Compliance With Foreign Law In The International Contract

A fundamental clause to include in your international contract is perhaps the one most missed: compliance with foreign law.  This clause, one of the smallest to boot, designates responsibility to each party to comply with the laws of their respective country.

In general, one party is in charge of exactly that (compliance with foreign law) while the other retains a supervisory role with oversight over the subject matter.  For example, depending on the particular circumstances unique to each case, it is recommended that the compliance clause is drafted in such a way that the contract does not close until the party in charge of compliance actually complies.  This can be accomplished by obtaining certain governmental approvals, commercial licenses or even requiring that the complying party provide proof of such compliance.

In essence, then, this clause can turn an ordinary contract into one based on contingency; thus, it aims to protect both parties when failure to comply, if applicable, is detrimental to their original intent.  Keep in mind, however, that what is legal in one country can be illegal in another.

This is why it is critical that one party retains supervisory control and oversight over compliance as to ensure universal conformity to the laws of both countries.  In other words, the compliance clause indirectly forces dialogue, which in turn promotes teamwork.

In addition, the circumstances unique to each case may call for a modification or alteration of its terms to effectuate compliance with foreign laws.  In order to avoid deadlock, then, it is highly recommended that the contract allows for the latter.  Therefore, I always recommend that my clients, pursuant to a mutual satisfaction between the parties, add this in.

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