Just about any aspect of doing business could justify entering into a contract, but that’s especially true if you’re involved with something substantial in another country. Although fundamental contract principles are generally consistent across borders, significant differences in legal systems and business environments can significantly impact how contracts are structured and interpreted.
Below, our friends at Focus Law LA discuss issues to consider to help you smoothly sail through global transactions.
- Contract Language
English is a common language used in international business. Contracts involving parties from different countries are often drafted in English to maintain consistency. However, that may not be the case with your transaction if it is unacceptable to the other party. Some nations require that contracts be in the native language to be valid. You could have more than one language version, but that may be costly to produce and result in disputed meanings.
- Clear Prose
Contract language can be archaic or overly complex, even between US parties. Clear, straightforward language helps prevent misunderstandings. Complex legalese or redundant wording can confuse parties and courts unfamiliar with it. Simplicity and clarity should be goals to ensure that the parties understand their obligations and rights.
- Common and Civil Law
Common law is based on court decisions made over the years. Systems using it, like the US and UK, may produce longer, more detailed contracts because they rely on judicial precedents and detailed legal provisions. Civil law systems, like those in Europe and Latin America, rely on comprehensive legal codes and typically have shorter, more general contracts. Be aware of and adapt to the legal traditions involved to ensure your contract is suitable and enforceable where you do business.
- Jurisdiction
What country’s laws will be used to interpret the contract? You could choose a neutral law and forum, like English law or Swiss arbitration. Wherever you choose, “permanent establishment” in that jurisdiction may result in tax complications.
- Jargon
Legal terminology may have very different meanings across jurisdictions. “Warranty” may mean different things depending on applicable law. You could define important terms in English and other languages or find simpler, more universally understood terms.
- Personnel
Who will provide legal and practical guidance in creating the contract? For example, international litigation lawyers handle contracts in Japan and may interpret contract terms differently. You may encounter local nuances and the influence of contract managers, who could significantly influence the process.
- Expect Surprises
Unexpected issues may arise, like unusual clauses or terms that aren’t standard in the US. Flexibility and cultural sensitivity will help you navigate these issues and reach an agreement acceptable to all parties.
- Logistics
International negotiations have logistical challenges. There are time zone differences, and you may have technology issues. To build goodwill, have clear procedures for revising documents and consider time zones. Face-to-face meetings, though expensive and time-consuming, may be critical in resolving complicated issues and creating a strong relationship.
- Contract-Signing Formalities
Countries have different contract execution requirements. Be aware of them to avoid last-minute errors that may invalidate the contract you worked so hard to create.
- Local Counsel
Using local counsel is critical to navigate local laws and business customs. That lawyer should understand what you want from them, and you should understand what they can do for you. Effective local counsel should provide practical advice while considering your strategic goals.
Congratulations on expanding into a different country! You now have two legal systems to consider, so make sure you’re working with an attorney familiar with cross-border issues.