International Contract: 7 Clauses Every Company Should Review Before Signing
- Camila Hermano
- 17 hours ago
- 8 min read
Interestingly, the biggest problems in an international contract rarely lie in the clauses that get the most attention during negotiation.
Price, deadlines, and payment terms tend to take up hours of discussion between the parties. Meanwhile, provisions that seem secondary are barely reviewed at all.
The problem is that, when a dispute arises, it's usually these overlooked clauses that determine which law applies, where the dispute will be resolved, who bears a given risk, and, in some cases, whether the company will actually be able to collect what it's owed.
That's why an international contract shouldn't be reviewed only from a commercial standpoint. Some clauses have the potential to shape the entire operation, even years after signing.
This article isn't a bureaucratic checklist. It's a conversation about the points that deserve attention before a company takes on obligations in another country, hires a foreign partner, or structures a cross-border commercial operation.
1. Governing Law: Which Legislation Will Govern the Contract?
When two companies located in different countries enter into a contract, the first relevant legal question isn't who's right or wrong.
The first question is which law will be used to interpret the contract.
In certain operations, the parties may also choose to incorporate into the contract widely recognized international trade rules and standards, such as the UNIDROIT Principles, the ICC's Incoterms®, or other international rules applicable to the sector. These tools don't necessarily replace the chosen governing law, but they can play a relevant role in interpreting the contract and defining the parties' rights and obligations.
That choice can profoundly change how certain obligations are understood. A clause considered valid in one country may be limited, interpreted differently, or even ineffective in another. Likewise, legal concepts that seem familiar in one jurisdiction may not produce the same effects in another.
In international contracts, the absence of a clear governing-law clause can create uncertainty from the outset. If the parties don't define in advance which law will govern the relationship, that discussion may surface at the worst possible moment: once the conflict has already begun.
The choice of governing law should align with the nature of the operation, the countries involved, the dispute resolution mechanism, and the strategy for enforcing the contract. In some cases, it will also be worth considering the adoption of international rules that complement the operation's legal structure. It's not a merely formal choice. It's about setting the rules of the game before the game begins.
2. Forum or Arbitration: Where Will a Dispute Be Resolved?
Many companies only realize how important this clause is once the first problem arises.
A contract can be excellent from a commercial standpoint and still make collection practically unfeasible if it sends any dispute to a jurisdiction that's inadequate, distant, expensive, or inefficient for the case at hand.
In cross-border operations, the choice between litigation and arbitration needs to be made carefully. Arbitration tends to be used when the parties are looking for neutrality, confidentiality, technical expertise, and easier recognition and enforcement of the decision across different countries.
But that doesn't mean arbitration is always the best choice. In some contracts, especially lower-value ones or those between parties in countries with predictable court systems, litigation may be sufficient. In others, a poorly drafted arbitration clause can create more problems than it solves.
The key point is that this decision shouldn't be treated as a sentence copied from a template. It needs to make sense for the operation, the amount involved, the parties' countries, and the real possibility of enforcing the decision.
3. Payment Terms: The Risk Isn't Always in the Price
In cross-border operations, selling well doesn't just mean negotiating a good price.
Getting paid securely can matter even more.
A seemingly advantageous deal can turn into a loss when the contract doesn't precisely define the payment terms, the documents required to release funds, the consequences of delay, and the mechanisms protecting against non-payment.
In certain deals, instruments such as letters of credit, bank guarantees, advance payments, staggered payments, or contractual holdbacks can play an essential role in reducing the operation’s risks.
It's also important for the contract to make clear which currency the payment will be made in, what exchange rate will apply when conversion is needed, who bears banking costs, and what documents will be required at each stage of payment.
The financial risk of an international contract rarely lies only in the amount negotiated. It usually lies in how that amount will actually be paid.
4. Incoterms: Who Bears Each Responsibility?
Many disputes in cross-border operations don't arise because one party deliberately breached the contract.
They arise because the parties believed they had different responsibilities.
Incoterms define essential aspects of the operation, such as the transfer of risk, logistical responsibilities, arranging transport, arranging insurance, and allocating costs between seller and buyer.
Choosing the wrong term can cause significant losses even when both parties act in good faith. A company may discover too late that it took on transport risks, delivery costs, or documentary responsibilities it hadn't factored into the price.
That's why the Incoterms clause shouldn't just appear as an acronym next to the price. It needs to be compatible with the operation's logistics structure, the parties' operational capacity, and the documents required for import, export, payment, and customs clearance.
In international trade, a three-letter acronym can completely change the economic distribution of the contract.
5. Language and Prevailing Version: Which Text Actually Controls?
International contracts are often drafted in more than one language.
That can make negotiation easier, but it can also create a serious problem: what happens if the versions don't say exactly the same thing?
A seemingly small difference between the Portuguese, English, or Spanish version can change the scope of an obligation, the deadline for performance, the extent of a warranty, or even the dispute resolution mechanism.
For that reason, bilingual or multilingual contracts should expressly state which version will prevail in the event of a discrepancy. In some deals, it may make sense for the English version to control. In others, especially when performance will take place in Brazil, the Portuguese version may carry more practical weight.
What matters most is not leaving this decision open.
When a contract has versions in more than one language, the absence of a prevailing-version clause can turn a translation difference into a real legal dispute.
6. Limitation of Liability: How Far Does Each Party's Risk Go?
Not every loss arising from a cross-border operation should be borne entirely by a single party.
That's why international contracts frequently establish liability caps, exclusions for certain types of damages, and specific rules on indemnification.
These clauses can define, for example, whether there will be a maximum liability cap, whether indirect damages will be excluded, whether lost profits can be claimed, and in which situations one party must indemnify the other.
The absence of a clear limitation-of-liability clause can expose the company to risks disproportionate to the contract's economic value. On the other hand, an excessively broad limitation can leave the harmed party without adequate protection in the event of a material breach.
Good drafting is about balance. The contract needs to allocate risk in a way that's coherent with the operation, each party's ability to control it, and the value involved in the deal.
In international contracts, this clause can represent a significant financial difference the moment something goes wrong.
7. Force Majeure and Unforeseeable Events: What Happens When No One Can Perform?
The past few years have taught an important lesson to companies operating across borders: not every breach stems from bad faith or disorganization.
Pandemics, armed conflicts, embargoes, economic sanctions, natural disasters, port strikes, logistics disruptions, and government restrictions can directly affect a party's ability to perform its obligations.
A well-drafted force majeure clause defines which events can justify suspending, postponing, or renegotiating contractual obligations. It should also specify how the affected party will report the event, what evidence must be provided, and for how long the obligation may remain suspended.
The most common mistake is treating force majeure as a generic clause, copied at the end of the contract, with no real connection to the operation.
In international contracts, this clause needs to account for the business's specific risks, the countries involved, the supply chain, dependence on government authorizations, and the possibility of events that prevent not just delivery, but also payment, production, or document release.
When no one can perform, the contract should point the way forward.
The Contract Shouldn't Only Be Read When a Problem Arises
International contracts tend to be negotiated in moments of optimism. The parties are focused on the business opportunity, market entry, supply, partnership, or international expansion.
That's exactly why prior legal review matters so much.
By the time a problem arises, it's usually too late to fix a poorly drafted clause, change the chosen jurisdiction, revise inadequate payment mechanisms, or clarify which version of the contract should prevail.
The purpose of an international contract isn't just to record the commercial agreement. It's to anticipate the points of tension that may arise over the course of the operation and offer clear answers before the conflict exists.
In cross-border business, prevention is usually less costly than a dispute. And often, a well-written clause is worth more than a long argument after the problem has already taken hold.
What Business Owners Usually Ask
Can I use a contract in English even though my company is Brazilian?
Yes. International contracts can be drafted in English or in any other language chosen by the parties. That said, it's important to assess the impact of that choice in any future litigation or arbitration, especially if the contract needs to produce effects in Brazil or be submitted to Brazilian authorities.
Is arbitration mandatory in international contracts?
No. The parties can choose arbitration or the courts. The choice will depend on the characteristics of the operation, the countries involved, the contract's economic value, the need for confidentiality, and the strategy for enforcing any eventual decision.
Can the parties incorporate international rules into the contract?
Yes. Depending on the operation, the parties can incorporate internationally recognized rules and standards into the contract, such as the UNIDROIT Principles, the ICC's Incoterms®, and other instruments widely used in international trade. Whether this choice makes sense will depend on the nature of the deal, the countries involved, and the parties' objectives.
Which Incoterm should I use?
There's no single ideal Incoterm for every operation. The choice depends on the product, the logistics, the parties' operational capacity, the type of transport, the insurance arrangement, and the commercial strategy adopted in the negotiation.
Does an international contract need to be registered?
It depends on the nature of the operation. Some contracts may require registration with specific agencies to produce certain legal, foreign exchange, tax, or regulatory effects. Technology transfer agreements, trademark licensing, royalty remittances, and certain operations with effects before Brazilian authorities require special attention.
Can I use a template found online?
Templates can serve as an initial reference, but they rarely address the particularities of a specific cross-border operation. In many cases, the risk lies precisely in the clauses that weren't adapted to the parties' countries, the type of operation, the payment method, the logistics, and the dispute resolution mechanism.
What happens if the contract has versions in two languages?
When a contract is bilingual or multilingual, it's advisable to expressly state which version will prevail in the event of a discrepancy. Without that provision, a translation difference can raise doubts about the actual scope of the obligations the parties assumed.
Let's Talk About Your Operation's Contractual Structure
Every international operation has its own risks, objectives, and particularities.
A prior legal review of the contract can help distribute risk more evenly, increase security in carrying out the operation, and reduce potential future conflicts.
If your company is negotiating an international contract, I'm available to review the contract's structure and discuss the legal aspects relevant to your business.
If you are considering an international operation, you might also be interested in:
These are some of the questions that most often come up when companies and investors begin structuring international operations.
About the Author
Camila Hermano is an attorney with more than 25 years of experience in corporate and international law. Holding a Master's degree in International Law, Investment, Trade, and Arbitration from the University of Heidelberg (Germany) and Universidad de Chile (Chile), she advises Brazilian and foreign companies on internationalization operations, foreign trade, foreign investment, and international contracts.
