LIFE OF AN INTERNATIONAL BUSINESS CONTRACT

By
ⓒ Soung Soo Kim
Senior Partner, Kim&Kim Law Offices
Korean Energy Law Institute

April 4, 2005, 3:30 to 4:45 p.m.

Graduate School of International Studies
Ewha Womans University
 CONTENTS

I. International Business and International Contract

(1) International Economy and International Contract
(2) International Business Contract

II. Birth, Aging, Sickness, and Death of International Business

Contract
(1) Birth – Entry of Contract
(2) Aging – Contract Performance and Contract
Amendment
(3) Sickness – Contract Disputes
(4) Death – Contract Termination

III. 3 Principles and 10 Ways of Implementations of International

Business Contracts
(1) 3 Principles
(2) 10 Implementations
I. International Business and International Contract

After the opening policy of the socialist bloc called perestroika,

the world seemed to be separated or rearranged by grouping several
countries together such as the European Union on the European
continent, NAFTA in North America, ASEAN on the Asian continent, and
ASEM in Eurasia. This seems to show that ideological battles could not
be more productive than economic cooperation among friendly countries.
Therefore, international commerce and business will be stronger at both
the government and private-sector levels. To the eyes of the legal
profession, this phenomena will definitely increase the volume of
international legal services covering international contracts.

The world has been divided into three different legal groups
called the civil law system, the Anglo-American legal system, and the
socialist legal system which is due to residual systems of socialist
countries such as Cuba and North Korea. The civil law system
originated from the legal system of the ancient Greek and Roman
empires and has been developed through the scholars of France and
Germany; interestingly, it has been exported to some of the Asian
countries like Japan and Korea. The Anglo-American legal system
originated from the legal system of England’s empire and has been
improved by the United States, which has been strongly influencing the
legal system of the world. It seems that international business law could
be unified through the efforts of legal professionals worldwide such as
those who produced UNCITRAL or UNIDROIT. Under these
circumstances, it seems sensible to know the nature of international
contracts from birth to the tomb.

II. Birth, Aging, Sickness, and Death of International Business

Contract

The Chinese philosopher Confucius said, “Human life cannot

avoid the cycle of birth, aging, sickness, and death”; neither can the
international contract.
(1) Birth – Entry of International Contract

The international contract is a tool for international business or

international cooperation under the rule of law. However, in order to
make a good or beneficial contract, the contract parties must exert their
best efforts in terms of understanding the legal culture of the contracting
parties, legal terminology, and the economic implication of the terms and
conditions of the contract. In order to persuade the other contractual
party to accept its own business plan, the party has to improve the skill of
negotiation, sometimes making legal negotiations. It seems necessary
to understand the meaning of bargaining power, which the contractual
party might or might not have.

(2) Aging – Contract Performance and Contract Amendment

The Latin words of Pact Sunt Servanda meaning “the promise

must be kept” have been also a maxim of the international business
contract. However, the business world has been rapidly changing, and
this changing environment creates unfairness or unreasonableness in
performing the business contract in a new or changed business
environment. This implies that whereas one party of the contract
benefits under the changed environment, the other party suffers
unreasonably. The question is whether such Latin norm shall still be
kept or adjusted to fit the changed circumstances. Legal professionals
say that contract amendment or contract adjustment was originally
implanted in keeping with the spirit of the meeting of minds between the
contractual parties. However, most of the cases result in disputes rather
than harmonious contractual amendment.

(3) Sickness – Contract Disputes

Most international business contracts have a dispute resolution

clause when the contract becomes sore or troubled because
international lawyers have realized from experience that international
contracts tend to produce disputes. There are two types of dispute
resolution mechanisms: dispute resolution by the judiciary and dispute
 resolution by ADR, alternative dispute resolution, covering arbitration and
mediation. Arbitration is a nongovernmental system which saves time
and expenses for the disputing parties, whereas the judicial system
needs precise evidentiary rule and a three-level appeals system. There
are well-known international institutes of ADR such as ICC, LCIA, and
AAA. Korea has a Korean commercial arbitration board (KCAB) under
the Korean Arbitration Act.

The New York convention of 1958 (UN Convention on

Recognition and Enforcement of Foreign Arbitral Award, adhered to by
the Republic of Korea in 1973) for the enforcement of international
arbitration award is a unique tool for the final stage of arbitration award
popular among international businessmen and business entities. When
a judiciary produces a judgment and the loser of the judgment does not
perform the obligation under the judgment, it is most difficult for the
lawyers to touch the money under the judgment, because there is no
such legal mechanism like the New York convention for the arbitration
award.

(4) Death – Contract Termination

When there is a successful performance of the contract by the

contractual parties, the contract could be ended peacefully in a
monumental tribute to international cooperation. However, the change
in business environment where the contract was made might create a
termination of the contract not because of a breach of trust, but because
of business reasons held by the contractual parties. Sometimes the
death of the contact does not necessarily mean a symbol of a sad thing
or a failure of trust, because the contract had successfully fulfilled its
destiny in the international business world.

II. 3 Principles and 10 Ways of Implementation of International

Business Contracts

(1) 3 Principles
1. The Latin words Ignorantia Legis Neminem Excusat describing the
nature of a contract is also applicable to international contracts made by
harsh negotiation between international business parties. Therefore, an
ignorance of the law embedded in the terms and conditions of the
international contract cannot be excused.

2. Therefore, preventive ways of learning the laws surrounding the

contract might be advised and recommended by experienced
international lawyers. Preventive legal preparations should be kept.

3. In order to achieve the prior two principles, the concept of ‘home

lawyer,’ like home doctor, shall be applicable to the international business
arena. In-house lawyers were reasonably established in the advanced
countries due to this reason.

(2) 10 Ways of Implementation

1. The negotiation party shall improve its technique of negotiation to

make the other side agree “yes.”

2. Preparation of negotiation packages from the most advantageous to

the most disadvantageous shall be made prior to presenting the most
advantageous first and the most disadvantageous last.

3. Use of lawyers’ opinion as an excuse for postponement is necessary.

4. A dispute resolution clause shall be discussed in advance.

5. Contractual analysis from inbound negotiation and outbound

negotiation shall be done in advance.

6. Understanding of the economic implications of each term of the

contract shall not be overlooked.

7. Vacancy of contractual terms shall be filled out with prior consultation

with the lawyer.
8. Litigation strategies have been developed from the beginning of
human history and therefore should be discussed with legal experts.

9. International lawyers before or after the legal market opening shall not
be overlooked, because they are professionals in these fields.

10. Smart use of lawyers in achieving the 3 principles is recommended

despite the proverb that the lawyer’s mouth is tighter than a clam’s.

END.