How to prepare an international commercial contract

Mainstream

The preparation of an international commercial contract is not just a fixation of agreements on paper. This is the creation of a working system for managing transactions and risks.

The main issue is not to sign the document. The question is whether this agreement will protect the company’s interests in two years, in another jurisdiction and in a time of crisis.

Therefore, the effective preparation of an international treaty is based on three principles:

• The contract must work without a lawyer.
• The treaty must foresee conflict.
• The treaty should create leverage.

If these three principles are not incorporated into the document, the parties do not sign a contract, but a deferred dispute in which they will not have a strong position.

When special care is required in the preparation of the contract

An international commercial contract requires in-depth study if:

• the counterparty is in another jurisdiction;
• The applicable law is different from the law of one of the parties;
• the amount of the transaction is significant for the business;
• The contract is concluded for a long period of time;
• the transaction is related to the supply of goods crossing the border;
• subject of the contract - services, works, licenses or supply of equipment;
• The structure of the transaction includes several stages, advances and guarantee withholdings;
• the contract is related to EPC contracts, distribution agreements, agency agreements, M&A or joint ventures;
• there are sanctions risks in the transaction;
• The business depends on one supplier or buyer.

The mistake most companies make

Most entrepreneurs and even lawyers start preparing a contract by looking for a template.

That's the wrong first step.

The right first question is:

How can a contract achieve a commercial objective while protecting the company from worst-case losses?

Sometimes the best contract is not a 50-page document in English. Sometimes it is a 10-page agreement with a step-by-step execution order, where each item is written for a specific transaction, a specific counterparty and specific risks.

The preparation of an international treaty requires not copying other people’s reservations, but strategic construction of the deal.

Step 1. Determine the commercial purpose and structure of the transaction

Before opening the text of the contract, you need to answer the questions:

• Who gives what and when to whom?
• What is the sequence of actions: First delivery or first payment?
• What is the result of the transaction: goods in the warehouse, signed certificate, working equipment?
• Where does risk transfer occur?
• What is the currency and settlement procedure?
• How many stages is the deal?
• Who gets the ownership and at what point?
• Are there security instruments: Letter of credit, guarantee, bail, withholding?

If the commercial structure of the transaction is not clear, even the best lawyer will not be able to write an effective contract. The contract only formalizes the transaction, but does not replace its well-thought-out architecture.

Step 2. Correctly determine the parties to the contract

It seems obvious, but this is where a lot of problems are laid.

It is necessary to check:

• the full and exact name of the party;
• registration data;
• country of incorporation;
• the legal capacity to conclude this contract;
• the authority of the person signing the contract;
• whether the party is related to the sanction jurisdictions;
• who will actually fulfill the obligations;
• Is there a parental guarantee if the counterparty is a specially created company?

Typical error: The contract is signed with a company that has no assets, while the operating activities are carried out by another group structure.

Step 3. Detail the subject and procedure of execution

The subject matter of a contract in international transactions must be described in a way that is understood not only by the commercial director, but also by the judge or arbitrator.

It is necessary to resolve:

• What is being delivered or executed;
• Technical specifications and quality requirements;
• volume, quantity, timeframe;
• the basis of delivery (Incoterms);
• the time of transfer of risk and ownership;
• acceptance procedure and conformity criteria;
• documents confirming the execution;
• consequences of inconsistency.

Blurred language like “providing quality services” is almost useless in an international context. The contract should contain objective criteria that can be relied on in a dispute.

Step 4. Build a price and payment mechanism

The financial block of the contract should answer not only the question of “how much”, but also the questions of “when”, “under what conditions” and “how”.

Key elements:

• contract currency;
• fixation or price formula;
• currency clause at the risk of exchange rate fluctuations;
• payment schedule;
• advances and conditions of their return;
• guarantee withholdings;
• the time of the obligation to pay;
• the documents of the basis for payment;
• bank details;
• Procedure for notification of change of details (critical for fraud prevention);
• Taxation withholding tax (VAT)

The mistake at this stage is not to tie the payment to the confirmed execution of the transaction stage.

Step 5. Select applicable law

The choice of applicable law is not a formality. It is the choice of rules by which the treaty will be judged, its validity, interpretation, breach and consequences.

Choice of law affects:

• the validity of the terms of the contract;
• approach to interpretation;
• limitation period;
• the procedure for accruing interest;
• the possibility of recovery of losses;
• Limitation of liability;
• regulation of force majeure;
• sanctions consequences.

If the parties leave the choice of law unaddressed, in the event of a dispute, the law will be determined through conflict-of-laws rules, creating uncertainty for both parties.

The choice between English, Swiss, DIFC, French or otherwise must be informed and consistent with the structure of the transaction.

Step 6. Establish an effective jurisdictional clause

The jurisdictional clause answers the question of where and how the dispute will be resolved.

Options:

• the state court of a particular country;
• International Commercial Arbitration (ICC, LCIA, SIAC, DIAC, SCC, VIAC and others);
• ad hoc arbitration;
• Preliminary negotiations or mediation;
• combination of mechanisms.

The arbitration clause must be complete and unambiguous. It should include:

• Arbitration Institute and Rules;
• place of arbitration (this affects the procedural law and the possibility of challenge);
• language of the proceedings;
• number of arbitrators.

Typical error: Write “the dispute is submitted to arbitration”. Such a clause is often inoperative and leads to additional disputes over competence.

It was important to verify separately that the jurisdiction clause did not conflict with interim measures. A party should be able to apply to a state court for the seizure of assets, even if the underlying dispute is being arbitrated.

Step 7. Allocate risks and responsibilities

In international treaties, it is the central bloc that determines the balance of power.

It is necessary to resolve:

• Limitation of liability (general cap and exceptions);
• exclusion of indirect losses;
• fines and late payment;
• responsibility for quality;
• warranty periods;
• the procedure for presenting claims;
• indemnity (loss compensation) for certain reasons;
• liability insurance.

Important: Limitation of liability should not protect against everything. Violation of confidentiality, intellectual property infringement, gross negligence, intentional breach, breach of sanctions obligations should not normally be covered by a general limitation of liability.

Step 8. Prescribe force majeure and change of circumstances

The events of recent years have shown that the standard list of force majeure circumstances is insufficient.

In a modern international treaty, it is necessary to take into account:

• pandemics and epidemics;
• sanctions restrictions;
• Currency restrictions and blocking of payments;
• Disruptions in supply chains;
• Cyberattacks;
• closing of borders and transport corridors;
• actions of regulatory authorities.

The Force Majeure Clause should answer practical questions:

• What happens to obligations during the circumstances?
• When and how to notify?
• When does a party have the right to terminate the contract?
• What's going on with the advances?
• What obligations remain?

It is also necessary to include a hardship clause - a mechanism for adapting the contract to a significant change in economic circumstances that are not force majeure in the strict sense.

Step 9. Insert a sanctions clause

For international business, this is no longer an option, but a must-have.

The sanctions clause should:

• determine the applicable sanctions regimes;
• contain assurances of the parties about non-involvement in sanctioned persons and jurisdictions;
• give the right to suspend performance or terminate the contract in case of violation of assurances;
• regulate the consequences of termination;
• be coordinated with the force majeure clause.

Without such a clause, the company risks being in a situation where it is obliged to perform the contract, but cannot accept payment or deliver the goods due to sanctions restrictions.

Step 10. Ensure enforceability and leverage

A good contract should give a party the tools of defense without immediate recourse to arbitration or court.

These tools include:

• the right to suspend performance;
• Retention of property (retention of title);
• bank guarantee;
• Letter of credit;
• the right to set off counterclaims;
• penalty automatically accrued in case of violation;
• guarantee of the parent company;
• security payment;
• the right to unilateral extrajudicial termination in case of a fundamental breach.

These mechanisms must be explicitly stated in the contract and formulated in such a way as to be enforceable under applicable law.

National law or international law: pick

The choice between legal systems is not abstract. It depends on business habits, counterparty jurisdiction, place of arbitration and future execution strategy.

How to make a contract a working instrument, not a formality

The best international commercial contract is not one that is simply signed and forgotten. It's the document that runs the deal.

It is desirable to include:

• clear wording of obligations with measurable parameters;
• communication and notification procedures;
• schedule and conditions of execution;
• templates of key documents (acts, applications);
• the mechanism of decision-making in case of deviations;
• transparent system of consequences of violation;
• Realistic timeframes, not “in a reasonable time frame.”

The contract should be written so that the company manager can understand what to do and when, and the lawyer in case of a dispute has a clear legal position.

Common mistakes in the preparation of an international commercial contract

1. Copying a contract from another transaction without adapting to the country, counterparty or type of transaction.
2. A standard or incomplete clause is often worse than its absence.
3. The use of terms from English law in a contract under Swiss law.
4. The agreement is signed, and the corresponding bank then blocks the payment.
5. In a critical situation, the party does not know whether it can withdraw from the contract and under what conditions.
6. Uncertainty with the moment of transfer of ownership is especially critical in the bankruptcy of the counterparty.
7. If the contract is in two languages, it is necessary to specify which text is predominant.
8. The contract is not signed by an authorized person This gives the second party the opportunity to challenge the validity of the contract in the future.
9. Without warranties and representations, it is difficult to prove that the counterparty misled.
10. Weak Notification Mechanism In a dispute, a party will not be able to prove that it has sent a claim or notice of termination.

Checklist for the preparation of an international commercial contract

Before signing the contract, you need to check 15 points:

1. Are the parties and their powers properly defined?
2. Is the structure of the contract consistent with the commercial purpose?
3. Is the subject and outcome of the transaction described in detail?
4. Is the price and payment mechanism transparent?
5. Is the payment tied to the confirmed performance?
6. Has the applicable law been chosen?
7. Is the jurisdictional clause complete and enforceable?
8. Is the responsibility block balanced?
9. Are sanctions risks taken into account?
10. Does the contract contain a working force majeure and hardship?
11. Is there a right to suspend performance?
12. Are there security instruments?
13. Is the order of termination clear?
14. Is the issue of privacy and data protection resolved?
15. Is there a notice and information order?

What a strong strategy for preparing an international treaty looks like

A strong strategy usually includes five levels:

1. Commercial Architecture: Transaction structure, stages, financial flows and risk transfer.

2. Legal Foundation Choice of Law, Jurisdiction, Language and Peremptory Rules.

3. Allocation of liability, force majeure, sanctions, assurances and guarantees.

4. Self-Enforcing Mechanisms Bank guarantees, letters of credit, retention of rights, right to suspend performance.

5. Dispute Resolution Strategy An arbitration or judicial clause that is tailored to the specific assets and jurisdictions where the award will be enforced.

Without the fourth and fifth levels, the first three may not work in a crisis.

FAQ

Can I use a single template for different countries?

Nope. The same pattern, which works in Europe, may not be enforceable in the MENA region or Southeast Asia due to differences in peremptory norms and legal traditions.

What right to choose: English or Swiss?

There is no universal answer. English law is often chosen for predictability and detail. Swiss for neutrality and flexibility. The choice depends on the counterparty, the type of transaction and the place of arbitration.

Do I have to make a contract in two languages?

If the parties are from different language environments, a bilingual contract reduces the risk of misunderstanding. It is important to state which language is predominant.

Can the contract be changed after signing?

Yes, by signing additional agreements. It is important to follow the same form and verify the credentials of the signatories.

What to do if the contractor offers a template?

Conduct a full legal review. The counter-agent template is always biased in favor of the person who wrote it.

What is the danger of a contract without an arbitration clause?

In the event of a dispute, a competent state court will have to be sought, which for parties from different countries often means a lengthy process and uncertainty with the recognition of the decision.

Is it enough to sign the contract electronically?

In many jurisdictions, yes, but it is necessary to ensure that the manner of signature is recognized under applicable law and does not pose a risk of challenge.

When do I need a parent company guarantee?

When a contract is signed with a specially created company without significant assets, the actual performance depends on the group as a whole.

More importantly: Detailed agreement or trust between partners?

Trust is important to start a business. A detailed contract is important to continue when something goes wrong. A good contract does not exclude trust, but protects both parties in case of unforeseen circumstances.

Related services

• International Trade, Distribution & Cross-Border Transactions
• Commercial Contracts
• International Arbitration, Commercial Litigation & Cross-Border Disputes
• Sanctions, Export Controls & International Compliance
• International Regulatory Risk & Strategic Advisory
• Corporate Investigations, Regulatory Investigations & Business Integrity

Related material

• How to choose an arbitration clause for an international treaty
• How to check a foreign counterparty before concluding a contract
• How to recover debt under an international commercial contract
• International arbitration: When it is more effective than the court
• How to protect a company from non-payment for international delivery
• Sanctions and international treaty law
• Bank Guarantee and Letter of Credit in International Transactions
• How to Create an International Supply Contract Without Critical Errors
• Execution of foreign judicial and arbitral awards
• Interim measures in international commercial disputes

Conclusion

The preparation of an international commercial contract requires not just legal technique, but strategic thinking.

A strong contract is built on a clear transaction structure, precise wording, the right choice of law and jurisdiction, thoughtful risk allocation and built-in protection mechanisms.

In international business, the winner is not the one who signs the contract faster. The winner is the one who, at the time of signing, already understands how this treaty will behave in a crisis and what leverage it gives to the party.