of goods, or whether or not you desire arbitration, James Hsui, PLLC can help craft a custom international business contract to fit the needs of your business.