3 Important Clauses in International Business Contracts

PERTANYAAN

With the development of a wider scope of business to foreign countries, what things should be considered by entrepreneurs/businessmen when making international trade contracts, with the aim of minimizing disputes in the future? For example, a businessman wants to carry out export-import cooperation with a company abroad. Please provide an explanation.

INTISARI JAWABAN

In drafting international business contracts, to minimize future disputes, it is necessary to pay proper attention to each clause in the contract. One of them is related to boilerplate clauses that must be drafted carefully.

Boilerplate generally contains clauses such as choice of law, choice of jurisdiction, and choice of language.

Please take a look at the review below for a further explanation.

ULASAN LENGKAP

This article is an English translation of 3 Klausul Penting dalam Kontrak Bisnis Internasional, written by Timoty Ezra Simanjuntak, S.H., M.H. from S & P Law Office which was published on Monday, 13 November 2023.

All legal information available on Klinik hukumonline.com has been prepared for educational purposes only and is general in nature (read the complete Disclaimer). In order to obtain legal advice specific to your case, please consult with Justika Partner Consultant.

Definition and Benefits of International Business Contracts

Business relationships between companies that cross national territorial boundaries do require the formulation of a comprehensive contract. This is inseparable from the vital role of international business contracts as a legal basis that will unite the relationship of the parties who bind themselves. International trade or business contracts are not simple considering that they need to accommodate different systems, paradigms, and rules of law.

Quoting Ida Bagus Wyasa Putra's book entitled Hukum Kontrak Internasional, an international contract is an agreement made by two or more parties that contains foreign elements. The meaning of foreign elements here are elements arising from differences in the nationality of the parties to the contract, differences in the nationality of the parties to the contract and the location of the contract, the use of foreign languages, the use of foreign currencies, and the market target (p. 6).

In the article The Nature and Benefits of International Trade Contracts for Entrepreneurs, it is stated that trading contracts are not only a medium of agreement between two parties, but more than that, contracts have the following benefits:

1. Ensuring that what is desired in the relationship between the parties is reflected in the words and sentences in the contract.
2. If there are differences in interpretation, the contract can be used as a guide to address these differences.
3. If the dispute enters the litigation stage, whether it is court or arbitration, the contract is used to present arguments to convince the judge or arbitrator.
4. The contract is used as a basis for judges and arbitrators in deciding cases.

Matters to be Considered in Making International Business Contracts

Thus, in order to minimize disputes in the future, it is necessary to pay proper attention to each clause in the contract. One of them is related to boilerplate clauses that must be drafted carefully.

What is meant by boilerplate is a clause generally found at the end of the contract which is usually for resolving general matters such as choice of law, procedures for notification to the parties, amendments, dispute/difference resolution, and so on.[1]

Quoting Afifah Kusumadara in the book Kontrak Bisnis Internasional, it is explained that boilerplate plays an important role in "running" the contents of the contract because many legal disputes arise due to clauses in the boilerplate being drafted with less care, causing multiple interpretations between the parties (p. 77).

The book describes boilerplate which generally contains the following clauses (p. 75):

1. choice of law;
2. choice of jurisdiction;
3. choice of language;
4. force majeure;
5. notification;
6. duration/term of agreement;
7. severability;
8. integration;
9. amendments;
10. anti-waiver;
11. counterpart;
12. assignment of contract.

These clauses can be used in accordance with the needs of the parties to the contract. Therefore, to answer your question, we try to review some of the things that often become problems in international business contracts, namely related to choice of law, choice of jurisdiction, and choice of language. Even in contracts that do not involve cross-border companies, these three clauses are still important to note.

1. 1. Choice of Law

In an international business contract, of course, it involves parties such as companies domiciled in different countries. For example, a business transaction involving a company in Indonesia and a company in America. Choice of law is important to regulate, in order to accommodate legal differences and determine which law is used as a reference in business transactions. By determining the choice of law, if a dispute arises in the future, the settlement will be much easier for the parties.

This choice of law is part of the freedom of contract where the parties are free to determine it. In Indonesia, the principle of freedom of contract is stated in Article 1338 Civil Code.

According to Sudargo Gautama in the book Pengantar Hukum Perdata Internasional Indonesia as quoted in the article Tips for Determining Choice of Law and Jurisdiction in Agreements, the choice of law can be chosen by the parties to the contract with restrictions, namely as long as it does not violate public order and must not transform into legal smuggling.

1. 2. Choice of Jurisdiction

Huala Adolf in a book entitled Dasar-Dasar, Prinsip & Filosofi Arbitrase explains that Black's Law Dictionary defines jurisdiction as the power or authority of the court to adjudicate a dispute and also known as the authority of the court or competent jurisdiction (p. 141).

Thus, the choice of jurisdiction or choice of forum regulates the provisions related to the country or forum in which the dispute will be resolved by the parties.

The drafting of this clause must always be linked to the choice of law clause. In the book Hukum Bisnis Internasional, Afifah Kusumadara provides an example, if the choice of law chosen is the law of the state of New York, USA, then the choice of jurisdiction is also the court of the state of New York, USA. However, it does not exclude the possibility that there is a practice of drafting contracts that take the law of a country that is different from the place or jurisdiction where the parties' dispute will be resolved later (p. 83).

In general, if one of the parties to an international business contract, has a foreign element in it, whether it is a foreign nationality or a foreign legal entity, then the choice of jurisdiction that will be agreed upon for dispute resolution is arbitration.

Meanwhile, arbitration is a way of resolving a civil dispute outside the public courts based on an arbitration agreement made in writing by the parties to the dispute.[2]

In line with that, Huala Adolf in the book International Dispute Resolution Law explains that if the two parties agree to submit their dispute to an arbitration body, then the dispute submission clause must be made (p. 48). Thus, if the parties have made an arbitration agreement, the district court is no longer authorized to examine disputes arising between the parties.

1. 3. Choice of Language

In the drafting of international business contracts, the position of the choice of language clause is as important as the position of the choice of law and choice of jurisdiction clauses.[3]

This is because the choice of language clause will provide certainty for the parties regarding what language will be used by the parties in interpreting the contents of the contract, especially if there are differences in interpretation of the meaning of sentences in the contract because the parties come from different countries with different national languages. Therefore, with the use of the choice of language clause, it is expected that disputes caused by differences in interpretation of the contents or sentences in the contract can be avoided.

This is our answer, hopefully, you find it useful.

Legal Basis:

1. Indonesian Civil Code;
2. Law Number 30 of 1999 on Arbitration and Alternative Dispute Settlement.

Reference:

1. Afifah Kusumadara. Kontrak Bisnis Internasional. 1^st edition. Jakarta: Sinar Grafika, 2013;
2. Huala Adolf. Dasar-Dasar, Prinsip & Filosofi Arbitrase. 1^st edition. Bandung: Keni Media, 2014;
3. Huala Adolf. Hukum Penyelesaian Sengketa Internasional. 4^th edition. Jakarta: Sinar Grafika, 2012;
4. Ida Bagus Wyasa Putra. Hukum Kontrak Internasional. 1^st edition. Bandung: PT Refika Aditama, 2017;
5. Guidelines for the Preparation and Review of International Public Contracts for Commitment Making Officials of the Ministry of Foreign Affairs and Representatives of the Republic of Indonesia, 2^nd edition, Bureau of Law and Administration of Ministries and Representatives, Ministry of Foreign Affairs of the Republic of Indonesia, 2020.

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[1] Appendix I Guidelines for the Preparation and Review of International Public Contracts for Commitment Making Officials of the Ministry of Foreign Affairs and Representatives of the Republic of Indonesia, 2^nd edition, Bureau of Law and Administration of Ministries and Representatives, Ministry of Foreign Affairs of the Republic of Indonesia, 2020.

[2] Article 1 number 1 Law Number 30 of 1999 on Arbitration and Alternative Dispute Settlement.

[3] Afifah Kusumadara. Kontrak Bisnis Internasional. 1^st edition. Jakarta: Sinar Grafika, 2013, p. 82.