INTERNATIONAL

CONTRACT LAW
Prof. Tommaso Febbrajo
t.febbrajo@unimc.it

Prof. Tommaso Febbrajo

 Chapter II
DRAFTING
INTERNATONAL
CONTRACTS

Prof. Tommaso Febbrajo

INTRODUCTION

Prof. Tommaso Febbrajo

 INTERNATIONAL
CONTRACT: DEFINITION

• A transaction will qualify to be

international if elements of more than
one country are involved
• International contract law concerns the
legal rules relating to cross-border
agreements.

Prof. Tommaso Febbrajo

 The importance of contracts
in international transactions
• The absence of a contract continues to be a
regrettably common state of affairs. Companies,
believing themselves to be protected by a long-
term commercial relationship based on mutual
trust, make no provision for a written statement of
each party’s obligations.
• The contract may be incomplete or imprecise; in
other words, one or more essential clauses relating
to matters such as payment deadlines and
methods, the applicable law or the court of
jurisdiction may have been omitted.
Prof. Tommaso Febbrajo
 The importance of contracts
in international transactions
• Whether there is no contract or an incomplete
contract, the consequences can be very serious,
possibly even compromising commercial
relations between the parties as well as having
significant financial consequences.
• Contracts are essential means of guaranteeing
compliance with obligations and ensuring
acceptance of them by both parties.

Prof. Tommaso Febbrajo

 ISSUE N. 1
Deal with various legal systems

Prof. Tommaso Febbrajo

The legal systems: international
framework
How to deal with the various legal
system

The English common-law tradition

is tending to prevail in international
transactions.

Prof. Tommaso Febbrajo

 Common law vs Civil law
1. Source of law
Common law Civil law
• Mainly from case law from • Mostly based on codified
previous judgments legislation. Case law are not
(Judgments of the Courts binding
are binding- stare decisis)
• Codes are concised and set
• Statutes are detailed with out mainly broad principles
definitions and contain
lengthy enumeration of
specific applications and
exceptions

Prof. Tommaso Febbrajo

 Common law vs Civil law
2. Interpretation of contract
Common law
• Full respect of freedom of
contract – “Sanctity of
contract”
• Primary focus on the written
words in the contract
• Parol evidence rule – Prevent
a party to a written contract
from presenting extrinsic
evidence that contradicts or
adds to the written terms of
the contracts that appears to
be whole
Civil law
• Relevance of good faith and
fairness rules against
freedom of contract
• Primary focus on the wider
context and intentions of
the parties
• Not limited to literal
meaning of the words.
Evidence of negotiation is
admissible
Prof. Tommaso Febbrajo
How to deal with the various legal
system
In a civil law system rights and obligations
arise from a statute book constructed in
the form of codes, which comprise
general concepts that are subsequently
interpreted by courts or administrative
authorities.
Common law is a casuistic system, in
which norms are established on a case-by-
case basis.
Prof. Tommaso Febbrajo
 How to deal with the various legal
system: civil law
Contracts usually contain a preamble of
statements describing the process by which
the parties arrived at the agreement. It may
serve as a means of interpreting the
obligations set out in the body of the contract.

Prof. Tommaso Febbrajo

 Example:
Civil law sales agreement
Sales agreement
Mr. Bean, __________
And
Mr. Brown, _________
Premises (Recitals)

• Whereas, Mr. Brown is the owner of an old Fiat 500 which no longer needs.

• Whereas, Mr. Bean needs a car to go to work

Therefore, parties agree as follow:

• Mr. Brown sells his fiat 500 to Mr. Bean for the price of € 1000.

• ….

Prof. Tommaso Febbrajo

 Premises (Recitals)

• Its purpose is to state information that

forms the foundation or background
for the contract.

Prof. Tommaso Febbrajo

 How to deal with the various legal
system: common law
 Common law contracts tend not to insert preambles,
and indeed the content of a preamble is null and void.
 The practice of English courts, however, is based on
“literal interpretation”, which means that each word of
each clause has its own significance.
 In order to clarify the terms used by the parties and to
facilitate the administration of the contract, authors of
English contracts insert a set of definitions.

Prof. Tommaso Febbrajo

 ISSUE N. 2
WHICH LAW APPLIES TO THE CONTRACT?

Prof. Tommaso Febbrajo

 The governing law:
introduction
Every (national or international) contract
must have a governing law
The governing law sets forth the necessary
rules on contract formation: when (and
under which prerequisites) will a contract
come into existence?

Prof. Tommaso Febbrajo

 The governing law:
introduction
 A purely domestic contract (ex. between two
italian firms) is governed by the respective national
law: a choice of foreign law is not permitted.
 The choice of the governing law of a contract
becomes in particular relevant on the international
level. Whenever a contract has links to more than
one legal order, courts in charge of resolving a
contractual dispute must determine which law
will govern the contract.
Prof. Tommaso Febbrajo
 The governing law:
introduction
 Example:
A German company concludes a commercial
contract with a Dutch company. In the event of a
contractual dispute, courts must decide whether
German or Dutch substantive laws apply.

Prof. Tommaso Febbrajo

 ISSUE N. 2
WHICH ROLE HAS THE APPLICABILE LAW?

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 The role of governing law

 Starting point: Assume two companies, that are

domiciled in different countries, conclude an
international sales contract

Prof. Tommaso Febbrajo

 The role of governing law

Typical provisions in an international sales contract:

• Description of the contractual goods

• Contract price

• Delivery terms

• Payment terms

• Warranty periods

• Available remedies in case of breach

• Governing law of the contract (Choice of Law) /Jurisdiction Agreement

or Arbitration Agreement
Prof. Tommaso Febbrajo
 The role of governing law

What is left for the governing law once the

contract is concluded?

Prof. Tommaso Febbrajo

 The roles of governing law:
a) gap filler
 The governing law operates as a “gap filler”: legal
issues arising out of a contractual relationship that
are not addressed by the contract must be resolved
by the governing law
 As a consequence, the governing law becomes less
important once the parties have extensively dealt
with duties, rights and possible legal consequences in
case of any breach.
 The more the contract is complete, the less
governing law is important Prof. Tommaso Febbrajo
 The role of governing law:
“gap filler”
 Governing law will, in the absence of contractual
provisions, determine:
the scope of contractual obligations
the applicable remedies in case of a contract
breach (and their preconditions)
the extent and duration of liability of the parties in
case of breach.

Prof. Tommaso Febbrajo

 The roles of governing law:
a) gap filler. Case Study I
The English company E orders certain production machinery
from the German manufacturing company D. The order
submitted to D indicates the type of the equipment, the contract
price, the requested delivery dates and contains also a choice of
law provision as follows: “This order and the sales contract
concluded hereunder shall be governed by English law".

D confirms the order towards E without any further reservation.

However, due to problems with the sourcing of necessary raw
materials, D fails to deliver the contractual goods on time.

As a consequence, E terminates the contract without granting a

grace period and claims damages.
Prof. Tommaso Febbrajo
 Case Study I. Solution
English law does in principle permit the termination of a
(sales) contract in case of any (even a short) delay in
delivery.
Contrary to Dutch or German law, the buyer is accordingly
(in the absence of a contract provision stipulating
otherwise) not required to set a “grace period” (a further
period of time in wich is still possibile to fulfill obligations)
as a condition precedent for a withdrawal from the contract
A breach of contract governed by English law does
(contrary to other legal systems in Europe) not require fault
on part of the party in breach. Prof. Tommaso Febbrajo
 The role of governing law:
a) gap filler. Case Study II
• The Dutch distributor D buys certain products from the
UK manufacturer E. The contract contains only a
description of the contract goods and the agreed contract
price.
• The contractual goods delivered by E are defective. D
demands the delivery of substutite products or the repair
of the delivered products.
• E refuses to make good the defect.
• Can D enforce perfomance claims in front of a court
that has jurisdiction for the case?
Prof. Tommaso Febbrajo
 Case Study II. Solution
• If the sales contract is governed by English law, D
cannot claim performance (by means of repair or
delivery of substitute goods) given that common law
does not acknowledge a right of “specific performance”.
• If the contract would be governed by Dutch (or another
civil law State) law, D would be entitled to enforce a
claim for specific performance.

Prof. Tommaso Febbrajo

 Private international law
National courts must apply the Private
International laws of their State to determine the
applicable law of the contract in case of an
internationa dispute.

Prof. Tommaso Febbrajo

 Private international law
Private international law, also called conflict of laws, consists
of legal norms that determine three types of issues:

1) which state court has jurisdiction in private matters

having cross - border implications,

2) which state law is applicablein such matters and

3) under which conditions may a foreign decision be

recognised and enforced in another country.

Each state has its own private international law system

A global civil code does not exist

Prof. Tommaso Febbrajo
Harmonization of international law

However, different laws has been harmonized on

the international level:
- On the European level From 18 December 2009
onwards, Private Internationa law is harmonized
also in relation to (international) contractual
relationships.
Every court residing within the EU must apply the
Rome I Regulation.

Prof. Tommaso Febbrajo