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:
- Rights and obligations of the parties;
- Expenses and allocation of risks for the transport;
- 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 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.
- 1 The legal regime of International Contract for the Sales of Goods
- 2 Rights and obligation of the parties: Vienna convention
- 3 Incoterms
- 4 International payments and guarantees
- 5 How to draft an international sales contract
- 6 General conditions of sale and international sales contract: the difference
- 7 The advantages of using general conditions of sale or contracts for the international sale of goods