Need for sound general terms and conditions in international trading

If you carry on cross-border business, your company will have to deal with the laws of the countries of residence of your trading partners. You will have to keep this in mind while drafting your general terms and conditions. This article addresses a number of aspects that are relevant in this context.

Language

Your general terms and conditions must be drafted in a language at which the contracting party is proficient. That does not have to be the official language of its country of residence. It suffices that the general terms and conditions are drafted in the language in which the negotiations were conducted.

Vienna Sales Convention

If your company sells movable property to a foreign buyer, your sales transactions are automatically governed by the Vienna Sales Convention, in addition to being subject to national law. The Vienna Sales Convention (i.e. the UN Convention for the International Sale of Goods or CISG) has been adopted by about two-thirds of all countries in the world, including the Netherlands, Germany, France, the United States and China.

That said, parties do have the option of excluding applicability of the CISG to their contract. In other words, they can opt out. A company can opt out by specifying explicitly in its general terms and conditions that application of the CISG is excluded.

The CISG comes with pros and cons. The scope of the CISG can offer benefits to some businesses. A contract can be avoided only, for instance, if it has been fundamentally breached. Contrary to this, the Netherlands Civil Code stipulates that any breach is sufficient to justify contract avoidance. Other businesses may be better served by explicitly derogating from the CISG. One of the drawbacks of the CISG is that it stipulates that, in order to let the seller’s general terms and conditions be applicable, they must be made available to the buyer in the buyer’s language before the contract is signed. Under Dutch law, it suffices to make a reference to the applicability of the general terms and conditions in a cross-border situation.

Forum selection

General terms and conditions governing cross-border contracts must specify which laws are applicable to the contract and which court is competent in the event of a dispute or legal proceedings. This is how you prevent having to go to a Spanish court if you become involved in a dispute with a Spanish contracting party.

Forum selection clause

Based on European regulations and case law of the European Court of Justice, the parties must have reached consensus about the choice of forum. A forum selection clause in general terms and conditions will not be valid until the general terms and conditions have actually been provided. A mere reference to the general terms and conditions via a hyperlink is not sufficient for the forum selection clause to be applicable. If usually a mere reference to the general terms and conditions via a hyperlink is provided in your business, the contract or proposal itself must also contain an explicit reference to the forum selection clause included in the general terms and conditions.

Retention of title

Many sets of general terms and conditions include a clause on the retention of title, meaning that the title to an item will not be transferred to the buyer until it has met all its obligations under the contract of sale.

However, if you – as a Dutch company – deliver a piece of equipment to a German company, for instance, and your customer becomes insolvent, you will have to bear in mind German law if you invoke a retention of title, the reason being that the effects of a retention of title are governed by the law of the state in whose territory the item is located at the time of delivery. This is referred to as lex rei sitae in legalese. The time of delivery is decisive. If the piece of equipment is delivered in Germany, German law applies. If the delivery is made ex works, Dutch law applies.

Customised services

General terms and conditions require some degree of customisation. Every sector and every company has its own characteristics that need to be reflected in their general terms and conditions. This is all the more true for cross-border trading given that cross-border transactions are governed by the laws of other countries besides those of the Netherlands.

We would be happy to review your general terms and conditions, and advise you on how best to tweak them. For more information about our services, please contact your accon■avm adviser or send an email to international@acconavm.nl.