Typical errors in the negotiation of international treaties

Mainstream

Negotiating an international commercial contract is not an exchange of changes until a compromise on price and timing is reached. It is about managing legal risks that will only show up when something goes wrong.

The main mistake is to approach the contract as a formality, which is “needed by accounting”. In reality, the contract should work in three scenarios: normal execution, failure of execution and complete breakdown of the relationship. Most errors are laid at the stage of negotiation, when the parties focus on commercial terms and ignore the legal mechanism.

The correct approach requires answering three questions before signing:

• What happens if the contractor does not pay or deliver the goods?
• Where and by what rules will we argue?
• Can the decision be implemented and assets protected?

If these questions are not clearly answered, the contract contains a critical defect – even if the commercial terms seem perfect.

When the negotiation of an international treaty requires special attention

The risk of error is particularly high in the following situations:

• the contract is subject to foreign law (for example, UAE law, English, Swiss law);
• The parties are companies from different legal systems;
• the contract provides for international arbitration or a foreign court;
• the amount of the transaction is significant or the contract is long-term;
• The subject matter is complex supply, services, EPC contracts, distribution or agency agreements.
• the treaty affects sanctioned jurisdictions;
• Model forms are used without adaptation;
• The negotiations are conducted in a language that is not native to one of the parties.

Mistake #1: Unworkable or pathological arbitration (judicial) clause

The most costly mistake is the uncertainty of the dispute resolution mechanism. Typical errors:

• (a) the designation of a non-existent arbitration institution;
• the conflict between arbitration and the court (“the dispute is submitted to arbitration or to the court of the city...”);
• absence of a place of arbitration;
• The name of the institution is incorrect (for example, “ICC in Paris” without specifying that the ICC is the International Chamber of Commerce, not a court);
• a reference to rules that do not apply without an additional agreement;
• selecting a jurisdiction that cannot enforce in the country where the assets are located;
• ignoring that UAE law, for example, requires special attention to the arbitration clause, including the powers of the signatory, otherwise the decision may be challenged.

Result: dispute over jurisdiction before the dispute is essentially a waste of time, an increase in cost, and sometimes an inability to protect rights. The arbitration clause must be verified as carefully as the financial terms and conditions.

Mistake 2: Lack of choice of applicable law or wrong choice

When parties leave the “applicable law” blank or specify “the laws of the Russian Federation and the UAE,” they create uncertainty that will be costly in any dispute. Determining the applicable law through conflict-of-laws rules is always a risk of unpredictable results.

The mistake also lies in the choice of law without taking into account its content. For example, the choice of UAE law may be reasonable for contracts with a local partner, but the lender should understand the features of: limitation period, approach to interest, damages, interpretation of force majeure, possibility of recovery of court expenses. If you don’t know these features, you negotiate the contract blindly.

Mistake #3: Incomplete definition of the subject and scope of obligations

“Supplier of equipment according to specification” without the specification itself, “consulting services” without a list and acceptance criteria is not a contract, but an invitation to a dispute. In international transactions, where the parties are separated by distance and legal traditions, inconcretion leads to the fact that each interprets the scope of obligations in his favor.

This is especially critical for EPC contracts, software development contracts, supply of complex equipment, distribution agreements. It is necessary to record:

• accurate description of the goods/services;
• technical parameters and standards;
• conditions and procedure for acceptance;
• documents confirming the execution.

The more complex the subject, the more detailed the description should be. The lack of such detail is one of the main reasons for disputes about the quality and scope of execution.

Mistake #4: Ignoring the payment mechanism and financial guarantees

Agreeing a price without agreeing on how and when that price will turn into real money in an account is a common mistake. What should be clearly stated:

• payment terms and stages (advance, interim payments, final settlement);
• a list of documents required for payment;
• bank details and currency of payment;
• liability for late payment (not “found under the law”, but a specific percentage);
• the right to suspend performance in case of non-payment;
• the possibility of using a letter of credit, a bank guarantee, retention of title until full payment;
• Tax and currency clauses.

In international contracts, especially involving companies from the UAE and the Middle East, unworked payment terms often lead to cash gaps and months of delays. A contract should protect cash flow, not just a commitment to pay someday.

Mistake 5: Template or unadapted force majeure

Force majeure clauses are often copied from the old pattern without taking into account the specifics of the transaction and the region. As a result:

• The list of events does not cover real risks (e.g., port closures in the region, UAE-specific circumstances such as extreme weather, visa suspension, export restrictions).
• There is no notification procedure;
• consequences are not settled - termination, postponement, redistribution of losses;
• interaction with sanctions clauses is not taken into account.

After a pandemic and geopolitical events, a qualitative force majeure clause is not a formality, but an essential condition. An error in this section may deprive you of the right to defer performance or termination without penalty.

Mistake 6: Neglect of sanctions clauses

Today, any international treaty, especially if it concerns supplies, technology, logistics or financial services, must contain a sanctions clause. Mistakes:

• absence of a reservation at all;
• vague wording that does not allow to suspend execution when new sanctions are imposed;
• inconsistency with applicable law;
• ignoring that even unintentional violation of the sanctions regime can lead to blocking payments and reputational losses.

A sanctions clause should give the right to suspend obligations and withdraw from the contract without liability if performance becomes impossible or unlawful under the applicable sanctions regimes. Companies operating in the UAE must consider both local and international sanctions risks.

Mistake #7: Weak liability and limitation provisions

The parties often either agree on “legal liability” or, conversely, completely exclude indirect damages without analyzing the consequences. Mistakes:

• lack of a clear mechanism for calculating losses;
• exclusion of lost profits without assessing its real share in the possible damage;
• symbolic fines that do not stimulate execution;
• Unlimited liability for all violations;
• inconsistency with applicable law (in some jurisdictions, including the UAE, the limitation of liability may be interpreted restrictively or challenged).

The right approach is to differentiate responsibility: stricter for key breaches (non-payment, breach of exclusiveness, confidentiality) and reasonable limits for other risks. Plus always ensure the right to recover court and arbitration costs.

Mistake 8: Lack of effective notification procedures

Legally significant notices – claims, withdrawals from the contract, force majeure notices – require a formalized procedure. Often the contract specifies only the postal address without e-mail or, conversely, only e-mail without duplication by courier. The dispute over whether a notice has been sent and received is one of the most frequent procedural disputes.

It shall be indicated:

• ways of sending (courier, e-mail with confirmation, mail);
• the time when the notification is deemed to have been received;
• Language of notifications;
• Contact details of the responsible persons.

This is especially important in the Middle East region, where actual addresses can change and legal addresses can only be used formally.

Mistake 9: Ignoring the need for translation and bilingualism

If a treaty is in two languages but does not specify which text prevails in case of discrepancies, it is a future dispute. If the contract is signed only in English, but one of the parties – a company operating in an Arab legal environment where local courts or partners may require an Arabic version – there is a risk of misunderstanding and non-recognition of the terms.

Decision: either one prevailing language or a quality verified translation with a clear caveat as to which version controls the interpretation. For UAE-based execution contracts, it is often wise to prepare a bilingual version with English or Arabic priority depending on the jurisdiction and partner.

Mistake #10: Unadapted use of generic proforma

ICC model forms, industry model contracts, precedents from other deals are a great starting point, but not the final document. The mistake is that the terms do not adapt to the specific transaction, applicable law, region, and balance of power of the parties. As a result, a contract may contain provisions that are unenforceable or not legally binding in a particular jurisdiction, or conversely, create unforeseen obligations.

Any template should be subject to an individual audit by a lawyer who knows the law of the country where the contract will be executed or disputed.

How to avoid mistakes in the negotiation stage

Prevention of defects is much cheaper than their elimination in a dispute. It is important to ensure that the harmonization phase:

• full verification of the counterparty and its powers;
• mandatory analysis of applicable law;
• Audit of the arbitration clause;
• stress test: Modeling of infringement scenarios and verifying how the treaty resolves them;
• Check all applications and specifications before signing;
• (a) to ensure that the signatory has powers under the constituent instruments and the law of the place of establishment;
• Documentation of all pre-contractual correspondence in case of an interpretative dispute.

Checklist: 15 Critical Points in the Negotiation of an International Treaty

1. Are the parties and their registration details clearly identified?
2. Does the signatory have the authority?
3. Is clarity achieved on the subject matter and scope of the obligations?
4. Are the terms and conditions of payment fixed with details of the documents of the grounds?
5. Is the applicable law clearly chosen and conflict of laws uncertainties excluded?
6. Does the contract contain a valid arbitration or judicial clause stating the place and rules?
7. Is the language of the proceedings defined?
8. Is there a mechanism for notification and the time of receipt?
9. Are there adequate liability measures for late payment and non-performance?
10. Are interest, penalties and damages settled in accordance with applicable law?
11. Is there a valid force majeure clause covering current risks?
12. Are there any sanctions and export control clauses?
13. Are the rules on termination and its consequences agreed?
14. Is there a possibility of recovering legal and arbitration costs?
15. Have the compliance of the principal provisions been verified in the jurisdictions of execution and the location of the assets?

Comparison: What destroys the contract most often

FAQ

What is the most costly mistake in negotiating an international treaty? It paralyzes the defence before proceedings begin and generates a separate, often lengthy, dispute over competence.

Can you rely on a standard contract from the Internet? Any template requires adaptation to a particular transaction, applicable law and jurisdiction. Without such adaptation, a model contract is a source of undetected risks.

More importantly: Choose applicable law or jurisdiction? Both are critical. But if a right can be applied in different places with a certain degree of flexibility, then a mistake in a jurisdiction often means that the decision cannot be enforced. Both elements must be agreed upon together.

It is necessary to take into account the peculiarities of local legislation, the judicial system and the practice of arbitration (in particular, DIAC). Many of the provisions standard for English law may be interpreted differently or require additional formalities. Attracting lawyers with experience in UAE law is not a superfluous thing, but a necessity.

If the counterparty is from an Arab country or the execution takes place in the UAE, a bilingual version is often required or highly desirable. But you need to specify the prevailing language.

Technically, you can use an additional agreement, but if the error is detected at the time of the conflict, the second party is unlikely to agree to changes that strengthen your position. Therefore, correction must be made before signing.

Related services

• International Commercial Contracts, Drafting & Negotiation
• International Arbitration, Commercial Litigation & Cross-Border Disputes
• International Trade, Distribution & Cross-Border Transactions
• Corporate Structuring & Foreign Direct Investment in the UAE
• Sanctions, Export Controls & International Compliance

Related material

• How to choose an arbitration clause for an international treaty
• International Arbitration in the UAE: Features and practical recommendations
• Checking of a foreign counterparty: What to know before signing a contract
• How to protect a company from non-payment for international delivery
• Force majeure in UAE law and international contracts
• Sanctions clauses: Why do they need to be in every international agreement?
• Drafting a foreign trade agreement without critical errors: basic guide

Conclusion

Most of the problems of international business arise not from poor execution, but from a poorly negotiated contract. Typical errors – blurred conditions, pathological reservations, the absence of sanctions and force majeure mechanisms, ignoring execution – are laid at the stage of discussion and exchange of edits.

A good international treaty is not a compromise between commercial interests, but a system that maintains manageability in times of crisis. It should not be ideal from a legal point of view, it should be operational in the jurisdictions where it will be enforced and where the assets of the parties are located. Investing in quality coordination is an insurance against a dispute that can’t be won practically.