Cross-border commercial contracts are arrangements reached between companies from different countries, laying down the rules on trade and business cooperation between them. Contracts of this type might concern agreements of various kinds, including leasing agreements, employment contracts, and agency, distribution, and sale agreements. They can be joint venture agreements, or even agreements on sale of products between a parent company and subsidiary or a local branch.
As a rule, the parties to cross-border commercial contracts must address a number of issues, in the same way as if they were entering into a domestic contract with a company in the same country. On the other hand, the parties observe different legal regimes and business policies, and use different languages, and this means that clauses are also needed to specify (1) the language used, (2) payment terms, (3) the rules on force majeure, (4) requirements concerning clearance given by government institutions, and (5) the law governing the contract.
RE point 1: The language in which the contract is drafted is usually the language the parties use to negotiate the contract. It is common for negotiations to be held in English, and in fact this will be the language used when confirming the contract when the parties come to sign it. This will have major implications with regard to interpretation should a dispute arise. If the contract is drafted in other languages as well, such as Polish and French/German, then the contract has to state which language version will be considered binding in the event of inconsistencies. Differences may occur during the translation process, with regard to meaning and the scope covered by particular terminology. The choice of language will affect the choice of the competent court. In European countries, common courts will normally use their native language when adjudicating on a dispute that arises under a contract negotiated and drafted for example in English. In such a case, a certified translation of the entire documentation will be needed. Usually, this is an expensive and lengthy process. At the same time, it is not certain that the translator in question will convey the true meaning of a clause, and this could cause interpretative problems later. In some European countries, such as Germany or France, commercial courts have special departments with judges who speak English. The proceedings are conducted in English throughout, which is significantly useful for the parties (see for example the Landgericht in Hamburg and in Frankfurt am Main, and the International Chamber of the Paris Commercial Court). In Poland, there are still no departments of this kind attached to district and regional courts. Also important in the case of companies in Poland is the Polish Language Act of 7 October, 1999.
RE point 2: It is very common for contracts to contain a clause on the price and payment conditions. The primary issue to be addressed in this clause is the currency in which payments are to be made. In EU countries, clauses stating that payment is to be made in EUR by wire transfer do not usually give cause for concern. If payment is made in PLN, diligence is required to ensure that the recipient’s bank is able to accept payments made directly in PLN. If this is not the case, the person making the payment has to convert the funds at the EUR / PLN exchange rate stated in the contract, or using the rate announced for example by the National Bank of Poland. When making payment, it is important to describe in detail the nature of the payment, and give the payee’s details, the bank’s details, and IBAN and SWIFT codes. Outside of the EU, money transfers connected with a contract may be subject to further restrictions due to the current situation in Ukraine or the Middle East, for example in Iran. In this case as well, it has to be determined whether payment in EUR or USD will even be accepted, and in what amounts. It is also important to ask an employee at the bank in the home state about terms applicable to money transfers and to movement of funds to and from euro area countries, as the case may be.
In the case of single payments, price increases, for example for building materials used in manufacturing or for other items or services, will not be considered a problem in the contract. Meanwhile, if a payment obligation lasts for an extended period, such as a few years, it is important to include a price adjustment clause in the contract. This will provide for a mechanism that adjusts prices to market levels, using indices such as the consumer price index in Poland and Indice des Prix à la Consommation (IPC) in France.
RE point 3: The force majeure clause is often included in cross-border business contracts when the contracts are performed in the long term, for example agreements for supply of gas or crude oil, or carriage agreements. The force majeure clause will be especially important in times of political instability, such as armed conflict, industrial action, inflation, and currency devaluation, but will also be applicable in the event of natural disasters such as flooding, earthquakes, drought, or a pandemic. If grounds arise, a party under an obligation to deliver crude oil, for example, will be released from this obligation for the duration of the force majeure event, providing that it demonstrates grounds for invoking force majeure due to an event that is beyond its control, could not have been predicted, and cannot be dealt with by conventional means. In such a case, the party invoking force majeure will be released in whole or in part from the relevant contractual obligation for the duration of the force majeure event. Caution is advised in the case of clauses of this kind, in particular in terms of the law governing the contract, as for example the scope covered by force majeure in English law, a common law system, will not be the same as that commonly applicable in other European countries which have a civil law doctrine in place, such as France. In the UK, a force majeure clause is always subject to thorough judicial review, and interpreted in a restrictive manner. For this reason, the parties to the contract need to ensure that the force majeure clause is worded precisely, leaving no room for doubt.
RE point 4: A government approval clause is a contractual clause under which the contract will come into force or be effective subject to clearance or approval given by the competent government authorities. In practice, this will safeguard the parties’ interests by providing the option of withdrawal from the transaction if the required approval is not obtained. A clause of this kind is often used in infrastructure development contracts, contracts in real estate deals, or other contracts for which state authority clearance is required. Under an act in force in Poland, the Act of 24 March 1920 on Acquisition of Real Estate by Foreigners, citizens and entrepreneurs from non-EU countries, such as the UK, wishing to purchase real estate in Poland or shares in companies that own or hold in perpetual usufruct real estate in Poland, are required to seek approval from the Ministry of the Interior and Administration. This applies subject to generally applicable rules in that act, while there are exceptions under art. 8(1) in conjunction with art. 8(3) or (2) of that act. In France, government approval is required for certain financial activities specified by the Autorité des Marchés Financiers (AMF).
If a government approval clause is included, the party required to obtain it and the time frame need to be specified.
RE point 5: The principle of freedom of contract means that the parties to the contract are free to choose the governing law for their contract. This is confirmed in the first sentence of Rome I (Regulation (EC) No. 593/2008) on the law applicable to contractual obligations in the EU. This specifies the member state law applicable to contracts with respect to civil and commercial matters with an element of cross-border jurisdiction. If there is no clause of this kind, in general the United Nations Convention on Contracts for the International Sale of Goods (1980 Vienna Convention) will apply to EU undertakings, unless the parties exclude this convention, in which case the regulation will apply. The Vienna Convention regulates cross-border sale of goods and conclusion and performance of the relevant agreements, and applies when the two parties to the transaction have their seats in different signatory countries. While the Vienna Convention is part of the acquis communautaire, it only applies to contracts on the sale of goods. In other cases, where the contract is not for sale of goods, Rome I (Regulation (EC) No. 593/2008) applies. Both Poland and France are signatories to the Vienna Convention. The former ratified it on 23 May 1969, and the latter on 6 August 1980.
