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MSME Contracts and Dispute Settlement

Why do MSMEs need model contracts?

MSME often have relatively lower access to legal advice when negotiating a contract or managing a dispute than large firms. Also, MSMEs may be the weaker contractual parties and could have difficulties in ensuring that the contractual balance is kept. A wide range of international conventions and model laws enable MSMEs to access a fairer and more uniform contractual regime and to reduce their contract administration costs. Having access to standardized and uniform contracts can simplify establishing new international relations between businesses and reduce trade costs for MSMEs. 

With this in mind, the United Nations Commission on International Trade Law (UNCITRAL) has developed a wide range of conventions, model laws, and contractual terms that can be used by either governments or by parties to international trade contracts. This includes conventions on international commercial arbitration, mediation, and electronic commerce, among others. For a full list of UNCITRAL instruments, visit this website.

One notable instrument is the United Nations Convention on Contracts for the International Sale of Goods (CISG), also referred to as the Vienna Convention. This instrument provides substantive and procedural rules governing contracts for the international sales of goods between private businesses, excluding sales to consumers and sales of services, as well as sales of certain specified types of goods. As of September 2020, UNCITRAL reported that 94 States had acceded to the CISG (access the full list of States).

How can governments help? 

Ensuring that MSMEs can enforce their contractual rights, regardless of the place where the contract is executed, can avoid parallel proceedings. In turn, this can reduce MSMEs’ costs of administering their contracts and disputes with foreign counterparts. Beyond the CISG, multiple international organizations have developed conventions to which governments can adhere and model laws that can provide guidance to facilitate the recognition and enforcement of foreign awards. 

UNIDROIT instruments 

  • The International Institute for the Unification of Private Law (UNIDROIT) has developed a wide range of model laws and conventions for specific trade-related transactions. These include, among others, franchising, agency, factoring, leasing, and international sales of goods, as well as common contractual principles that parties to international trade contracts can use.
  • The UNIDROIT Principles 2016 is a valuable resource for more information. 

The Hague Judgments Convention, formally the Convention of 2 July 2019 on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters 

  • The Convention establishes common criteria according to which judgments from one Contracting Party will be recognised and/or enforced in another. The Convention facilitates the circulation of judgments among its Contracting Parties, thus ensuring that a successful party will have a meaningful judgment. This approach also provides this party with an opportunity to enforce the judicial award abroad with shorter timeframes, costs, and risks. The Convention applies to the recognition and enforcement of judgments in civil or commercial matters, including consumer and individual employment contracts. The Convention does not apply to the status and legal capacity of natural persons, family law matters, insolvency, privacy, intellectual property, and certain antitrust matters. 
  • The full text of the Convention can be accessed online

HCCH Convention of 30 June 2005 on Choice of Court Agreement

  • The Hague Conference on Private International Law (HCCH) Choice of Court Convention ensures that parties’ choice of forum is upheld by courts, thereby creating a climate more favourable to international trade and investment. The Convention contains three key obligations. The first of these is that the court chosen by the parties must hear the dispute. Any non-chosen court must suspend/dismiss proceedings, in favour of the chosen court. Judgments given by the chosen court must be recognized and enforced in other Contracting Parties, ensuring their global circulation. As such, the Choice of Court Convention has a similar effect to the recognition of arbitration agreements under the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Judgments given by the chosen court must be recognised and enforced in other Contracting Parties (Article 8), ensuring their global circulation.
  • The Convention can be accessed at the HCCH website

UNCITRAL, HCCH, and UNIDROIT Legal Guide to Uniform Instruments in the Area of International Commercial Contracts, with a Focus on Sales

  • The purpose of the UNCITRAL, HCCH, and UNIDROIT Guide is to provide a description on the complementary nature of the UNDROIT, UNCITRAL, and the Hague Conference’s instruments when more than one instrument applies to a transaction.

United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 10 June 1958) 

  • The New York Convention applies to the recognition and enforcement of foreign arbitral awards and the referral by a court to arbitration. It establishes common criteria for recognizing and/or enforcing arbitral awards made in the territory of one Contracting Party in that of another.