Whether or not a foreign contract is enforceable depends on a number of different factors. A foreign contract, where one party buys or sells goods or services to another party that is located in a different country, can be difficult to draft and manage in a way that is enforceable.
If you are buying or selling goods and/or services to overseas businesses, you need to ensure that the contract is robust and you maintain leverage throughout your commercial dealing.
Author: Farrah Motley, Director of Prosper Law.
Yes. It is always recommended that – even if you are contracting with a business overseas – you enter into a written contract. At the very least, a written contract ensures that both parties have a document to refer to that records the agreement that has been reached.
If you engage a lawyer that has experience with contracts between foreign businesses, you can also take comfort that your contract is legally enforceable.
However, it is vitally important that (aside from a robust and enforceable contract) you ensure you:
Even if your contract is legally enforceable, it can be expensive to start formal legal proceedings in a foreign country.
When it comes to doing business in a different country, sometimes the best way to deal with disputes is to avoid them in the first place.
An effective way to manage this is by ensuring that you have, and maintain, leverage by using something that you are in control of (such as legal rights over goods or intellectual property rights, or even business relationships) to ensure that the other party complies with their end of the bargain.
Private, international contracts may be enforceable through court systems. This process can, however, be expensive and slow.
As an alternative, businesses can agree to use international arbitration as a dispute resolution option. Arbitral awards may be enforceable in different countries by relying on international treaties. An example is the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention).
Approximately 50 countries are signatories to the New York Convention and will enforce international arbitral awards in accordance with the Convention.
Another helpful international convention, which has not yet come into legal effect, is the Convention on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters.
Here is an outline of that Convention and how it works.
If you are seeking to ensure that a foreign contract is enforceable, the following clauses will be of particular importance:
It is always important to ensure that the description of the parties in a contract is accurate. If the identity of a party is not accurately recorded, the contract may be unenforceable against that party.
When it comes to contracting with foreign business, which law governs the contract is of vital importance. However, it is not as simple as just stating the governing law.
In some countries:
Depending on which country’s laws govern the contract, you may wish to:
What kind of dispute resolution clause you choose to adopt will depend on a number of factors, including the cost of litigation, whether the rule of law is observed and the likelihood of being able to successfully enforce a legal outcome against the other party.
Foreign contracts are often set out in dual languages. Either two full copies of the contract, each in a different language, is exchanged or one contract where each clause is set out in both languages.
It is important to ensure that you do not rely upon the other party to translate the contract. Instead, you should engage a certified and qualified professional translator that is independent of the parties.
The United Nations Convention on Contracts for the International Sale of Goods automatically applies to the sale of goods internationally, between businesses from different member States.
If you don’t want the Convention to apply to your contract, you must include a clause that specifically excludes its application.
It is important to understand whether your client or supplier:
You should be proactive in doing your due diligence to ascertain whether your business partner is a good option to do business with. This should be done before entering into a contract.
If this contract is high risk and/or high value, it may be beneficial to engage a local solicitor in the relevant country to carry out due diligence on your behalf.
If money is the major concern when it comes to contracting with an overseas business, you should consider whether it may be appropriate to:
Prosper Law is experienced in providing commercial legal advice for cross-border business contracts.
If you are buying or selling goods internationally, talk to our contract lawyer about a bespoke contract to protect your business.
Farrah Motley | Director
PROSPER LAW – Australia’s Online Law Firm
M: 1300 003 077
A: Suite No. 99, Level 18, 324 Queen Street, Brisbane, Queensland Australia 4000
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