Moving from domestic to international production and market supply can be a splendid move to
expand business and market. Although the benefits of an international business venture are
plentiful, they are accompanied by a significant amount of risk, which, if not properly mitigated,
can far outweigh the rewards. To manage the risks, a formally designated risk manager should be
involved to watch for these hazards and find ways to deal with them. One of the most common strategies
is a four-step process based on identification, measurement, mitigation and monitoring. However, Due
diligence is the best ally in risk mitigation, even more so when it comes to international contracts.
A contract, whether national or international, is the king and is
always the first point of reference when a dispute arises between
two commercial parties. Contracts clearly outline the detailed
rights and obligations of the parties involved and also guide an
arbitrator or judge in determining respective rights, obligations
and remedies. When conducting business internationally, an
airtight contract is by far the best way to ensure predictability
and efficiency in business transactions, and properly protect
parties’ interests in the case of a disagreement.
Unfortunately, it’s common for entrepreneurs, in a rush to close
a deal and get their business up and running, only to neglect
taking the proper time to review the agreements that will
govern their business relationships much to their detriment.
Although contracts are unique, they reflect company’s specific
needs and goals,
There are at least two provisions that must always be included
in agreement domestically or internationally:
1) Governing law; and
2) Dispute resolution.
Practice has proved that these two clauses are the most often overlooked, and yet have the potential to cause the most damage when not properly addressed while concluding the contract. Therefore contracting parties should; Clearly identify the jurisdiction of authority in the “Governing Law Clause” otherwise known as “choice of law”, is a fundamental component of an international contract. What this means is that somewhere in the contract, parties should clearly state the mutually agreed upon law of jurisdiction that will apply to and govern the terms of the contract in the event of a challenge.
In a contract this can look like; 1.1 Governing Law – This Agreement shall be governed, construed and enforced in accordance with the laws of the Republic of Rwanda. Any dispute arising between the parties shall be dealt with exclusively in the courts of that country.
In international trade, the contracting parties are typically able to choose the law that will govern their contract. Whether it be Rwandan law, or law of the other countries contracting party, the choice is open to the parties. Parties are not limited to choosing the domestic law(s) of one of the contracting parties.
For instance, if your business is in Rwanda and you are contracting with a Japanese company for the supply of electronics, parties can choose to have Rwandan law, Japanese law, or the law of any other jurisdiction applies to govern the contract, that might be advantageous to their situation.
It is therefore imperative that all parties to the contract properly negotiate and mutually agree on the governing law at the outset, so that there are clear
expectations and no surprises down the line. Choosing the best option in the “Dispute Resolution Clause” Litigation? Arbitration? A dispute resolution clause is important in any international contract because it clearly defines the methods and procedures for the resolution of disputes between the parties, whether it is through arbitration, litigation, or any other available options. Although parties may have an established business relationship amongst themselves, disputes, although not intentional, may still sometimes arise simply put, (having a dispute resolution clause is somewhat comparable to having an insurance policy on your car. You don’t expect to have an accident, but if you do, you’re protected) An arbitration clause could read “All
disputes arising out of or in connection with the present contract shall be finally settled under the Rules of Arbitration by one or more arbitrators appointed in accordance with the said Rules.” The clause should also address the governing law, the place, language of the arbitration and the number of arbitrators to be involved in the arbitration. A strong dispute resolution clause that is enforceable and clear is a critical step in
the conclusion of commercial conflicts. Parties should always consider that contracts should not be taken lightly since they are the cornerstone governing
contractual relationships and therefore, due diligence, and engaging experts, when necessary, is of paramount importance to make sure their interests are properly protected.
By RWAKISETA Herbert