Contractual Disputes

in International Businesses

Ana Caroline Melo

Jamille Pinheiro
Sophie Ge

What is a contractual
dispute?
A contract dispute occurs when any party
in a contract has a disagreement
regarding any of the contract terms or
definitions. In order for a contract to be
valid, there must be a "meeting of the
minds." This means that all parties need
to have a solid understanding of every
contract term, and must be in mutual
agreement as to the terms.

Why do contractual
disputes arise?

Disputes are likely to arise over:

Contractual terms;
License agreements;
In the area of tort, in which the firm either
alleges wrongdoing or is the defendant in
a negligence or product liability claim;

Contract Law
Contract law is the body of law that
governs contract enforcement when
one party feels the other has violated
the agreement

Factors contributing
to contractual disputes

Ambiguity of contractual terms due to language/translation.

Whilst many international companies are able and willing to
communicate in English, it is unlikely that they will be fluent,
particularly in relation to complicated technical or legal language.
Currency fluctuations. What currency is to be used? What
exchange rate will apply and how and when will it be calculated
(i.e. who will bear the risk of fluctuations in currency)? How should
payment be made? Does the contract take account of any
administrative delays in processing international payments?
Damage of goods during shipment. What route will the goods
take? What documents will be required for them to be delivered?
Who will bear the risk if the goods are damaged in transit? Who
will be responsible for obtaining import/export licences and
clearing customs?

International Legal
Systems
Common Law
Based on a countrys legal history (tradition), cases
that have come before the courts in the past
(precedent) and the ways in which laws are applied
in specific situations (custom);
Flexibly interpreted by judges as it applies to the
unique circumstances of each case;
Each new interpretation sets a precedent that may
be followed in future cases. Laws may be altered,
clarified or amended to deal with new situations;
Contracts tend to be very detailed with all
contingencies spelled out;
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International Legal
Systems
Civil Law
Based on a very detailed set of written laws and codes;
System tends to be very adversarial than a common
law system, since the judges rely on detailed legal
codes;
Less flexibility, judges only have the power to apply
the law;
Shorter and less specific because many issues are
covered by civil code;
Theocratic law
Based on religious teachings;
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Which countrys laws

apply?
The United Nations Convention on Contracts for
the International Sale of Goods (CISG) is a set of
rules governing certain aspects of the making
and performance of commercial contracts
between sellers and buyers who have their
places of business in different nations. Although
the CISG aims to decrease cross-border legal
risks only 74 nations have ratified the
convention.
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Dispute Resolution

Traditional court-based litigation;

Two main Resolutions:

Arbitration - the third person assisting in the

resolution of the dispute is able to impose a binding
decision on the parties. They can determine the
procedure of the arbitration, its location, the applicable
law, the language in which the arbitration will be
conducted, the method of appointment of the
arbitrator;

Conciliation - the third persons role is limited to

making a non-binding recommendation
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Advantages and
Disadvantages?

Litigation
Costly and time consuming;
May bring unwanted publicity if the case is a
high-profile one
Arbitration
Most countries will recognize and enforce arbitral
awards without any further proceedings being
required;
Neither party has the home advantage;
More final than court judgements which are
subject to appeal
Conciliation;
Non-binding, therefore parties can refuse;

Concerns about
contractual disputes in
an international
context

Contractual Disputes in international businesses

Why contractual disputes in

international businesses are inserted
in a problematic context?
- First of all, we need to understand the
causes for contractual disputes...

Most common causes of contractual disputes

During the process of contract

establishment:

Most common causes of contractual disputes

After the contract establishment:

Disagreement about
exit management

[Maude,

Contractual Disputes
in International Business
Estabilishing a contract with
international firms become harder
since besides to deal with factors as
mentioned before, companies need to
on contract
deal with:Impacting
interpretation
Different
Cultures

Different
Mores

Different laws
and
regulations
[Wooldridge, 2012;

Contractual Disputes
in International Business

Thus, legal risks also accompany the

opportunities and benefits present in
international businesses;
In view of this, companies should to be
able to manage such legal risks in order to
prevent critical situations such as going to
court.

[Wooldridge,

Measures to minimise
risks in sign contract
with foreign companies

Risks?
Myriad of unique statues and
regulations of na unfamiliar legal
system governing the contract
Lack of enforceable contract process
controls
Use of non-stardand language, terms
and conditions and cost and effort
Breach of contract

Consequence

Statistics
25% of companies across all
sectors (30% of European, 21%
Asia-Pacific, 25% North American)
have faced disputes
Large companies are more likely to
face disputes (34% x 19%)

Statistics
Breach of contracts as cause of
dispute (31% developed markets,
28% non-Bric rapid growth
markets, 27% Bric nations)
More than 30% of overseas
companies expect to have issues
over IP in Bric and non-Bric rapidgrowth markets

Consequence of
the consequence
Contractual disputes are:
Time-consuming
Expensive
Unpleasant
Relationship-breaker
Impactant on supply chain
Impactant on achievement of value for
money

China

Market oriented
Numerous restrictions
Massive bureaucracy
Variation of PRC regulations
Cost higher than expected

China
WTO membership and growing pressure
from foreign investors for greater
transparncy and rule of law
Increase of recognization of overseas
arbitration awards and rulings
Many judges are susceptible to pressure
from local interest groups and
goverment

How to
minimise?
Neutral choice of law clause (global, stable
and preferably similar to the companys one)
Reliable, neutral and cost efficent dispute
resolution process:
Do you want to hold a meeting between the
commercial parties first?
Will mediation be optional or mandatory?
Will you require na expert to determineany
issues that are more techical?
Arbitration > Litigation: where, what language,
which rules

How to
minimise?
Catch all for anti bribery and
foreign corruption laws
(safeguard against breach)
Alternative Dispute Resolution
(ADR): solve without going to
classic courtroom setting
All contract knowledge

Lets play a
game!