Contractual Liability in International Agreements

In international agreements it can be presumed that nearly all types of agreements are regulated by an applicable law and legal practice. As a rule, the party in breach of an agreement will be liable for all damages incurred by a party as a result of such breach, unless the agreement contains limitations of liability. Hence, it is always advisable to regulate the contractual liability and limitations thereof in the agreement, in order to facilitate management of risks and liabilities.

It is also possible to take into account situations where, while contractual obligations have been fulfilled as agreed, claims are presented to the buyer (for example, a reseller) at a later stage, based on damage caused by the product to a third party (personal injury or damage to property other than the sold product, i.e. product liability), or the product infringing industrial or intellectual property rights of a third party. Although product liability legislation is mandatory, and liability to third parties for infringement cannot be limited in advance, the parties to an agreement may agree on division of liability and procedures applicable in such cases.

It should always be borne in mind that value and level of protection provided by an agreement is always at most equal as the financial capacity of the counterparty. To safeguard fulfillment of an agreement, provision of a parent company guarantee or even a bank guarantee may be considered.

The party invoking breach of contract must always issue notice of breach to the breaching party as soon as possible and in a verifiable manner. The agreement may also contain provisions regarding service of notices, which must be complied with. The CISG provides for a definite two-year period from delivery of the goods for issuing such notice.