Introduction
DaWo is proud to announce that another of our clients prevailed in an international arbitration action. Below you will find some basic suggestions in this regard.
Written Agreements Matter
Unfortunately, in the interests of conducting business quickly, buyers and sellers in international trade sometimes do not sign adequate written or formal agreements, including sales and distribution contracts.
This becomes highly problematic if disputes arise. For example, quality standard might vary between different countries or regions, and products working just fine in a seller’s country may not be 100% compliant in a buyer’s country. Or, in other situations, parties might engage in too much discussion about minute aspects of products, many times involving language barriers, perhaps leading to inadvertent misunderstandings of key information.
To address situations like this, we believe that a few extra words in purchase orders or commercial offers would help clarify what you really want as a buyer or what you can really offer as a seller.
Governing Law also Matters
If no written contract is signed, and if both parties are from the contracting state of the United Nations Convention on the International Sale of Goods (“CISG”), the the CISG will automatically apply.
We have encountered situations where parties choose the law of either party’s jurisdiction or a third-party jurisdiction with the intention of governing the contract under domestic law and excluding the CISG. However, this usually fails, however, for parties from Contracting States, as most court decisions and arbitral awards from multiple jurisdictions hold that CISG is indirectly incorporated into the law of the law of Contracting State whose law the parties chose. China, in its recent cases, also takes this approach.
So, if you intend to NOT apply CISG to your contract, then you need to make sure the exclusion of CISG is express and clear.
Dispute Resolution Clauses matter
Another related mistake frequently made in international trade is not having a proper dispute resolution clause.
If parties do not make specific arrangements related to this, it becomes possible for both parties to present legitimate arguments that courts in their respective home jurisdictions should hear the case. Foreign-related court proceedings are usually very time consuming, and adoption of bilateral judgement enforcement agreements is not as widespread as we would like to see.
As such, arbitration may be a better choice since more than 160 countries have entered the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, also known as the “New York Convention”.
Arbitration requires a valid arbitration agreement or clause signed by and between parties. Bear in mind, though, that all parties need to have a close look at the validity of such clauses under the laws of all jurisdictions potentially involved.
Conclusion
International trade disputes are always complicated and risky. Da Wo Law Firm has extensive experience with helping clients navigate the issues that arise. If you have any questions, feel free to contact us.
