Things You Should Know Before Signing a Cross-Border Contract

Globalisation and advances in technology have offered exciting opportunities for growth of business in the international market. However, dealing with overseas business partners and importing/exporting goods are not without its complexities. Cross-border transactions present a number of unique legal issues. In order to protect your business, you need to be aware of the various legal and practical considerations involved before you sign a cross-border contract.

Background of the Other Party

Before you enter into negotiations with the other party, it is essential to find out the legal status of the other party. Is it validly existing and registered? Does it have limited liability? Where is it based? Is it solvent? While it is relatively easier to find information about a business in Australia through due diligence investigations, it may not be the case when the other party is located in another country. International credit rating companies may be able to provide some information you need. Alternatively, you may engage a local lawyer to conduct due diligence investigations on the other party.

Applicable Law

What law will govern the interpretation and performance of the cross-border contract? This can have a significant impact on the parties’ rights and remedies under the contract. For example, Australian law may give effect to a particular clause, whilst another law may find it to be unenforceable. Therefore, it is critical for the parties to expressly agree the applicable law before a dispute arises. You should ensure that the choice of law is set out clearly and unambiguously in the contract.

Dispute Resolution

While you may think that the dispute resolution clause is unimportant for a domestic contract, in a cross-border transaction it can fundamentally affect your ability to obtain a remedy in the event of default by the other party. Is the dispute to be resolved by arbitration or court proceedings? In Australia or another country?  Before making the choice, you need to consider the costs, time, language and travel pressures of conducting arbitration or litigation in a foreign country.

In the absence of an express choice, the courts will follow their own rules for determining whether they have jurisdiction to hear a case. Significant problems can arise where proceedings are initiated by different parties in different jurisdictions. In addition, it can be very difficult (and, in some cases, impossible) to enforce a judgment from one country in a foreign jurisdiction. Therefore, you should always ensure that the dispute resolution procedures are agreed in the cross-border contract. Ideally, the dispute resolution procedures should take place in Australia. Alternatively, you may opt for a neutral dispute resolution body that is in neither yours nor the other party’s home country.

Shipping & Import/Export

If you import or export goods under the cross-border contract, you will need to consider questions relating to shipping (including title and insurance) and import/export regulations. What is the method and route for shipping? What documents will be required for delivery? Who will bear the risk if the goods are damaged in transit? Who will be responsible for obtaining import/export licences and clearing customs? These questions need to be addressed in the cross-border contract with a minimum of risk on your business.

Intellectual Property

Whether you are buying or selling in a cross-border transaction, a key issue to consider is who owns the relevant intellectual property rights. For example, you need to consider if you want to retain any intellectual property rights once you export the goods. If so, it is important to ensure your intellectual property rights are safeguarded in the destination country. Therefore, it is critical that the ownership of the intellectual property is clearly agreed in the contract. Where necessary, a licence of intellectual property should also be included in the contract.

Data Protection

Data protection has become an increasingly regulated area in the past years. But the relevant laws differ significantly from country to country. In addition to general data protection laws, industry-specific laws can create substantial compliance burdens for businesses entering into cross-border transactions in order to expand into foreign markets. You need to ensure that you are fully aware of the relevant compliance requirements as your collection or use of data and personal information in the cross-border transaction is likely to trigger the application of data & privacy laws of other jurisdictions (e.g. The EU General Data Protection Regulation) as well as Australia.

How Can We Help?

The above is not an exhaustive list of things you should be aware of when entering into a cross-border transaction. A well-drafted contract will mitigate your risk and ensure your cross-border transactions go smoothly. If you are preparing for a cross-border transaction and need help from an experienced solicitor, we invite you to get in touch with us.