The importance of getting your contract right can’t be over-emphasized. A solid contract can help you avoid disputes and possible litigation, both of which are especially risky when selling outside the country.
To protect you effectively, any contract with a foreign customer must do the following:
• It has to identify the parties to the contract. If affiliated companies, agents or representatives are involved, the contract should include them as well.
• It must specify the law that governs the contract. The business laws of Canada and your foreign market will always differ in at least a few ways, which can lead to disagreements over what a clause in a contract actually means. To make disputes less likely, the contract should specify which country’s laws will govern the agreement.
• The contract must be comprehensive. It must include all the essential terms that the parties have agreed on, since leaving one out may lead to disputes.
• All the parts of the contract must be clearly written and readily understood by all parties. Ambiguous language in a contract invites disagreements and litigation.
You and your legal team should carefully scrutinize the contract’s wording for potential
risks, such as harsh penalties for late delivery, onerous indemnity clauses or clauses related to transfer of intellectual property to the customer. If possible, strike out such conditions or renegotiate them. Also, look for unexpected additional costs such as insurance requirements, performance guarantees, warranties and delivery conditions.
Because of the wide scope for misunderstanding, the terms and conditions of international trade contracts should be as unambiguous as possible. A poorly drafted contract increases the risk of disputes, which may lead to your customer’s refusal to pay or other difficulties. A well-written contract, in contrast, can contribute to the success of your first deal with a new customer, which can lay the foundation for a solid, long-term relationship. As your foreign business grows and your contracts work smoothly, you’ll become known in your markets as a fair-minded, reliable vendor, whose deals cause no problems for your customers. With that reputation, you can look forward to more business, more sales and more international success.
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