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1. Purpose of the model

In recent times a growing number of documents called “consultancy agreements” or similar names have been being circulated among business firms or persons engaged in international trade. Such agreements serve the purpose of provision of assistance to the newcomers to a sector in a foreign country or region by such country or region’s local experts, where such expert constitutes a link to that country and its authorities. Consultancy agreements mainly cover situations where a consultant provides services in international and domestic trading and project development in certain businesses, evaluating business and growth opportunities with a role to facilitate the operations of the client within a certain territory.

Such services generally include informing the client of regulatory, legal, economic and financial developments in the relevant field of business, changes in the practices of the public authorities, strategies and investment environment; advising on hiring local talents, executives and professional advisers; mediating between the client and relevant public authorities, lobbying for passing of legislative regulations, etc.

ICC is of the view that the time is right for drafting a consultancy model contract, focusing on services related to a business entering a new and foreign market, where a domestic entity, or person familiar with the new market through cultural and business experience, will be engaged as a consultant. ICC believes that this model contract may be used by the parties for various purposes such as brand promotion where brand ambassadors are engaged, market research before making franchising contracts abroad, obtaining information on local incentive regimes prior to entering a new market, etc.

When negotiating consultancy agreements abroad, one of the main difficulties faced by parties engaged in international trade is the lack of standard provisions for agreements of this type. Further, consultancy agreements are often not governed by specific statutory provisions.

Since there is no globally agreed uniform legislation on the subject (unlike for example in the case of the international sales contracts¹), parties must rely on national laws and court decisions which (i) do not take into account the specific needs of international trade (since they have been enacted in primis for domestic agreements, and (ii) may substantially differ from one country to another.

Stipulations agreed by the parties have the utmost importance in determining the legal status of the contract, and should therefore be carefully drafted.

For the above reasons ICC believes that there is space for an alternative solution, consisting in the use of uniform contractual rules, not based on any specific national law, but incorporating the prevailing practice in international trade as well as the principles generally recognised by domestic laws.

ICC has unrivalled experience in the drafting of model international commercial contracts. ICC has already drafted model forms of contract for international trade: the ICC Model Contract of Distributorship, ICC Model Contract “Consortium Agreement”, the ICC Model Contract on Commercial Agency, the ICC Model Contract “Occasional Intermediary (Non-circumvention and Non-disclosure)”, the ICC Model International Sale Contract, the ICC Model International Franchising Contract, the ICC Model Subcontract, the ICC Model International Transfer of Technology Contract, the ICC Model International Trademark License, the ICC Model Turnkey Contract for Major Projects, the ICC Model Confidentiality Agreement, the ICC Model Mergers & Acquisitions Contract 1 - Share Purchase Agreement, the ICC Model Selective Distributorship Contract and the ICC Model Contract for the Turnkey Supply of an Industrial Plant.

In preparing this model form, ICC has sought to strike a fair balance between the interests of the client and those of the consultant. In other words, this model form does not favour the position of one of the parties, but aims at protecting and balancing the legitimate interests of both.

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2. Scope of application

This model form has been prepared on the assumption that it would apply only to international consultancy agreements, with independent consultants, providing local assistance to the foreign newcomers to the country or region.

In this respect it is indisputable that international consultancy contracts should be governed by special rules in order to take into account the special situation which exists in a consultancy agreement between parties of two different countries.

Although the present model form has been established especially for these situations, nothing prevents the parties to use it for domestic contracts, i.e. contracts between parties having their place of business in the same country. The parties are therefore advised not to use this model form for domestic contracts, unless they check which amendments are necessary in order to comply with a local situation.

This model deals with independent consultants, not with commercial agents, occasional intermediaries or distributors. While the distributor acts in its own name and for its own account as buyer-reseller, both the occasional intermediary and the commercial agent act as a middle man, i.e. they promote the conclusion of contracts between a principal and a third party. Different from all these types of relationships, a consultant neither acts as an intermediary or broker nor conducts any commercial sale activity in its own name and on its own behalf. Consultancy agreements, in the way that is defined hereunder, only deal with services related to promoting and presenting a client, without the involvement of any sale of goods.

Making a clear distinction between an occasional intermediary and a consultant may be considered difficult by the parties while choosing which model contract they should use. In such cases, it is important for the parties to be clear about the services expected from the consultant / occasional intermediary, with the below scope in mind.

1. The scope of work of an occasional intermediary generally consists of supply of information about one or more specific deals and names of possible customers or contacts, as well as putting the counterpart in contact with a third party and negotiating a contract for the counterpart with such third party, which means that an occasional intermediary specifically targets conclusion of contracts between its principal and a third party. As concerns the remuneration, in this case, the normal solution will be to pay the intermediary only if and to the extent its activity has led to the conclusion of a contract with a third party as well as the performance thereof, depending on the intermediary’s scope of work. Although it is also possible for the parties to agree on a lump sum as remuneration, payment of commission on the value of the business (contract) entered into through the intermediary’s intervention is by far the most common solution for agreements of this type.
2. On the other hand, a consultant’s main duty is to introduce the local market to the newcomers to such market and vice versa: evaluating business and growth opportunities, informing its client of regulatory, legal and economic developments as well as the practices of public authorities, strategies and investment environment, advising on hiring local talents, executives and professional advisers, promoting and presenting the client by way of participation in or organization of conferences or other special events in the business, lobbying for the passing of legislative regulations to the client’s benefit, coordinating and supervising filings and actions of its client before public authorities, assisting and advising its client in day-to-day management of its business, etc. In this case, the remuneration will be due regardless of whether or not any contracts have been concluded with third parties, provided the consultant has fulfilled its obligations under the agreement. This is because a consultant actually earns its payment in consideration of the foregoing services that it provides. Acting as an intermediary for closing certain deals is not what is expected from it. A consultant does not specifically aim for the conclusion of certain deals; instead, it highlights the presence and works of the Client in general, introduces the Client to political and commercial decision makers and major players of the relevant sector in a given territory and provides general consultancy services to its client which probably does not have much physical existence (i.e. employees) in that territory.

3. Applicable law

This model contract has been based on the assumption that it will not be governed by a specific national law, but only by the provisions of the contract itself and the principles of law generally recognised in international trade as applicable to consultancy contract (also called «lex mercatoria»). The purpose of this solution is to ensure that the rules of this model form can be applied in a uniform way to clients and consultants of different countries, without the interference
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of national laws, which may differ on a number of points of detail², without giving one party the advantage, and the other party the disadvantage, of applying one party’s national law.

The working group is of the opinion that the possible disadvantage that may result from the application of rather flexible and general international principles is counterbalanced by the greater certainty of a uniform set of contractual rules and by the reference to the Unidroit Principles of International Commercial Contracts³, which offer a reasonably foreseeable legal framework for most issues that may arise.

In fact, the Unidroit Principles offer adequate solutions to the majority of contractual problems of a more general nature (e.g. formation of contract, validity, performance, non-performance, damages, etc.). Only in some very exceptional cases the provisions of the Unidroit Principles may not actually reflect the expectations of international trade⁴: however, when this happens, the general principles of international trade and the trade usages will prevail over such particular provisions of the Unidroit Principles on the basis of Article 13.1.A, which puts the various sources incorporated by reference in the following hierarchical order: contract clauses, general principles of law, trade usages, Unidroit Principles. This also implies that, even when the Unidroit Principles provide that certain of its rules are mandatory, such rules will not prevail over the contractual clauses, general principles or trade usages.

In any case, if the parties wish to have their contract governed by a specific national law, they can use the alternative set forth in Article 13. In such cases, they should carefully check if this model form conforms to all provisions and/or judicial precedents of the national law they have chosen⁵. This alternative (national law) is preferable if the contract is of domestic nature and/or the parties submit the contract to the jurisdiction of ordinary courts (see Article 12.2) instead of arbitration.

Whenever disputes are not submitted to arbitration, it is recommended to submit the contract to a national law, by choosing the Option B of Article 13, since it is very unlikely that national courts may accept that the contract be governed by a-national rules instead of a domestic law.

4. Resolution of disputes: ADR, arbitration, national courts

The drafters of a consultancy contract should consider how disputes arising out of or in connection with the contract shall be settled. There are binding and non-binding forms of dispute resolution. Litigation before state courts and arbitration are binding forms of dispute resolution, whereas mediation aims at inducing the parties of a contract to arrive at a consensual settlement to their dispute. There are many other forms of dispute settlement between arbitration and mediation. Mini-trial and expert determination are some examples of these intermediate forms. They often have an element of a legal opinion or decision, but they also demand consent of the parties to a certain extent.

The following section outlines arbitration and litigation procedures, giving some remarks on their advantages and disadvantages as well as some hints on how to legally implement arbitration or litigation in a consultancy contract.

4.1 Arbitration

Since the model form is a set of uniform contractual rules, avoiding (as far as possible) the direct application of conflicting domestic legislations, it is appropriate that possible disputes be solved by a uniform resolution system, organised on an international level.

From this point of view the most appropriate solution appears to be international commercial arbitration (see particularly Option A of Article 12.2), which permits a truly international approach and avoids the risk of differentiation which would arise in case of recourse to domestic courts. This is also the reason why in Article 12.2 arbitration is the “default solution” which applies automatically if the parties make no choice (see Article 14.1).
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Since arbitration is essential in the framework of this model, this ICC model contract should not be used in cases where the dispute may be considered as non-arbitrable (i.e. “not capable of settlement by arbitration”) according to the New York Convention of 1958.

4.2 Jurisdiction of national courts

Under Option A of Article 12.2, the parties may choose to submit possible disputes to the national courts indicated in such clause.

When choosing this alternative, parties must check whether the choice of forum clause is effective in the countries involved.

4.3 ADR / Mediation

It may be advisable to try to solve the dispute without litigation through the recourse to an amicable method of dispute resolution, i.e. to a procedure aiming at facilitating an amicable settlement of the controversy. In fact a qualified neutral (mediator) will often be able to help parties to agree upon a settlement, thus avoiding the recourse to arbitration or to courts.

Under Article 12.1, each party may propose to the other party to proceed to mediation under the ICC Mediation Rules, but such request is without prejudice to the proceedings under Article 12.2. This means that mediation is optional and does in no way limit the parties’ right to have recourse to arbitration or to national courts (according to the choice made under Article 12.2).

If the parties wish that mediation should be obligatory, i.e. that parties should be bound to submit the dispute to settlement proceedings before starting arbitration or submitting the dispute to courts, they should modify Article 12.1 appropriately.

5. Remuneration of the consultant

The model foresees a monthly payment by the client to the consultant in consideration of its services on the last business day of each month, unless the parties agree otherwise under Section 1 of Annex II. Unless otherwise agreed by the parties, any late payment entitles the consultant to interest two per cent (2%) above the average bank short-term lending rate to prime borrowers prevailing for the currency of payment at the place of payment, or where no such rate exists at that place, then the same rate in the country of the currency of payment. In the absence of such a rate at either place, the rate of interest shall be the appropriate rate fixed by the law of the country of the currency of payment.

In principle, the only remuneration the consultant is entitled to under this model contract is the monthly payment or the payment agreed by the parties under Section 1 of Annex II. Notwithstanding, the model provides for the opportunity to agree on a success fee as compensation, provided that the parties fill out Section 2 of Annex II of the contract.

Costs and expenses to be incurred by the consultant are also envisaged within the scope of the monthly payment, as travel and accommodation activities – which generally constitute the major part of expenses – are among the core services expected from the consultant.

6. Precautions for use of the model form

Any model contract should, to the extent possible, be adapted to the circumstances of a specific case.

Of course, in theory the best solution is drafting an individual contract based on existing model forms in order to take account of all the specific requirements of the parties. However, the parties are often not in a position to prepare a specific contract and prefer to have recourse to a ready-touse balanced model form: in this case they will ask for a model which can be used as it stands, without any need to make modifications or additions.

The present model is an attempt to achieve a balance between these two possibilities. ICC has tried to work out a single solution on every issue. However, where this has not been possible (see e.g. Articles 4.1, 8, 9, 12.2, 13 and 17), alternatives have been suggested. Such alternative solutions have been presented side-by-side under the letters A and B, in order to point out that only one of them can apply. Therefore, before signing the contract, the parties must decide which of the alternative solutions they choose, and then cancel the alternative they do not want to apply. In any event, the model form provides that, if the parties do not make a choice by cancelling one alternative, one of them will automatically apply according to Article 14.1 of the model form.

There are also a number of points where the parties must fill in their requirements: definition of the territory and the business, amount of payment, invoice details, contract dates, etc.

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Further, several points have been put in the annexes to this document, so that the parties can fill in and (where necessary) modify such annexes during the life of the contract, without making changes to the basic text of the contract. Before signing the contract the parties should fill in the annexes and, if appropriate, delete the parts they do not need.

In order to avoid misunderstandings the parties should, when signing the contract, put their initials on each page of the contract and of the annexes, in order to make sure which amendments they have agreed upon or which alternative solutions they have chosen.

The annexes have been construed throughout so that even when the parties do not fill in some points, a solution can be found within the contract. However, Annex 1 which should be describing the services to be provided by the consultant in detail must certainly be filled out based on the specific consultancy needs of the client and capability and scope of work of the consultant. Further, the parts that are not of interest for the business or the project should be removed from the contract according to the parties’ understanding. Those currently listed under Article 1 of the model are thought to be the most needed and used services when entering a new and foreign market. In fact, the ICC Model International Consulting Services Contract has been elaborated taking into account the most commonly encountered requirements in consultancy agreements and therefore specifies the core services expected from a local independent consultant.

7. Parties’ negotiations

The parties are encouraged to follow the ICC Principles to Facilitate Commercial Negotiation which is attached as Appendix I, while making the necessary arrangements on the contract, such as filling in and amending the annexes and other parts of the model contract in accordance with their requirements.

These Principles are a short set of principles to help negotiators conduct smooth and efficient commercial negotiation and provide the direction for creating or enhancing a productive working relationship, for transactions of any size or length.

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