Preventing Litigation through Clear Contract Drafting and Preventative Thinking

Nel commercio internazionale (e non solo) i profili linguistici assumono forte rilievo giuridico; nonostante ciò, nei contratti tra controparti appartenenti a diversi ordinamenti, sono spesso trascurati a vantaggio di aspetti commerciali. Un interessante caso deciso da una corte statunitense ci permette di focalizzare l’attenzione sulle clausole di rinnovo tacito del contratto, ed in particolare sulla procedura di comunicazione-ricezione della disdetta.Due to a variety of factors, not least of which is the proliferation in the use of the Internet, conducting international business is a significantly easier proposition today than it has been at any time in history. Because of the huge explosion in international business over the past twenty years, cultures have blended and companies in the United States and throughout the world are hiring more employees who speak multiple languages. Multilingual employees clearly ease the development of international business relationships and facilitate the daily interactions between employees, clients, vendors and business partners throughout the world. There is a risk, however, when this ease and convenience is confused with expertise. As an attorney in the United States, I have seen many foreign-based companies get themselves into trouble by failing to realize the importance of absolute clarity in the negotiation and implementation of contracts.

An interesting example of how vague drafting and unclear communication resulted in a protracted legal battle is the court case, P.H. International Trading Company, d.b.a. Hana K. v. Christia Confezioni, S.p.A., 2007 U.S. Dist. LEXIS 23434 (N.D. Ill. March 29, 2007). In this case, a ten-year business relationship between an Illinois company and an Italian company deteriorated and ultimately ended up in a U.S. court. The companies found themselves in court because of a dispute that arose due to a lack of clarity in drafting the contract that created their relationship and a further lack of clarity in communicating with each other in furtherance of that contract.

The contested section of the contract stated that the agreement entered into by the companies was automatically renewable every five years, until “any notice to the contrary provided by one of the parties . . . to be communicated, at least six months prior” to the end of the agreement. Because of the unclear drafting of the contract and the lack of preventative thinking, the phrase “to be communicated” was understood to mean something different by each company. The Italian company sent a letter to the Illinois company with the intention of not renewing the contract for another five years. The letter was sent before the six-month cutoff date outlined in the contract, but was received by the Illinois company after the cutoff date. The Illinois company understood “to be communicated” to mean that they had to receive letter prior to the six-month contractually prescribed period, while the Italian company believed that the same term required that they send the letter before the six month cutoff date. The court ultimately held that the letter was “communicated” when it was sent, not when it was received.

Careful contractual drafting would have foreseen this issue and prevented any claim by inserting clear, concise explanatory information. Careful drafting is even more important when the companies operate using different languages. If the contract indicates that U.S. courts will be forum for contractual disputes, those contracts should be written in English. While both companies in the P.H. International Trading case had multilingual employees, they entered into an agreement with different interpretations of the same words. The translations of both the contract and any documents addressing the contract are crucial to future litigation and must be agreed upon and drafted by attorneys, not by laypersons who are not familiar with the intricacies of legal language and contract drafting.

The second point of disagreement between the two companies arose over a misunderstanding about the content of the letter that was sent by the Italian company to terminate the contract and to prevent it from renewing automatically for another five years. The Italian sent a letter to the Illinois company to inform it that it did not intend to renew the contract. Included in the letter was the language, “non si intende che il contratto si rinnova automaticamente.” The Illinois company translated this language to read “the agreement itself, is not intended to be automatically renewed” and argued that there was no clear intent to void the automatic renewal. The Italian company, however, argued that the translation should be “we do not intend to renew the contract.” The court ultimately agreed with the Italian company and held that the statement in the letter was a clear intent not to renew the contract.

A clear and concise communication that states all important facts, even those that seem obvious, would have prevented the disagreement from escalating and would likely have precluded the need for any court intervention, thus saving both companies valuable time and money. In matters of importance, such as the non-renewal of a contract, any communication with customers, vendors or business partners must be explicit and drafted by an attorney. Expert attorneys are able to predict these disagreements and utilize language that can protect companies from breaches of contract and from costly court battles.

Nel commercio internazionale (e non solo) i profili linguistici assumono forte rilievo giuridico; nonostante ciò, nei contratti tra controparti appartenenti a diversi ordinamenti, sono spesso trascurati a vantaggio di aspetti commerciali. Un interessante caso deciso da una corte statunitense ci permette di focalizzare l’attenzione sulle clausole di rinnovo tacito del contratto, ed in particolare sulla procedura di comunicazione-ricezione della disdetta.Due to a variety of factors, not least of which is the proliferation in the use of the Internet, conducting international business is a significantly easier proposition today than it has been at any time in history. Because of the huge explosion in international business over the past twenty years, cultures have blended and companies in the United States and throughout the world are hiring more employees who speak multiple languages. Multilingual employees clearly ease the development of international business relationships and facilitate the daily interactions between employees, clients, vendors and business partners throughout the world. There is a risk, however, when this ease and convenience is confused with expertise. As an attorney in the United States, I have seen many foreign-based companies get themselves into trouble by failing to realize the importance of absolute clarity in the negotiation and implementation of contracts.

An interesting example of how vague drafting and unclear communication resulted in a protracted legal battle is the court case, P.H. International Trading Company, d.b.a. Hana K. v. Christia Confezioni, S.p.A., 2007 U.S. Dist. LEXIS 23434 (N.D. Ill. March 29, 2007). In this case, a ten-year business relationship between an Illinois company and an Italian company deteriorated and ultimately ended up in a U.S. court. The companies found themselves in court because of a dispute that arose due to a lack of clarity in drafting the contract that created their relationship and a further lack of clarity in communicating with each other in furtherance of that contract.

The contested section of the contract stated that the agreement entered into by the companies was automatically renewable every five years, until “any notice to the contrary provided by one of the parties . . . to be communicated, at least six months prior” to the end of the agreement. Because of the unclear drafting of the contract and the lack of preventative thinking, the phrase “to be communicated” was understood to mean something different by each company. The Italian company sent a letter to the Illinois company with the intention of not renewing the contract for another five years. The letter was sent before the six-month cutoff date outlined in the contract, but was received by the Illinois company after the cutoff date. The Illinois company understood “to be communicated” to mean that they had to receive letter prior to the six-month contractually prescribed period, while the Italian company believed that the same term required that they send the letter before the six month cutoff date. The court ultimately held that the letter was “communicated” when it was sent, not when it was received.

Careful contractual drafting would have foreseen this issue and prevented any claim by inserting clear, concise explanatory information. Careful drafting is even more important when the companies operate using different languages. If the contract indicates that U.S. courts will be forum for contractual disputes, those contracts should be written in English. While both companies in the P.H. International Trading case had multilingual employees, they entered into an agreement with different interpretations of the same words. The translations of both the contract and any documents addressing the contract are crucial to future litigation and must be agreed upon and drafted by attorneys, not by laypersons who are not familiar with the intricacies of legal language and contract drafting.

The second point of disagreement between the two companies arose over a misunderstanding about the content of the letter that was sent by the Italian company to terminate the contract and to prevent it from renewing automatically for another five years. The Italian sent a letter to the Illinois company to inform it that it did not intend to renew the contract. Included in the letter was the language, “non si intende che il contratto si rinnova automaticamente.” The Illinois company translated this language to read “the agreement itself, is not intended to be automatically renewed” and argued that there was no clear intent to void the automatic renewal. The Italian company, however, argued that the translation should be “we do not intend to renew the contract.” The court ultimately agreed with the Italian company and held that the statement in the letter was a clear intent not to renew the contract.

A clear and concise communication that states all important facts, even those that seem obvious, would have prevented the disagreement from escalating and would likely have precluded the need for any court intervention, thus saving both companies valuable time and money. In matters of importance, such as the non-renewal of a contract, any communication with customers, vendors or business partners must be explicit and drafted by an attorney. Expert attorneys are able to predict these disagreements and utilize language that can protect companies from breaches of contract and from costly court battles.