The day-to-day activities of international market operators are associated with the conclusion and performance of contracts with their counterparties. Such contracts, by their characteristics and terms, may differ significantly depending on the goals and intentions of the parties.

Each contract is unique, since a universal principle of contract law worldwide is that parties are free to agree on anything they wish—of course, within the framework of the applicable legislation of a particular country.

In general, a contract must contain all essential terms in order to be capable of performance and to be considered legally concluded—such as the subject matter, price, quality, time limits, and so forth. Each contract is special and has characteristics inherent to it depending on the applicable law.

Under English law, for example—which the parties often choose to govern their contracts—the following elements are mandatory: (1) agreement, (2) intention to create legal relations, and (3) valuable consideration. A contract that contains all essential terms is considered concluded, formalized, and legally binding.

However, even if all essential terms are present, it is important not only to conclude a contract properly, but also to perform it duly.

Therefore, we draw your attention to what a contract should be like:

· Clearly and unambiguously worded!

If a contract contains all essential terms but is drafted in unclear or ambiguous language, this creates a potential ground for disputes between the parties. Indeed, contractual disputes most often arise when contract provisions can be interpreted in different ways.

How does ambiguity arise?

Quite often, the parties attempt to describe rights and obligations in such detail that, ultimately, the contract as a whole becomes overly complex and difficult to understand—conciseness is lost, contradictions appear, and difficulties in interpretation arise.

This situation is fairly common and accompanies almost every contract negotiation process—during the exchange of contract drafts and amendments proposed by each party.

How can a contract clause be drafted concisely?

A contract clause should be:

• Short

• Substantive

• Simple

Let us give an example of a conditionally “poor” clause intended to describe the quality of goods:

“The Seller warrants to the Buyer, that quality of the Product would satisfy the conditions of this Contract and the Annexes to the Contract, will not have defects of production quality and are marketable as wheat for human consumption in the European Union.”

This wording is excessively long, contains general phrases and references to other contractual terms and warranties, and applies an overly broad scope of European law.

Therefore, it is replaced with the following:

“The goods shall be fit for human consumption.
Specification: Protein 11.5%, [ . . . ]”

At the same time, precise characteristics that the goods must meet are specified. A general reference to legislation makes the contract impossible to perform, since, in this case, each EU country may establish its own rules regarding the quality characteristics of goods. This creates a conflict and ambiguity as to which exact standards the goods must comply with.

The next example of misunderstanding arose at the contract conclusion stage—the Client’s counterparty requested that all parties bear banking fees and charges in equal proportions: the Buyer in its territory, and the Seller in its own.

The original contract clause read as follows:

“Bank charges for transfer of funds by the Buyer to the Seller shall be paid by the Buyer in the Buyer's country, including charges of the correspondent banks, which are involved in the transfer of funds and by the Seller in the Seller's country.”

During correspondence, the counterparty requested the following changes:

“In other contracts we use to pay our commissions and the other parties its one. Please change the clause and establish that each party will pay the corresponding bank commission.”

If one reads the original clause carefully, its substance is exactly what the counterparty requested. However, the language of the clause was unclear to them.

Therefore, the Client was advised to simplify the wording of the clause as follows:

“All banking charges and commissions in the Buyers' country shall be borne by the Buyers.
All banking charges and commissions in the Sellers' country shall be borne by the Sellers.”

Simple. Concise. Clear. Unambiguous.

Conclusion

A contract must be clear, unambiguous, and contain all essential terms. We also recommend paying particular attention to the applicable law governing the contract and the arbitration agreement. The key question when concluding a contract should be: “What exactly are we agreeing on?”

If you are unable to answer this question or if ambiguity is apparent, please contact our specialists. We will be happy to provide the necessary consultations and assist you in drafting a contract and understanding its terms.