Legal Structure of International Contracts

In the context of globalization and the expansion of cross-border commercial activities, international contracts have become indispensable legal instruments for regulating transactions between Vietnamese enterprises and foreign counterparts. However, due to differences in legal systems, languages, and business cultures, it is often impractical for parties to rely solely on standard contract templates. Mastering the legal structure of an international contract is a prerequisite for risk management and the protection of lawful interests. This article presents an overview of the legal structure of an international contract between two enterprises, along with key considerations during the negotiation and drafting stages.

1.Definition and Legal Characteristics of International Contracts

According to the 1980 United Nations Convention on Contracts for the International Sale of Goods (CISG), a contract is considered international if the parties have their places of business in different countries. Key legal features of international contracts include:

• Multilingual nature, with English typically used as the primary language;
• Regulation by foreign legal systems or international treaties;
• Inclusion of dispute resolution clauses through international arbitration or foreign courts;
• High drafting standards, requiring the use of accurate legal terminology and internationally recognized administrative–legal language.

2.Legal Structure of an International Contract 

While each contract may vary depending on its subject matter, a typical international contract generally includes the following components:

• Preamble

The preamble introduces the contracting parties and establishes the context of the agreement. It typically contains:

• Full legal names and registered addresses of the parties;
• Names and titles of signatories (legal or authorized representatives);
• References to prior agreements, if any.

Note: Inaccurate or incomplete party information may lead to unenforceability or invalidation of the contract.

• Definitions Clause

This section defines the terms used throughout the contract. The purpose of this clause is to eliminate ambiguous interpretations and ensure consistency in the construction of contractual terminology.

Note: Legal, technical, or financial terms should be defined clearly and in accordance with the governing law and international practice.

• Subject Matter

This provision outlines the goods, services, work, or obligations to be performed under the contract, often specifying:

• Type of goods/services;
• Product codes, specifications, standards;
• Scope of work, timeframes, and place of performance.

Note: Unclear definition of the subject matter is a common cause of contract disputes.

• Performance Provisions

This section includes terms governing:

• Delivery and acceptance of goods;
• After-sales services and technical support;
• Deadlines and methods for fulfilling obligations.
• Price and Payment Terms

This clause covers:

• Contract value and currency;
• Payment schedule and any bank guarantees;
• Penalties for late payment, price adjustments, taxes, and fees.

Note: The contract should clarify whether prices are inclusive or exclusive of taxes to avoid disputes over tax obligations.

• Representations and Warranties

Each party declares certain legal, financial, and ownership representations regarding the transaction, etc.

Note: This serves as the legal basis for initiating a claim for damages in the event that one or more parties provide false or inaccurate information.

• Liability Limitations and Exemptions

Parties may agree on liability caps and force majeure clauses exempting performance in extraordinary circumstances, etc.

• Dispute Resolution

Key provisions include:

• The dispute resolution method (negotiation, mediation, arbitration, or litigation). If litigation is chosen, the parties should specify the competent court. If arbitration is selected, the contract should identify the arbitral institution, seat, and number of arbitrators, etc;
• Governing law for both contract interpretation and dispute resolution;
• Language of proceedings.

Note: The parties should reach a clear agreement on the dispute resolution mechanism and governing law in the contract to avoid jurisdictional disputes.

• General Provisions

This section typically addresses:

• Term and termination of the contract;
• Language, amendments, and appendices.

3.Key Considerations in Negotiating and Drafting International Contracts

• Tailor contract templates appropriately for international transactions: Due to differences in applicable laws and languages, standard contract templates often fail to fully meet international legal requirements and the specific nature of each transaction.
• Ensure the involvement of international legal counsel or experts: Early-stage legal consultation enables parties to identify clauses that may violate legal provisions or pose potential risks to the enterprise.
• Ensure consistency in language and governing law: Many disputes arise from inconsistencies in bilingual texts or failure to designate a governing law.

The legal structure of an international contract is not merely an administrative framework, it is the foundation for contractual enforceability and legal stability. In a world of increasing legal complexity, professionalizing the drafting and review of international contracts is an essential legal strategy to safeguard the long-term interests of Vietnamese enterprises.

This article, titled “Legal Structure of International Contracts”, is provided by TNTP. Should you have any inquiries, please feel free to contact us for timely assistance.

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