Risk Management in Trade Contracts with Foreign Companies: A Legal Perspective

Today, the increase in global supply chains and cross-border collaborations has also increased the frequency with which Turkish companies enter into trade agreements with foreign partners. However, in this process where different legal systems, trade customs, and judicial practices converge, careful drafting of trade agreements is vital for minimizing contractual risks .

1. Applicable Law

      Since the legal system governing a contract signed with a foreign party directly determines the rights and obligations of the parties, the applicable law must be clearly and unambiguously stated in the contract.

      If no such choice is made, in case of a dispute in Türkiye, the judge will apply the law most closely related to the case, in accordance with the provisions of the Turkish Private International Law and Procedural Law Act. This may lead to unforeseen consequences for the parties.

2. Dispute Resolution Venue: Court or Arbitration?

     A jurisdiction clause or arbitration clause in the contract will determine which court and procedural rules will resolve any potential disputes.

In international trade, parties often opt for arbitration. The main reasons for this are as follows:

• The trial is being held in secret

• The process can be completed in a shorter time

• The decisions made should be recognized and enforceable across a wide geographical area within the framework of the New York Convention.

3. Contract Language and Interpretation Principle

      If the contract is prepared in multiple languages, it must be clearly stated which version will prevail. Otherwise, differences in interpretation arising from translation variations may lead to serious disputes

4. Delivery and Risk Sharing: Use of INCOTERMS

   In international trade, INCOTERMS 2020 rules should be followed regarding delivery terms, and the chosen delivery method (e.g., FOB, CIF, DDP) should be clearly stated in the contract. These terms are:

• Delivery location,
• Which party is responsible for the costs,
• It clarifies the sharing of responsibility between the parties by regulating issues such as at what point the risk is transferred
  

5. Force Majeure

    Unforeseen events beyond the control of the parties, such as pandemics, war, natural disasters, and decisions by public authorities, can prevent contractual performance. Therefore, the contract should include a detailed force majeure clause, clearly defining which circumstances constitute force majeure. Furthermore, the notification and duration of force majeure events, as well as their impact on performance, should be clearly defined.

6. Payment Terms and Guarantees

In trade with foreign parties, secured payment methods should be preferred to protect payments and reduce commercial risks

• Letter of credit

• Bank guarantee letter,

• Cash payment – ​​payment after delivery combinations.

In addition, the payment currency, payment dates, and late payment interest provisions must be clearly stated

7. Termination, Compensation and Penalties

     The conditions under which the contract will terminate, as well as the penalties and compensation obligations for breach of contract, should be regulated in detail.

8. Intellectual Property, Trade Secrets and Data Protection

      In contracts involving intellectual property elements such as technological information, customer databases, or designs, the protection of intellectual property rights, the confidentiality of trade secrets, and obligations regarding the processing of personal data must be secured with specific clauses.

    The definitions of data controller and data processor under the KVKK and, if applicable, GDPR should be provided, and regulations regarding explicit consent mechanisms should be included

Conclusion

     Trade agreements concluded with foreign companies can affect not only commercial relations but also the long-term investment and business strategies of the parties. Therefore, contract texts that comply with international law, are clear, auditable, and easily enforceable in case of disputes should be prepared.

     To ensure legal certainty, bilingual, arbitration-supported, and carefully structured contracts that take into account both Turkish and foreign legal systems should be prepared with the assistance of professional legal counsel.