International trade – a contract for every jurisdiction?

Does your company trade internationally? If so, where have you chosen to let the risk fall when you have deals across multiple countries?

It’s a difficult issue which often comes down to your company’s level of risk tolerance. And risk tolerance often comes down to value of the transaction(s) at stake.

Some of my clients trade across 17 or more jurisdictions around the world. A question that very often arises is:

• do you go to the expense of drafting country specific legal documents and if yes, which ones – contracts, standard terms of trade, employment contracts? or
• do you use standard documents across all countries – a one-size-fits-all approach.

Here are some pro’s and cons for each option:

There is no doubt from where I sit as a litigator, you are in a much stronger position legally if you use country-specific documents – contracts, terms of trade, employment contracts, leases.

Why?

So many countries, if not all of them, (I don’t know enough about the law in Angola for example, to stand behind a claim of all) have mandatory legislation and regulations that apply to companies, employers and individuals operating within their jurisdiction. In Australia for example, we have mandatory work, health and safety requirements, data protection and privacy regulations, consumer protection laws, statutory guarantees and warranties, minimum conditions of employment, compulsory superannuation and anti-discrimination laws – to name a few. Most countries are the same and whilst there may be similarities between the broad principles, the specifics are often quite different (some areas of the law don’t really exist in some parts of the world at all, like defamation for example).

There are tricks to drafting clauses in legal documents that take into account nuances in legislation and recent court decisions – each jurisdiction has its own and often they are vastly different.

All these variables mean that when it comes to enforcing an agreement, it is always better to be relying on legal documents drawn up specifically for use in a particular jurisdiction. It gives the greatest protection for all of the transactions you undertake in that particular country.
On the down side, when you have a different document for each type of contract you need in each jurisdiction you trade in, it is difficult to stay on top of all the different trading terms and obligations you have around the world, if you are trading across 17 jurisdictions. Complying with the different employment obligations in various countries, for example can create an accounting nightmare in your head office – often the salary software simply can’t cater for it.

The alternative is –

Legally this approach carries significantly more risk, but practically, it can be a winner. Master documents used everywhere enable you to be confident of the terms on which you are doing business – all your employees are employed on the same conditions world-wide. It allows everyone working for you in every country to be on the same page – everyone is talking about the same documents. Everyone is working on the same terms and using the same software. There are real advantages to this, especially where operations in some countries are small. It makes it much easier for head office to keep on top of it all.

As with most things, most companies have to find a compromise between legal certainty (there is no such thing when it comes to legal drafting, by the way), keeping risk to an acceptable level and managing the practicalities that come with trying to expand your company. You need to look at your risk profile and decide what level of risk you are willing to tolerate in your cross border transactions.