II - Key legal aspects of international commercial contracts
The international contract is a contract that contains a foreign element, meaning it is in contact with one or more foreign legal systems. Specifically, the foreign element may be a resident abroad, a party involved in the contract, a nationality, the location where the contract was formalized, etc.
The commercial contract is a contract for a commercial transaction or a contract made by a trader for the purposes of his trade.
Therefore an international commercial contract signifies the addition of foreign elements in a commercial contractual relationship. For example, a contract between a French commercial agent and an American entrepreneur constitutes an international contract. It may also be a contract between a French company and a provider of electronics in China.
The principle of contractual freedom
In contract law, there is a general principle of contractual freedom. This principle allows contracting parties to choose the law applicable to such relationships, but also in the event of disagreement, to appoint the judge (by a jurisdictional clause) or the appropriate arbitrator. Freedom of contract applies to international commercial contracts.
This freedom of contract maintains that it will consider the provisions of the contract as the law of parties.
But contractual freedom has limits: mandatory rules. These are mandatory internal legislative rules; therefore they are compulsory on the international level as well. If either party violates these regulations, the obligatory laws take precedence over the law chosen and applied to the contract.
They thus represent a constraint on the parties entering into a contract with these intricate regulations. But in what ways is this legislation mandatory? We can mention certain subjects carrying policing laws in French and European law: consumer law and insurance law (provisions relating to the insured).
For example, Article 7 of the Rome Convention of 1980 on the Law Applicable to Contractual Obligations states that:
- When applying under this Convention the law of a particular country, may be given precedence to the mandatory provisions of the law of another country with which the situation has a close connection, if and since, under the law of that country, such provisions shall apply whatever the law governing the contract. (...).
- The provisions of this Convention shall restrict the application of the rules of law of the mandatory governing forum in the situation regardless of which law is applicable to the contract."
Occasionally, the parties fail to specify this in their contract and discourse.
Absence of choice by the parties
In this case, you will find the law of the contract and the court having jurisdiction in any dispute.
However, in this research, international contracts, and therefore the international commercial contracts are subject to the rules of Private International Law (PIL). This will help determine which law will apply to the international situation and which will be the appropriate court to hear the situation in case of dispute.
In Private International Law, the regulations can be roughly categorized into 3 types:
- International substantive rules: These give a direct solution to the question without going through the resolution of conflict of laws specific to the public international law. For example, in international trade law, it is important to mention the Vienna Convention of 1980 on the International Sale of Goods.
- The rule on conflicting laws: These are international (conventions) and national (internal rules for each state) rules. Where international substantive rule exists, it follows that laws are applicable to international commercial contracts through the first of an international carrier of conflict of laws, and failing such agreement, through the conflict rules of domestic laws of States. Among the international conventions bearing on conflicting laws, rules may include: The Hague Convention of June 15, 1955 regarding the law applicable to international sale of goods, the Hague Convention of March 14, 1978 regarding the law applicable to agency and representation, the Rome Convention of 1980 regarding the law applicable to contractual obligations etc. ...
- The rules developed by private actors themselves: Firstly, this is part of usages and customs relating to international trade (lex mercatoria). Secondly, the arbitral jurisprudence is tied to international trade laws. Note in this connection the considerable efforts of the Chamber of Commerce (ICC) which brings together and organizes the practices and customs of the international trading community.
Because of the intricate interactions between the principles of contractual freedom, respect of mandatory rules, and the principles of private international law, all parties involved in an international commercial contract should be vigilant. The technicality of the subject is difficult to understand, and whether at the stage of negotiating the contract to its conclusion or at its execution, the advice of a multi-skilled lawyer specializing in business and international law is necessary. In addition, it should be noted that international trade and contract law are often subject to various national rules that differ from one state to another. Therefore, with these variations in mind, the ICC seeks to promote international practices and customs, including international arbitration as an alternative to the diversity of global legal systems.