The Do’s and Don’ts of International Business Contracts

A California attorney’s advice to draft better cross-border agreements

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When you’re looking to do business dealings abroad, and you’ve already studied up on the cultural and language barriers, Jeffery Daar recommends hitting the books once again to prepare the best possible contracts. The international business attorney at Daar & Newman in Woodland Hills has handled countless cross-border disputes and transactions, and he has noticed a trend when problems arise.

“People have a tendency to rush the deal and shortcut the process,” he says. “That's where, typically, mistakes are made. People think that adding the cross-border dimension to the transaction will just magically happen and, in fact, it's the other way around. That's often where the basic deal points are made, but the process of making it work are shortcutted.”

Here are some of his tips to better prepare and avoid common mishaps.

Make Sure It’s Enforceable and Clear

It’s common for a U.S. business to draw up an agreement based on our laws and get it signed by a foreign partner, only to find out later that the partner isn’t holding up its end of the deal.

“If someone thinks that the contract can't be enforced, there's a much higher likelihood that that person may not perform as the other side wanted because they know that their feet can't be held to the fire,” Daar says. “If a contract has meaningful ways to resolve disputes and to be enforceable if there's a dispute, then people are more likely to perform as expected because they know they will be held accountable.”

Variables like this should be strategized well in advance of the signatures. Often, this means you will need to rely on more than a domestic counsel. Though he’s experienced in this area, Daar works with lawyers from several different countries.

The language of the contract is doubly important in these contracts, since you’re dealing with a barrier and want to eliminate all ambiguity and double-meanings.

“Often, whoever is the more dominant party to the deal may get their way as to which language the contract is in, but there are things to be aware of in that case,” Daar says. “Obviously, anyone here probably would want them to be in English because they're English-speaking. You can have contracts with more than one language—I see it frequently. If you're going to do that, it's very important to have your contract say which of the languages controls, since the translations never exactly match. Then you should make sure you actually know the language. Many times, people find out later that it didn't translate the same as they thought.”

Planning Dispute Resolution Provisions

Dispute resolution issues should be brought into the early stages of your negotiations and drafting, as well. Your contract can address myriad questions that may come up later.

“Will be it be difficult, very expensive or time-consuming to have to serve someone with a lawsuit? Where will they have personal jurisdiction? Whose laws and legal systems will apply? You can address all these things in your contracts,” Daar says.

“Everyone likes their home turf, so you can have a conflict right away because it will be their home turf versus yours,” he adds. “Often, people will maybe come up with a way for nobody to have more power than the other. Maybe you pick a neutral location so it's not a good location for anybody. Another thing I've seen is you pick reciprocal locations depending upon who initiated the dispute. So, if I sue you, I sue you in your favorite place, and if you sue me, you sue me in my favorite place. There are all types of ways to sort of come up with something because you need to think through those issues of where do you have your dispute. You want to be strategic about all this.”

Foreign countries often dislike dealing with the U.S. because of its far-reaching discovery process, and the U.S. system may also give you options such as “provisional remedies like an injunction and the right of appeal,” Daar says.

If another country’s legal system will dictate the result in an international transaction, often Daar would prefer the an arbitration provision because of its predictability. More than 160 countries recognize and enforce the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.

“Unlike judgments, there is an agreed-upon approach for how to have an arbitration award in international arbitration [that’s] actually recognized and enforced around the world,” Daar says. “Therefore, the predictability of an arbitration award for international is much, much higher than judgments because there is no equivalent treaty for judgments.”

Mediation is becoming more and more prevalent globally, so Daar suggests considering folding that into the dispute resolution section as well. “It sort of makes the parties show, at the outset, that they intend to operate in good faith and will work to keep the deal alive. Also, it obviously can be cost-effective and keep business relationships from falling apart when there is a dispute.”

If you’re doing a cross-border business deal, it’s crucial that you’re aware of these issues and strategize around them.

“You want to deal with them early on, while you still have negotiating power. If you wait until the very end, usually you don't have negotiating power anymore and it's hard to get what you want,” Daar says.

Every transaction and deal is different—based on the laws, countries, cultures, nature of the transaction, and desires of each party. That said, “I see constantly lawyers, even good lawyers, just use the cookie-cutter approach,” Daar says. You’d be better served by someone experienced in international law and who has connections to others abroad.

California

“You want to deal with them early on, while you still have negotiating power. If you wait until the very end, usually you don't have negotiating power anymore and it's hard to get what you want.”

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