An international contract can be perfectly drafted on its commercial terms and practically useless because of three clauses that get least attention: governing law, jurisdiction, and dispute resolution.
Governing law
The law that applies to interpreting the contract. Parties can generally choose it, and the choice should be deliberate.
New Zealand law is familiar to you and your advisers, which makes it cheaper to advise on and easier to predict. A counterparty will frequently push for their own law, and the outcome is often a compromise on a neutral third law — English or Singapore law are common choices in international trade.
What matters is that a law is chosen. Without a choice, the applicable law is determined by conflict of laws rules, which is uncertain and expensive to argue about.
Jurisdiction: where a dispute is heard
This is separate from governing law and frequently more consequential.
A clause submitting disputes to the courts of a distant jurisdiction is, for most small and medium New Zealand businesses, effectively an agreement not to pursue disputes. The cost of engaging foreign counsel and litigating overseas exceeds the value of most contracts.
Worse, a foreign judgment in your favour then has to be enforced where the defendant’s assets are, which is a further process.
Why arbitration is usually better internationally
Arbitration awards are considerably more enforceable across borders than court judgments, because the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards binds a large number of countries and provides a relatively streamlined enforcement route.
Court judgments have no equivalent general framework, and enforcement depends on the relationship between the two jurisdictions.
Practical drafting for an arbitration clause: specify the rules (an established institution’s), the seat of arbitration (which determines the supervisory law), the number of arbitrators, and the language. An incomplete arbitration clause generates a dispute about the dispute mechanism.
Arbitration is not cheap. For low-value contracts the cost can exceed the amount at stake, which argues for a tiered clause — negotiation, then mediation, then arbitration — and for keeping the value of any single transaction within what you could afford to lose.
The CISG
The United Nations Convention on Contracts for the International Sale of Goods applies by default to many international sales between parties in contracting states, including New Zealand.
It provides a uniform set of rules on formation, obligations and remedies. Parties can exclude it, and many contracts do so expressly — often without anyone considering whether exclusion is actually in their interest.
The decision should be deliberate. Where it applies, understand what it says about conformity of goods, notice of defects and the right to avoid the contract, because the notice requirements in particular are strict.
Clauses that matter in cross-border trade
- Incoterm, stated with the named place and the edition. Incoterms 2020 remains current.
- Currency of payment, and who bears exchange risk.
- Payment mechanism and security — letter of credit, documentary collection or open account.
- Title and risk, which the Incoterm addresses for risk but not for title.
- Force majeure, drafted for events that actually affect international supply — port closures, export restrictions, shipping disruption.
- Sanctions and export controls, with a right to suspend or terminate if compliance becomes impossible.
- Intellectual property ownership and licensing, particularly where a manufacturer produces to your design.
- Termination, and what happens to work in progress and tooling.
Distribution and agency agreements
These carry a specific trap: some jurisdictions give agents and distributors statutory protection on termination, including compensation, regardless of what the contract says.
Appointing a distributor in such a market without understanding the exit cost is a common and expensive error. Check before appointing, not before terminating.
Also address exclusivity, territory, minimum purchase obligations, what happens to stock and customer relationships on termination, and whether they can register your trade marks locally — which they sometimes do, and it is difficult to undo.
Practical approach
Get international contracts reviewed by someone who does them regularly. The cost is small relative to the exposure, and the clauses that matter are not the ones a general commercial review focuses on.
MFAT publishes trade agreement material, NZTE publishes exporter guidance, and the New Zealand legislation covering arbitration is free at legislation.govt.nz.
General information only, not legal advice.
