International Contracts: Important Things To Note
As globalization progresses, relations between one country and another are getting stronger. This applies not only to governments in each country but also between companies and individuals living in each country. This is why we increasingly see work from cross-border companies. Not only companies but many individuals who can carry out contractual relationships with foreign parties. These contracts are also known as international civil contracts.
If you are interested in making agreements involving foreign parties, the following things are important to consider:
Choice of law
The choice of law is an option agreed upon by the parties involved in the agreement. This choice determines the laws that will apply to the agreement when the agreement is executed. It is very important in a civil international contract to contain a choice of law. If there is no choice of law, there will be confusion between the parties about which law to choose (considering there are parties from different countries). The choice of law is usually written in the form of a choice of law clause.
Choice of law for interpretation
Apart from the choice of the law that will be used in the execution of the contract, it is also important that the parties formulate a choice of law that will be used to interpret the agreement. This is due to qualification problems that may arise in international contracts.
Qualification is the classification of certain legal terms into certain fields. For example, the term “adult age” according to one statute may be different from another law. Likewise, the same term in Indonesian law and foreign law may have different meanings. Qualification problems also occur when there are different terms for the same thing in Indonesian law and foreign law.
To avoid qualification problems, it is very important to make a clause containing the choice of law used for the interpretation of an agreement.
The following is an example of a choice of law clause concerning the law used for the interpretation of agreements and the laws used to enforce contracts:
This Agreement shall be governed by and construed in accordance with the laws of the State of New York, United States of America.
It should be emphasized that a choice of law can also be made without a clause. This act is also called a tacit choice of law. Unequivocal choice of law is usually made with the mention of certain laws in certain provisions in the contract.
According to Huala Adolf in his book, Basics of International Contract Law, there exist several factors as to why the choice of law is important:
- To determine what law is used and to determine or explain the terms of a contract or law that will govern the contract;
- Avoid legal uncertainty that applies to the contract during the performance of the contractual obligations of the parties; and
- The source of law also functions as a source of law when the contract does not regulate something.
Huala Adolf also mentioned several things that become limitations when making the choice of law:
- Does not violate public order;
- Performed in the field of contract law;
- The choice of law must relate to the contract in question
- The existing linkages could be due to the nationality of the parties, one of the parties, the place where the contract was executed, and other things;
- Does not contain any intention for evasion in law;
- Should not be regarding civil law provisions with a public character;
- Choice of law must not be made in bad faith;
- Choice of law does not violate coercive rules (super-coercive rules);
- The choice of law governs the object of the contract.
Choice of Forum
The second point that needs to be considered in international civil agreements is the choice of forum or choice of forum. By making a choice of forum, the parties agree on which forum they will use if there is a dispute arising from the contract being made. As with the choice of law, regular choice of forums is proven by a clause in the contract.
Forums that can be elected in a choice of law can be in the form of non-litigation institutions such as mediation, conciliation, and arbitration, or litigation (court).
The two clauses above (choice of law and choice of forum) are optional. Facultative means that the parties are not obliged to make such clauses. However, it is better if the parties formulate both clauses in the contract, to avoid confusion about how to carry out the contract or resolve disputes.
Some examples of forum selection clauses:
- All disputes arising between the PARTIES regarding this Agreement and or part thereof will be resolved by deliberation to reach a consensus between the PARTIES.
- If the deliberative settlement is not successful, the PARTIES have agreed to settle the dispute at the South Jakarta District Court.
There is a clause whereby the parties combine the choice of forum and the choice of law they make:
This contract is governed by the laws of England and any dispute shall be finally resolved by the English courts
Language Provisions
Article 1 point 2 of Law Number 24 of 2009 concerning the Flag, Language, and National Symbol, as well as the National Anthem, states that Indonesian is the official national language used throughout the territory of the Republic of Indonesia (Language Law). Furthermore, the Language Law states:
The Indonesian language must be used in memorandum of understanding or agreements involving state institutions, government agencies of the Republic of Indonesia, Indonesian private institutions, or Indonesian citizens.
The memorandum of understanding or agreements as referred to in paragraph (1) involving a foreign party is also written in the foreign party’s national language and/or English
The Language Law itself does not mention any sanctions if an international contract does not use the Indonesian language. This then creates a confusion: will a contract not made in the Indonesian language become invalid? Due to the many confusion regarding this matter, the Ministry of Law and Human Rights issued a letter containing the following clarification:
The signing of a commercial agreement in English without an Indonesian copy of the agreement does not violate the requirements of the obligations referred to in Law No. 24/2009. As a result, such agreements remain valid and are not null and void.
Contact Us
For those of you who are interested in making international contracts, you can contact us at Bizlaw. Bizlaw is a one-stop legal service in Indonesia that serves company establishment, tax consulting, licensing, and agreements.
Bizlaw provides drafting and checking services for all types of contracts that you need. If you are interested, you can contact us via info@bizlaw.co.id or 0812-9921-5128.
