This article is written by Pratham Dave. This article has been edited by Ojuswi (Associate, Lawsikho).
This article has been published by Sneha Mahawar.
In the fast and growing world, there is an increase in cross-border investments and the expansion of organizations or business entities. To expand the business or in cross-border investments in another country, there is a requirement to incorporate international contracts and contract enforcement is the necessary element of legally binding contracts, regardless of the types of contracts, whether there is an international contract or not. Even at the time of the disputes arising between the parties over a term of the contract, a court of law will examine whether the agreement is valid and enforceable or not. In international contracts, contract enforcement legally binds the parties to follow the terms of the agreements. If there is a breach by any party, then the aggrieved party can challenge it in a court of law and claim damages for it.
An effect of weak contract enforcement can lead to many problems, such as difficulty in international trade, harmful investment, restrictions on entrepreneurship, etc.
What are international contracts
The term “international contract” means a legally binding agreement between two or more parties from different countries, in which they are entitled to do or not to do certain things. Those countries can have different legal systems. [i.e., civil or common law]. International contracts should be written rather than oral in order to be more precise and have simpler dispute resolution mechanisms. These contracts include all features of international trade, although the most commonly used ones are:
- International sale deed
- international supply agreement.
- International services agreement
- International franchise agreement
- International distribution agreement
- International agency agreement
- international manufacturing agreements, etc.
International contracts are majorly inclined towards international trade, cross-border transactions, etc. Without international contracts, international trade, cross-border investments, and other activities become difficult to manage if disagreements arise between the parties.
The products or services being exchanged across international borders, this kind of commerce enables more market competitiveness and competitive prices. Due to competition, buyers can purchase goods at lower prices. However, in order to prove that a process or transaction occurred between two or more parties, an international contract must be signed or executed by the parties in question. This aids in the hassle-free resolution of disagreements between the parties.
Essentials of international contracts
There are many terms that should be included in every international contract; a few of them are as follows:
- Force Majeure Clause: When unavoidable occurrences (such as war, embargoes, significant disasters, etc.) prevent a party from upholding their end of the bargain, this clause helps to end the contract. This clause should be invoked in all international contracts.
- Governing Law: This clause implies which nations’ laws should apply in the event of a conflict. Contracts and agreements often contain governing law terms, also known as choice of law clauses, which specify the laws that will apply to the transaction in the event of a dispute. They are common provisions included in agreements and transactions involving businesses. It makes sure that there is no ambiguity regarding which laws apply to a contract. Since they can demand that the contract takes into account local legislation, the party proposing the agreement stands to gain the most.
- The question of jurisdiction can get tricky when disagreements occur between parties to an international transaction. Regarding the location of the courtroom, there are no set rules. Therefore, all international contracts should incorporate a clause identifying the court, region, or panel that will resolve the disagreement. A clause identifying the court, region, or panel that will resolve disagreements should be included in all international contracts.
- International contract parties could not communicate in the same language. In such cases, the final agreement may be translated into a number of languages, with the possibility of up to two or three language versions of the same document. Therefore, it is crucial to designate through a language clause which language is the “official” version of the contract. The act of translating will necessarily modify the meaning of some elements of the agreement, even though a proper translation of a contract by a legal expert will make every effort to remain as close to the original as feasible. Without a language clause, there could be problems in the future if a court wants to figure out what the contract means and it’s not clear which version is the official one.
Benefits of international contracts
International agreements are important because various nations have competitive benefits in the manufacturing of specific items. International trade agreements are simple when one country provides a good that another requires; by allowing open commerce of that good, both countries profit. The importing nation obtains access to necessary products, while the producing nation gains access to new consumers. There are a lot of good things about international trade agreements, like more exports, economies of scale, more competition, and the use of a lot of raw materials.
Purpose of international law
Increased interstate participation is what led to the development of international law. Its primary goal is to keep international peace and security among various states. It also helps in:
- promotion of cordial ties between the member nations (members of the international community, for example, the United Nations),
- In ensuring fundamental human rights,
- to resolve global issues through collaboration between nations.
- The United States should refrain from threatening or using force against the territory of any other state in order to guarantee the people’s right to self-determination,
- Among its duties is the employment of peaceful means to resolve international issues.
What is contract enforcement
A contract must be complied with in order to be enforced. When two people agree to sign a contract, they must follow the law of contracts and keep their end of the deal.
The Standard Rule for Contract Enforcement says that a certain part must be legally binding:
For instance, the 1919 case of Balfour v. Balfour was the foundation for contract law as it gave birth to the purpose behind the creation of the legal reaction theory in contract law. Legal reaction theory means that one lawful act will be responsible for a subsequent legal act taking place. Lord Justice Atkin observed that agreements that are made between a husband and his wife, specifically for personal family relationships, to provide maintenance costs and other related capital, are generally not categorised as contracts because, in general, the parties to the agreement do not intend to enter into an agreement that should be for legal ends. Therefore, a contract cannot be enforceable by nature if the parties to it do not intend to create legal relations with each other.
Why does contract enforcement matter
- Increase in trade and investment:
- Many countries report that they would be willing to invest more if they had greater confidence in courts.
- Economic Development and Sustained Growth:
- A study found that countries with better court systems have larger and more efficient firms.
- Improved access to credit
What does contract enforcement measure
The contract enforcement measures include
- The time and cost of resolving the dispute through a local first instance court;
- The quality of judicial processes index, which includes a series of good practices in the areas of court structure and proceedings, case management, court automation, and alternate dispute resolution [ADR];
Enforcement of treaties
When it comes to enforcing international law treaties, conventions, and other agreements, it matters if these agreements are automatically legally binding on India or if the government has to ratify them (Article 253 says the government has the power to do this even if the agreement has financial obligations) or if there needs to be enabling legislation.
Article 253: Legislation for giving effect to international agreements
The Honourable Supreme Court of India’s ruling in the important case of Jolly George Varghese and Others vs. Bank of Cochin addressed the issue of whether treaties are immediately binding or whether any specific legislation is required to make them so. The Honourable Supreme Court of India ruled in this matter that “The positive commitment of the State Parties ignites legislative action at home but does not automatically render the covenant as an enforceable part of the corpus juris of India,” in the words of Justice Krishna Iyer.
In general, we can see that domestic laws are supported by international treaties and covenants. Typically, treaties are used to fill in any gaps in domestic law, to interpret the domestic law in cases of ambiguity in the language, to support and justify a decision made in any case involving domestic or international law, to put into effect international conventions, decisions of international conferences, and treaties, covenants, and protocols if they are not in conflict with currently enacted domestic laws, and to satisfy and assist with the goals of domestic and international law.
All types of agreements, including international contracts, include provisions for contract enforcement. A contract’s validity is ensured through its enforcement. Contracts that are not legally enforceable cannot be enforced in court. As a result, the key component of international contracts is contract enforcement. The parties should confirm whether the contract is enforceable.
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