I. What is an International Commercial Contract?
Preparation international commercial contracts – “Trade” literally means the buying and selling of goods, products, etc., for the purpose of making a profit. However, as a term, it refers to the exchange of goods and services between producers and consumers. “International trade” refers to the exchange of goods and services between individuals or legal entities who reside, have their business centers or habitual residences in different countries, or who possess citizenship of different states. An “international commercial contract” is the term used for contracts that involve an element of foreignness. According to one viewpoint, for a contract to have an international character, its connection with multiple legal systems should be considered. Another viewpoint suggests that the recognition of the international character of a contract should take into account the persons or geographic elements related to the contract.
Contemporary trends today include including within the scope of international commercial contracts not only contracts involving international trade but also those that do not possess personal or geographical foreignness but are related to international trade.
II. Considerations in Preparation International Commercial Contracts
1. Know the Customer
International trade inherently carries various risks such as payment risk, risks arising from the agreement, transportation risk, risk of being sued, exchange rate risk, and so on. Regardless of how well-prepared the contract is for international trade, knowing and understanding each other as contracting parties and establishing the commercial relationship on the principle of trust will minimize most of the risks. Therefore, understanding the customer is the first and most important way to protect against risks. It is crucial to gather information about the customer’s legal entity, location of the company headquarters, years of commercial activity, number of employees, key references and clients, major suppliers, annual turnover, market reputation, payment history, whether there are any ongoing legal disputes, management personnel, and overall business performance.
2. Capacity to Enter into a Contract
For a contract to be legally binding, it is essential for the parties to have the capacity to enter into a contract. Before commencing the contractual relationship, it is advisable for the parties to request and review each other’s signature circulars or authorization documents, which will help prevent potential claims of “incapacity” in the future.
Under Turkish law, according to Article 9 of the Turkish International Private Law (Law No. 5718), legal capacity for natural persons is subject to their national law, while the capacity of companies, which are the most common actors in international commercial contracts, is subject to the law of the country where the company’s registered office is located. However, if the actual management center is in Turkey, Turkish law will be applicable.
3. Authority to Enter into a Contract
Before entering into a contract, the parties should verify each other’s authority and power to conclude the contract. This can be achieved by requesting signature circulars and authorization documents from the other party. If necessary, confirmation can be obtained from consulates or official institutions of that country.
In contracts where one party is a state or state entity, in order to avoid situations that block the path to litigation, the contract should explicitly include provisions stating that the state or state entity has active and passive legal capacity, waives its jurisdictional immunity according to the laws of its own country, and will not invoke jurisdictional immunity in any dispute.
4. Formal Requirements in the Contract
International contracts are generally not subject to formal requirements. However, contracts that are not made in writing between the parties will be difficult to prove. Contracts made in writing, on the other hand, will involve the application of a legal system for filling in any provisions that are not specified in the contract. In such cases, conflict of laws rules will be applied. However, contracts in which the parties have made a choice of law and have expressly determined the essential elements of the contract in writing will minimize conflict of laws issues.
Under Turkish Law, international commercial contracts are considered valid in terms of form if they are made in accordance with the form required by the country where they are concluded or the law applicable to the substance.
5. Language and Interpretation Issues
Due to the different legal systems and cultures of the parties involved in an international commercial contract, interpretation issues that may hinder the performance of the contract can arise. The concepts expressed in the contract may have different meanings in the native languages of the parties. Therefore, the language used in drafting the contract is of utmost importance. The language of the contract should be extremely clear, concise, and unambiguous. Drafting contracts in multiple languages is also a common practice in international trade.
Different methods of interpretation can arise when interpreting the expressions of intent or provisions in the contract. In Turkish law, the method of interpretation known as the theory of reliance is used. According to the theory of reliance, the meaning attributed to the declaration of intent should be determined in light of the conditions known to the recipient.
III. Key Considerations in Preparation of International Commercial Contracts
During the preparation of international commercial contracts, it is important to include the essential elements of the contract in writing. In addition to this:
To prevent potential disputes, it is advisable to include specific provisions regarding possible disputes in the contract. For example, in a contract for the sale of goods, it is important to specify the description of the goods, including their type, quantity, and quality. If the contract is for the provision of services, the essential points of the service, price, payment date, and method should be stated.
1. Contract Date
The contract date is particularly important in contracts that refer to the date of payment or delivery.
Another issue is the different formats of indicating dates in foreign countries. For example, while the date format in the United States is month, day, year, in our country it is day, month, year.
2. Description, Type, and Quality of the Goods
In international contracts for the sale of goods, it is important to specify the description, type, and quality of the goods. When determining the type and nature of the goods, it is advisable to use internationally recognized terms. If there are a wide variety of goods, explanatory information can be included in a separate document attached to the contract. It should be explicitly stated in the contract that this document is an attachment to the contract.
In international trade, in payment methods such as letters of credit and payment against documents, where banks are only responsible for checking the documents and making payment upon completion of the documents, the quality of the goods is often not inspected. Therefore, to prevent potential disputes, the samples of the goods in terms of quality should be inspected before the contract stage.
3. Quantity of the Goods
Another issue that arises in international commercial contracts is the lack of specific numbers to express the quantity and values of goods in letters of credit and contracts. For example, in a contract that includes a record for 5,000 tons of goods, there is a difference between the goods being 4,999 tons or 5,001 tons. Therefore, it is advisable to include a provision on tolerance in the contract.
Another issue may arise from the different meanings of units of measurement used in foreign countries. For example, if the term “ton” refers to a “metric ton,” it means 1000 kg or 2204.6 lbs. In the case of a “short ton” it refers to 907 kg or 2000 lbs, and in the case of a “long ton” it refers to 1016 kg or 2240 lbs. To eliminate misunderstandings in units of measurement, it is beneficial to specify in the contract what is meant by the unit.
4. Price of the Goods
The payment method is an essential condition that should be included in international commercial contracts. Various payment methods have been developed in international trade, such as cash payment, letter of credit, payment against documents, payment in exchange for goods, acceptance credit, countertrade, joint account and consignment sales, and offset payment. The place and time of payment are determined according to the selected payment method.
5. Payment Method, Payment Place, and Payment Time
The payment method is an essential condition that should be included in international commercial contracts. Various payment methods have been developed in international trade, such as cash payment, letter of credit, payment against documents, payment in exchange for goods, acceptance credit, countertrade, joint account and consignment sales, and offset payment. Preparation international commercial contracts The place and time of payment are determined according to the selected payment method.
6. Method of Delivery of Goods – Incoterms
Parallel to international trade, the International Chamber of Commerce has standardized the terms used in international trade through the development of INCOTERMS terms, which are frequently used in international commercial contracts.
INCOTERMS terms determine the mode and conditions of transport, when the delivery will be completed, the delivery conditions of the parties, the point at which the risk of loss passes from the seller to the buyer, and how the transportation costs will be shared between the seller and the buyer.
By referring to one of the INCOTERMS terms in the contract, the parties will make a decision on all transportation matters with a single word.
7. Force Majeure and Unforeseen Circumstances
After international commercial contracts come into effect, certain events beyond the control of the parties may sometimes make the performance of the contract impossible. For example, wars, internal conflicts, uprisings and rebellions, strikes, floods and fires, earthquakes can greatly hinder or make it impossible for the parties to fulfill their obligations under the contract. In order to foresee such situations, it is necessary to include provisions for force majeure and unforeseen circumstances in the contracts. In cases where there is no hardship clause in the contracts, there may be differences depending on the jurisdiction to which the dispute is referred. Especially in international commercial contracts with arbitration clauses, arbitrators consider the absence of a hardship clause as a choice of the parties and therefore do not evaluate the force majeure or unforeseen circumstances claimed by the parties because they are not included in the contract.
8. Dispute Resolution Methods – Choice of Law – Choice of Dispute Resolution – Jurisdiction
The method chosen for the resolution of disputes that may arise in international commercial contracts is another important matter that should be included in the contract.
For the resolution of disputes arising from international commercial contracts, three general methods can be determined. The first is the method of resolving disputes amicably between the parties. The second is resorting to national courts, and the third is resorting to alternative dispute resolution methods.
Are you looking for a lawyer to assist you with the preparation of international commercial contracts? Contact BAL Law Firm.
Memduh Remzi BAL
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