CONTENTS
- 1. International Contracts | Contents
- - Business Situations Requiring International Contracts
- 2. International Contracts | Key Risks
- - Essential Review Points for International Contracts
- 3. International Contracts | Conclusion Procedures and Practical Guide
- - Elements Frequently Omitted in International Contract Practice
- 4. International Contracts | Response Measures in Case of Dispute
- - Practical Checklist for International Contracts
- - Daeryun Law Firm's International Contract Advisory Services
1. International Contracts | Contents
For international contracts, the type of contract may vary depending on the legislation regulating contracts in each country and on government regulations.
Before proceeding with an international contract, one must be able to respond promptly to all disputes that may arise from the early stage of drafting the contract through its conclusion and performance, and at the stage of non-performance and breakdown.
An international contract refers to a contract involving transactions between states or with a foreigner as the counterparty, in which the parties or the transaction relate to two or more countries.
Representative examples include trade contracts, international supply contracts, technology transfer contracts, international franchise contracts, joint venture contracts, overseas construction contracts, international distribution contracts, and license contracts.
Such contracts involve a complex interweaving of various legal systems, including private international law, local law, international norms, and the UN Convention on Contracts for the International Sale of Goods (CISG), so a legal review is crucial.
Business Situations Requiring International Contracts
Situations in which an international contract is needed are as follows.
Where a joint venture (JV) or strategic alliance is pursued with a foreign company
When concluding a technology export or royalty contract
When establishing a local subsidiary or concluding an equity investment contract at an overseas investment destination
When concluding an international project contract or a global IT service contract
Where a contract dispute or international arbitration arises with a foreign company
2. International Contracts | Key Risks
| Risk item | Description |
| Failure to designate governing law and jurisdiction | When a dispute arises, it is unclear which country's law will apply, which causes significant risk |
| Language interpretation problems | Possibility of disputes arising from interpretation of ambiguous sentences in an English-language contract |
| Disregard of the counterpart country's regulations | Failure to reflect each country's regulations, such as the Foreign Exchange Transactions Act and foreign investment laws |
| Risk of nonperformance of the contract | Absence of an effective remedy when the counterparty breaches the contract |
| Inadequate international arbitration provisions | Limitation on dispute resolution means when arbitration clauses such as ICC and SIAC are omitted |
Essential Review Points for International Contracts
When concluding an international contract, the following matters should be reviewed as a necessity.
Specification of force majeure clauses and dispute resolution procedures
Reasonable adjustment of payment terms (currency, remittance method, foreign exchange regulations)
Insertion of clauses for the protection of intellectual property rights and the prevention of technology leakage
Detailing of clauses on damages, termination of the contract, and penalty in the event of a breach of contract
Prior review of local legal advice and multinational tax issues
3. International Contracts | Conclusion Procedures and Practical Guide
1. Preliminary negotiation
Before concluding a contract, the parties discuss the basic terms of the transaction and exchange a document organizing the key points in a non-binding manner.
Present key terms such as price, quantity, delivery date, method of payment, ownership of intellectual property rights, and jurisdiction
Although it is a non-binding document, it may have legal binding force, so caution is needed regarding the wording
A review by an attorney is crucial so that it does not conflict with the contents of the main contract later
2. Conclusion of a non-disclosure agreement
A non-disclosure agreement is a contract for the protection of confidential information.
It is safer to conclude an NDA preemptively, regardless of whether the transaction is consummated
The NDA needs to specify the ‘competent court,’ ‘method of damages,’ ‘scope of information,’ and ‘protection period’
3. Drafting the main contract and reviewing the English version
It is advisable to prepare the actual contract document reflecting the contents of the negotiation and, if necessary, to compose it as an English-language contract.
Interpret the foreign contract presented by the counterparty on the basis of contract law rather than by literal translation
Ensure consistency of terminology
Carefully check the representations and warranties, breach of contract, and indemnification clauses
When multiple languages are used, always insert a designation of the controlling language
4. Review of the counterpart country's laws and regulations (collaboration with local attorneys)
Ascertain the laws, industry regulations, foreign exchange controls, import and export requirements, and the like of the counterpart country to the transaction.
Confirm the relevant country's restrictions on foreign investment, royalty remittance regulations, and import and export licensing rules
Confirm whether permits and licenses are required and the legal suitability of the relevant project
Secure a network with local law firms or establish a collaboration system
Determine whether the CISG applies and review whether to include an exclusion clause
5. Checking ancillary risks such as tax, exchange rate, and customs duties
Risk should be minimized by ascertaining fund transfers, taxes, trade-related costs, and the like arising from performance of the contract.
Clearly stipulate the currency of payment under the contract and the party bearing the risk of exchange loss
Review withholding tax (WHT), value-added tax (VAT), whether royalties are taxed, and the like
Consider the importing country's customs clearance regulations, tariff rates, and the possibility of FTA application
6. Finalizing and signing the contract (confirming whether electronic signatures are included)
This is the stage of formally signing the contract on which all terms have been finalized to give it legal effect.
Review the validity of the paper signature or electronic signature method
Confirm the signing authority of the parties' representatives and whether the corporate seal is used
Secure the storage location of the original contract and a system for distributing copies
Accurately state the date of conclusion and the effective date
7. Building a contract performance monitoring and risk management system
During the contract performance process, the schedule, quality, payment terms, whether there is a breach of contract, and the like are managed.
Designate a dedicated department or person in charge of performance monitoring
Systematize schedule management, including milestone acceptance and payment terms
Build a system for keeping records such as emails, meeting minutes, and payment data in preparation for a dispute
Design in advance the procedures for a claim for damages or termination of the contract in the event of a breach
Elements Frequently Omitted in International Contract Practice
The elements that are frequently omitted in international contract practice are as follows.
When concluding an international contract, a company should keep these elements in mind as it proceeds with the process.
Insufficient preparation for conflicts in the interpretation of the wording of an English-language contract
Omission of confirming the counterparty’s legal authority (power of representation)
Misunderstandings and errors in application that arise when a contract is interpreted under Korean law
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4. International Contracts | Response Measures in Case of Dispute
If a dispute has arisen during the process of concluding an international contract or after its conclusion, the following response measures may be considered.
Retaining overseas counsel and establishing a litigation strategy when proceeding with litigation in a foreign court
International civil litigation or procedures for recognizing the domestic enforcement of a foreign judgment
Essential advance preparation such as analyzing the English-language contract, translating evidentiary materials, and securing documentary evidence
Setting a response strategy based on the previously agreed language, jurisdiction, and seat of arbitration
Practical Checklist for International Contracts
▶Prior review before concluding the contract
| Item | Confirmation | Details |
| Confirming the counterparty's existence | ☐ | Confirming corporate registration information and the representative's authority (corporate register, overseas certificates, etc.) |
| Clarifying the purpose of the transaction | ☐ | Organizing the purpose, such as export/import, technology transfer, joint development, or provision of services |
| Negotiating key terms | ☐ | Discussing in advance the core commercial terms, such as price, delivery date, quantity, quality standards, and payment conditions |
| Concluding a non-disclosure agreement (NDA) | ☐ | Specifying whether an NDA is concluded before the transaction begins and the scope of confidentiality |
| Tax and customs review | ☐ | Reviewing royalty withholding tax, FTA applicability, and import and export customs duties |
▶Review of the draft contract
| Item | Confirmation | Details |
| Specifying the governing law | ☐ | Designating the law of a specific country |
| Dispute resolution method | ☐ | Designating arbitration (ICC, SIAC, etc.) or a court of jurisdiction, and specifying the seat of arbitration and the language |
| Specifying the priority language of the contract text | ☐ | Designating the language of interpretation for a bilingual Korean/English contract |
| Accurate description of the contracting parties | ☐ | Confirming consistency of the legal name, address, country of incorporation, and representative information |
| Attribution of intellectual property rights | ☐ | Clarifying the ownership and right of use of IP, such as development deliverables and technical materials |
| Payment conditions | ☐ | Specifying the payment currency, remittance method, payment timing, and late-payment interest conditions |
| Force majeure clause | ☐ | Defining the scope of exemption grounds, such as epidemics, war, and import and export bans |
| Contract termination conditions and procedures | ☐ | Setting termination requirements in case of breach, the written notice method, and liquidation procedures |
| Damages and scope of liability | ☐ | Confirming the distinction between direct and indirect damages, and whether a liability cap is set |
| Non-assignment clause | ☐ | Setting whether assignment of the contracting parties' rights and obligations to a third party is prohibited |
▶Signing and concluding the contract
| Item | Confirmation | Details |
| Confirming the final version of the contract | ☐ | Confirming whether the matters agreed by both parties are reflected and whether legal review is complete |
| Confirming signing authority | ☐ | Documents proving the signing authority of each party's representative or a duly authorized person |
| Whether electronic signatures are used | ☐ | If the signing method is an electronic signature, confirming its legal effect in the relevant country |
| Contract conclusion date and effective date | ☐ | Specifying the conditions for the contract to take effect (the date of signing or the date a specific condition occurs) |
| Contract storage system | ☐ | Establishing a system for storing and managing the original, copies, and electronic documents |
▶Contract performance and post-management
| Item | Confirmation | Details |
| Performance schedule management system | ☐ | Establishing delivery schedules, inspection standards, and interim reporting standards |
| Confirming payment performance | ☐ | Confirming the payment date and amount, and checking foreign exchange remittance procedures |
| Responding to claims and breaches | ☐ | A system for written notice upon the counterparty's breach and for collecting evidence proving damages |
| Response process when a dispute arises | ☐ | Establishing the arbitration application procedure and the criteria for selecting legal counsel |
| Review upon contract amendment/renewal | ☐ | Confirming the contract renewal conditions and whether the written agreement requirement is observed upon amendment |
| Storage of dispute-prevention documents | ☐ | Establishing a system for preserving emails, meeting minutes, payment records, and receipts |
Daeryun Law Firm's International Contract Advisory Services
Daeryun Law Firm has provided advisory services relating to international contracts to numerous companies expanding overseas and to foreign investors.
In particular, the firm has expertise in the following areas.
Legal due diligence and regulatory review for international transactions
Advice on the applicability of the CISG and on preparing for it
International arbitration and litigation for the domestic enforcement of foreign judgments
Analysis of differences in contract culture between Korea and the United States, Korea and the EU, and Korea and ASEAN, and the preparation of response strategies
The firm, as a partner supporting companies' global expansion on a sound legal basis, assists with secure conclusion and performance throughout the entire process of an international contract.
An international contract does not end simply with drafting the contract in English.
Because numerous risks are hidden, including foreign laws and regulations and dispute resolution methods, preparing thoroughly from before contract conclusion through to the prevention of subsequent disputes, with the assistance of a specialized attorney, is a survival strategy for a company.
Daeryun Law Firm provides tailored legal services in which related legal experts, including customs attorneys, attorneys advising on U.S. law, and customs specialists holding licensed customs broker qualifications, analyze international contract risks and support both advance prevention and dispute response.
If you need legal assistance relating to an international contract, please 🔗make a legal consultation reservation with a customs attorney.
