A foreign supplier fails to deliver goods, sends defective products or breaks a payment agreement. For a U.S. business, these problems can cause financial losses and strain customer relationships. Can a company take legal action against a supplier in another country? The answer depends on the contract, applicable law and where the court can hear the dispute.
When a supplier’s breach can lead to a lawsuit
A business may have a breach of contract claim when a supplier fails to meet its obligations. Examples include missed delivery dates, incomplete orders and goods that fail to meet agreed standards.
The business must generally prove that a valid agreement exists and that the supplier failed to fulfill its duties. Contracts, payment records and written communications can help establish the claim.
How contract terms affect cross-border disputes
International supply agreements often explain how parties must resolve disputes. A contract may identify the country’s laws that govern the agreement and the courts that can hear a claim.
Some contracts require arbitration instead of a lawsuit. Businesses should review these terms before pursuing a claim.
The United Nations Convention on Contracts for the International Sale of Goods (CISG) may also govern international sales between businesses in participating countries. The United States is a party to the CISG, but parties may exclude its application in appropriate circumstances.
Where can a business file a lawsuit?
A U.S. business may sue a foreign supplier in a U.S. court if the court has authority over the supplier. The supplier’s U.S. business activities and the contract’s terms may affect that decision.
Depending on the circumstances, the business may need to pursue the claim in the supplier’s country or through arbitration.
What evidence can support a claim?
Businesses should keep records that show the parties’ obligations and the supplier’s alleged breach.
- Contracts and purchase orders: These establish the agreed duties.
- Invoices and payment records: These show payments and outstanding amounts.
- Shipping documents: These help track delivery dates and shipment details.
- Emails and inspection reports: These document delays, defects and other problems.
What remedies may be available?
Depending on the contract and applicable law, a business may seek damages or other remedies. The CISG may allow a business to claim damages, require performance or avoid the contract when the circumstances justify those remedies.
Reviewing the contract, preserving evidence and identifying the proper legal forum can help businesses assess their options in a cross-border dispute.