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International Sales Contract
The contract for the international sale of goods 

The start-up of export or import operation requires the consent of the two parties (buyer and seller) which is generally given in writing. This agreement takes the form of an international sale contract, which aims at allocating the expenses and risks between the seller and the buyer 

The drafting of this contract is very important in order to facilitate the trade and especially to avoid disputes.  

Moreover the companies already adopting their model contracts for the international sale of goods should review them from time to time. This is true especially nowadays,  considering the effects and the new risks deriving from the pandemic crisis and the new geopolitical scenario. 

  

The legal regime of International Contract for the Sales of Goods 

Most of the legal systems, including Italian legal system, recognize the binding force of the agreement  reached by the parties of an international sales contract. 

The international sales contract may also be governed by different rules having the objective of harmonizing and facilitating international trade, especially concerning the following: 

 

  1. Rights and obligations of the parties;

  2. Expenses and allocation of risks for the transport;

  3. International payments and guarantees.


The negotiators and drafters of an international contract for the sale of goods should be aware of the rules herein briefly described. 

 

Rights and obligation of the parties: Vienna convention  

The Vienna Convention, developed in April 1980 under the aegis of United Nations, regulates international sales of merchandise. It counts today 95 signatory countries, including, among others, US, China, Italy, Turkey and most European countries but not UK or India or the Arab countries. It is applied in the case of problems due to the formulation of a contract of sale and regulates the duties and obligations of parties having their seat in a signatory country or if the parties so decide in the contract. It is also applicable if, in the absence of a choice of law in the contract, the  judge /arbitrator decides for the application of the law of a State which has adhered to the Vienna convention. 

The parties can exclude it totally or partially but also decide to make express reference to this Convention in their international sales contract.  

As a matter of fact, the companies desiring to develop an international activity,  must be informed of the legal system in the target countries and the provisions of the Vienna Convention, in order to create their own model contract for the international sale of goods or their general conditions of sale. 

 

Incoterms

Incoterms constitute today the basic rules of international trade adopted in international logistics. They allow distribution of expenses and risks in the onward journey of the goods from the seller to the buyer.  

Incoterms must be expressly and correctly indicated in the contract for the international sale of goods. 

Incoterms, although fundamental, do not cover some important aspects such as the transfer of ownership of the goods and the possibility of retaining them if the customer does not pay. Said aspects must be defined in the contract or in the general conditions of international sale. 

 

International payments and guarantees

International payments are made through the banking system. 

However, banks operate within the framework of very strict supranational rules that can make payment difficult or impossible: just think of the international economic sanctions and the recent blockade of Russian banks and / or the banking accounts of Russian individuals and companies ordered by the EU in reaction to the Russian-Ukrainian conflict. 

These are very complex and constantly changing sets of rules (UN, EU, USA, China) . 

It should also be added that foreign payments are often regulated by documentary credit, a rather technical form of payment that refers to the standards developed by the International Chamber of Commerce of Paris, ICC UCP 600. The same Chamber of Commerce has then elaborated some uniform international rules that apply to guarantee instruments (ICC Uniform Rules for Demand Guarantees – URDG 758/2010, ICC International Standby Practices – ISP 98 590/1998). 

These rules facilitate payment operations but, as for Incoterms, provided that they are correctly referred to in the international sales contract. 

 

How to draft an international sales contract 

 To prepare an international sales contract, you can operate in two ways: 

 1) Defining the commercial offer and sending it to the customer for acceptance, together with the general conditions of sale which complete the commercial offer and concern the claims for defect, the non-conformity of the goods, liabilities and remedies, warranties. 

2) Defining the commercial elements within an international sales contract that the parties must sign or otherwise accept. 

The customer must be made aware of the general conditions of sale or any term or conditions of a sale contract before accepting the offer. Otherwise, the terms of sale in the general conditions of sale which are sent lately or which are unknown to the customer are not binding and not usable in any legal dispute. 

In practice, it is wrong to transmit the general conditions of sale or, in any case, any contractual text, after the acceptance of the order by the customer or, even, to report the general conditions of sale only on the invoice or on the website.

The customer could legitimately consider himself not bound to them.  

In fact, to conclude an international sales agreement, it is sufficient that the parties agree on the elements deemed essential, elements which, usually, are indicated in the order and in the order confirmation: product specifications, price and payment, quantity, delivery date and shipping / place of delivery. 

However, it is very dangerous to sell or buy from abroad only on the basis of these few elements defined in the order and in the order confirmation, without a contract or valid general conditions. 

 

 

General conditions of sale and international sales contract: the difference

The general conditions of sale allow companies to define the legal framework of their business relationships. The general conditions of sale are specific to each exporter. They define the duties of the buyer allowing the exporter to defend its interests. 

The general conditions of sale of a company cannot be changed by the counterparty who can only adhere to them. As a consequence, the negotiation of the buyer is limited to  the commercial terms of the proposal.  

Of course, to bind the international counterpart, the general conditions must be written in English or in a language that the counterpart understands. 

However, the buyer may not accept the general conditions of the seller and  

May also propose its own general conditions of purchase. If the parties exchange their own general conditions of sale and / or purchase, there can be an objective uncertainty about the agreement and a short circuit which, at an international level, takes the name of “battle of forms “. The lack of mutual understanding can therefore lead to a conflict that will be resolved by the judge or the arbitrator on the basis of his standards of interpretation, with unpredictable results for the parties. 

Where the value at stake and the issues to be addressed are manifold, it is not always possible to use the general conditions and it is preferable that the parties negotiate and sign the text of an international sales contract, also to overcome the aforementioned drawbacks. 

 

The advantages of using general conditions of sale or contracts for the international sale of goods 

 

The general conditions of sale and the contractual texts define important aspects that reduce the risks of non-payment or litigation at an international level, such as: the form of payment, the warranty terms, liability for non-performance, the right to suspend, terminate the contract or revise the price, the applicable law and the judge or arbitrator who can decide the dispute. 

LEX IBC can help you draw up your international sales contracts and general conditions of sale, as well as assist your company in the negotiation of contracts with abroad and support your company in the best possible way in resolving disputes with customers and suppliers.   

At this link you will find a model of International Contract for the sales of goods

 

 

Non disclosure agreement
NDA and Confidentiality Agreements in Italy

NDA and confidentity agreements are used in Italy for a variety of purposes in connection with corporate, commercial, technical or financial deals and transactions. By signing a non disclosure agreement, NDA, confidentiality agreements (in Italian, “accordi di riservatezza”) generally the parties undertake not to disclose the information identified in the agreement, information which may be unilaterally provided by a party or mutually exchanged for a purpose which is defined in the same agreement.

The text of these contracts is often provided by a party in a sort of standardized form. Sometimes they are negotiated and signed between the parties, without the support of legal departments or lawyers. Hereinafter, you will find when and how to use this kind of agreements in Italy and how to avoid some risks you may face if the contract is not correctly drafted.

When you should use an NDA in Italy

Confidentiality agreements should be used:

  • In the negotiation with a potential commercial or corporate partner when the exchange of sensitive business information or technical know-how is at issue and/or when it is necessary to evaluate a potential deal (i.e., for M&A, for the transfer of technology , for a strategic supply….)
  • In the execution phase of a contract, when a company, to perform the contract, is authorized to transmit to third parties (i.e., sub-suppliers, consultants) confidential information of customers with whom it has a confidentiality undertaking.
  • To protect trade secrets: according to Articles 98 and 99 of the Italian Industrial Property Code, in order to be entitled to legal protection, the holder of a trade or industrial secret should adopt adequate measures aimed at keeping the information confidential, measures which generally include contractual undertakings of non-disclosure.

When NDA are not necessary

In Italy, there are situations where the commitment to confidentiality is already provided for by the law. The consolidated Italian banking law and the laws regulating the profession of lawyers and accountants provide for such a duty.

Company employees are also required, by law, to respect confidentiality during the course of the employment relationship. Art. 2105 of the Italian civil code prohibits the worker from disclosing information relating to the company and its production methods, or to use them in such a way as to harm the employer.

When NDA are appropriate

However, specific non-competition and confidentiality agreements may be envisaged for certain professional figures such as, for example, employees in the research and development sector, managers and commercial officers.

Without such agreements, an employee can change company and use previous knowledge, for the benefit of the new employer. Italian courts have often dismissed unfair competition actions against directors and employees who, hired by a competitor, had transferred important commercial information which had lead the new employer to  acquire customers  and suppliers of the former employer.

The courts have considered that the use of knowledge acquired by employees and directors for the purpose of carrying out similar activities for another employer – even a competitor – constitutes lawful conduct in the absence, at least, of a written commitment to confidentiality (see Tribunal of Bologna, judgment no. 733/2018).

What elements of the agreement to pay attention to

A well-written confidentiality agreement must identify:

  • the purpose for which confidential information is exchanged;
  • a clear definition of the confidential information;
  • the subjects required to respect confidentiality;
  • the exceptions to the confidentiality obligation;
  • the duration of the confidentiality obligation;
  • the judge chosen by the parties in the event of disputes and, in an international context, also the law governing the agreement. 

The object of the NDA

The information that the parties consider confidential must be clearly identifiable by virtue of the agreement.

They do not need to be secret or protected by industrial property rights or copyright (i.e. in the case of software), nor be particularly original. Information already known to the other party or in the public domain is an exception.

Definitions that are too broad and vague do not guarantee protection: Italian judges may consider such clauses indeterminate and therefore null or interpret them restrictively, limiting their effect and protection (for a specific case, see Tribunal of Milan, section of companies, judgment no. 1826 / 2018).

The duration of the confidentiality

The duration should always be specified in the agreement. In general, it can range from 12 months for the evaluation of the purchase of a patent application, to 10 or 20 years for a corporate transaction.

Some agreements are for an indefinite period, except obviously in the case that the information becomes, in the meantime, in the public domain. The clause requiring that information be kept confidential until it becomes publicly known or easily accessible is valid under Italian law and  is consistent with the rules laid down by Articles 98 and 99 of the Italian Industrial Property Code, concerning the protection of trade secrets for an indefinite period of time, so long as the information  is kept confidential.

Accordingly, in Italy, confidentiality agreements, unlike non-competition agreements, do not have a maximum duration established by law. However, limitations regarding the duration and the possibility of entering into such agreements may exist, on the basis of antitrust legislation, for companies in a dominant position or operating in specific sectors.

Additional undertakings in NDA

It is possible and also advisable to specify the additional obligations of the parties to a NDA: depending on the case, the parties may be required to destroy the confidential information received and to provide proof of the destruction or to return the documents and, also, to maintain confidentiality also for an additional period, after the termination of the agreement.

Penalty clauses in NDA

Confidentiality agreements generally include – but do not necessarily contain – penalties in the event of a breach.

The pros of the penalty clause is that it:

  • has a deterrent effect;
  • establishes a default compensation amount;
  • contributes to the mitigation of the risk from disclosure of know-how.

Conversely, if the penalty clause is poorly written,

  • it might limit the compensable damage and be not effective;
  • in certain European jurisdictions like Italy it is admissible but the judge may reduce the amount of the indemnity if it is manifestly excessive, taking into account the interest of the disclosing party (Article 1384 of the Italian civil code).

In fact, under art. 1382 of the Italian civil code, the penalty clause is the clause by which it is agreed that in the event of non-fulfillment or delay in fulfillment, one of the contracting parties is required to perform a specific obligation, generally the payment of a lump sum of money. The advantage is that the penalty is due regardless of the proof of damage. However, the penalty clause has the effect of limiting the amount due for damages, if the right to compensation for damages exceeding the amount of the penalty is not dealt with in a specific clause of the agreement.

Other remedies

In the event of a breach of the confidentiality agreement, generally the non-breaching party is entitled to terminate the agreement, to enforce it by order of the judge, and to claim damages.

If the information disclosed or used in breach of a confidentiality agreement qualifies also as a trade secret protected under Articles 98 and 99 of the Italian Code of Industrial Property, the legitimate holder will be entitled to all the remedies normally available to IP rights holders, including:

  • Preliminary injunctions and seizure.
  • Protective measures.
  • Market withdrawal of the products manufactured using the confidential information
  • Disgorgement of infringer’s profits 

The risks of confidentiality agreements: 3 examples in practice

A) A company that produces machinery is often required by its customers to sign their confidentiality agreements.

Often, these contracts are signed in a hurry without any legal review and, in some cases, they may contain abnormal clauses, for example, the assignment of all rights on the supplied machinery to  the customer, including the right to patent it.

As a consequence the manufacture had to renounce to patent the machine sold because of such a clause in the confidentiality agreement, clause that a review by a lawyer or a legal department prior to signature would certainly have corrected.

B) An Italian company A supplies components to an important foreign customer B who transmits A the drawings and other confidential commercial information covered by a confidentiality agreement. A does not impose any confidentiality obligation to its suppliers with whom it shared important customer information.

One of these suppliers of A transmits the confidential information to a competitor of B. Customer B terminates the supply contract with A and obtains compensation for damages from company A for breach of the confidentiality agreement.

C) Finally, in an international context, it often happens that, due to the lack of coordination, initial confidentiality agreements and subsequent contracts signed by the same parties are subject to different laws and jurisdictions. So, there is a risk that, in case of controversy, the parties will trigger a double international dispute in two different jurisdictions. Here, too, the problem can be overcome with a legal review and better coordination of the contractual documents being negotiated.

Conclusions

NDA in Italy are valid and enforceable and are not subject to any limit of duration established by law. The parties are free to choose both governing law and jurisdiction. The parties are also free to provide for arbitration, either domestic or international.

Under Italian law, it is possible to use broad definitions of information submitted to  a confidentiality agreement.

However, to prevent an Italian judge from qualifying such broad definition as a style clause and considering it unenforceable, it is highly advisable to specify the typologies of confidential information actually intended to be disclosed between the parties.

When a penalty is contractually agreed, it is generally enforceable. However under Italian law the judge may reduce the amount of compensation if it is manifestly excessive, considering the interest of the disclosing party.