Understand Enforcement and Your Business Rights in International Business Contracts

Without an express choice of law clause, a court will apply conflict-of-laws rules to determine which jurisdiction's substantive law controls, and this determination is unpredictable. A U.S. .ederal court might apply the law of the state where the contract was formed, where it was to be performed, or where a material breach occurred. A foreign court might apply entirely different principles. From a practitioner's perspective, I have seen disputes where the governing law determination itself became the subject of preliminary litigation, consuming time and expense before the merits were even addressed. The Uniform Commercial Code (UCC) governs commercial contracts in U.S. .tates, but it does not apply internationally unless explicitly incorporated; many civil-law jurisdictions follow the United Nations Convention on Contracts for the International Sale of Goods (CISG), which has different rules on offer, acceptance, and remedies than the UCC. Specifying governing law is not optional; it is foundational to contract enforceability.

Arbitration is often preferred in international business contracts because arbitral awards are more readily enforceable across borders under the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958), which the United States and most major trading partners have ratified. Litigation in national courts, by contrast, creates a risk that a judgment in one country will be difficult or impossible to enforce in another. For example, a creditor who obtains a judgment in the Southern District of New York cannot automatically enforce that judgment in Singapore or Germany; the creditor must initiate a separate enforcement proceeding in each jurisdiction where the debtor has assets, and that foreign court will examine whether the original judgment was rendered fairly. Arbitration bypasses much of this friction because the Convention creates a streamlined recognition process. However, arbitration has drawbacks: arbitral proceedings are private, discovery is limited, appeal rights are minimal, and arbitrator fees are substantial. The choice depends on your risk tolerance, the likelihood of needing to enforce across multiple jurisdictions, and the value of confidentiality.

Letters of credit, documentary collections, and escrow arrangements each allocate payment risk differently. A letter of credit issued by a bank in the buyer's country creates a bank's obligation to pay the seller upon presentation of specified documents (such as a bill of lading or invoice), and this obligation is independent of whether the buyer actually receives the goods or disputes quality. This protects the seller but shifts cost to the buyer, who must pay the issuing bank's fee. Documentary collections are less expensive but riskier for the seller: the buyer's bank releases the shipping documents to the buyer only upon payment or acceptance of a draft, but if the buyer refuses to pay, the seller must arrange for the goods to be reshipped or stored. Escrow places funds in a neutral third party's hands until both parties confirm performance, but escrow agents charge fees and may require detailed written instructions on release conditions. In practice, these cases are rarely as clean as the contract language suggests; disputes over whether documents comply with the letter of credit terms, or whether performance has been sufficiently completed to trigger escrow release, frequently end up in litigation. The choice of mechanism should reflect which party bears the greater risk of the other's insolvency or breach.

If the contract price is stated in a foreign currency but your costs or revenues are in U.S. .ollars, you face exchange rate exposure. A contract denominated in euros, for instance, might be worth 10 percent more or less in dollar terms by the time payment is due, depending on currency movements. Some contracts include a currency adjustment clause (CAC) that adjusts the price if the exchange rate moves beyond a specified band, or they require payment in a specified currency on a specified date to lock in the rate. Others allow the paying party to pay in any major currency at the spot rate on the payment date, which shifts the risk to the receiving party. For transactions with long lead times or significant price volatility, currency hedging through forward contracts or options may be necessary, but hedging itself creates administrative and accounting complexity.

New York courts, particularly the Commercial Division of the New York Supreme Court, have substantial experience with international commercial disputes and apply well-developed case law on contract interpretation, good faith obligations, and remedies. New York's courts have adopted the principle that parties to an international contract have broad freedom to allocate risk and that the court will enforce the agreement as written unless it violates public policy or is unconscionable. This predictability is one reason many international contracts specify New York law and New York courts as the forum. However, obtaining a judgment in New York is only half the battle; enforcing that judgment against a foreign defendant requires locating assets in the United States or pursuing recognition of the judgment in the defendant's home country. If the defendant has no U.S. .ssets and the defendant's home country does not recognize U.S. .udgments, the New York judgment may be worthless. This is where arbitration's advantage becomes clear: an arbitral award under the New York Convention is much more likely to be recognized and enforced in foreign courts than a U.S. .ourt judgment.

A well-drafted international business contract should include: (1) a clear definition of the deliverables or services, including specifications, quantities, and quality standards; (2) Incoterms (International Commercial Terms) that specify where risk of loss passes from seller to buyer and who bears shipping and insurance costs; (3) payment terms and the mechanism (letter of credit, wire transfer, etc.); (4) force majeure language that excuses performance if unforeseen events (war, pandemic, natural disaster) make performance impossible or commercially impracticable; (5) limitation of liability clauses that cap damages to a specified amount or exclude certain categories of damages (such as consequential or punitive damages); and (6) termination rights and remedies for breach. The table below summarizes key provisions:

For comprehensive guidance on structuring these agreements, consult our overview of international business contracts and our analysis of international business transactions.

Damages are the default remedy for breach, but damages are difficult to prove and enforce across borders. Consider negotiating liquidated damages clauses (a pre-agreed amount payable upon breach) or specific performance clauses (a court order requiring the breaching party to perform), though specific performance is difficult to enforce internationally. Retention of title clauses (where the seller retains ownership of goods until full payment is received) provide security if the buyer becomes insolvent. Standstill agreements (which require parties to attempt negotiation before initiating litigation) can reduce costs if disputes arise. The goal is to make the consequences of breach clear and enforceable so that both parties have an incentive to perform.

As you move forward, prioritize three decisions: (1) select the governing law and dispute resolution forum early, ideally before you begin negotiations, so that your legal team can advise on enforceability and remedies in that jurisdiction; (2) structure payment terms to match the credit risk you are willing to accept, using letters of credit or escrow if the counterparty is unfamiliar or operates in a high-risk jurisdiction; and (3) have your counsel review the draft contract for ambiguities in performance standards, force majeure scope, and liability caps before you sign. These steps will not eliminate all risk, but they will clarify which risks you are accepting and which you are shifting to the other party.