Five Essential Things All Business Owners (and Their Lawyers!) Should Know Before Signing Global Contracts
(… or, if you will, “How to not have to hire Viking Advocates when the contract sours.”)
Let’s get the disclaimers out of the way. One, this advice is legal in nature, but it is not offered to a specific person. It is general information meant to provide perspective, to highlight the vulnerabilities in a contract.
Two, it is not an exhaustive list, so if this is all you contemplate in a contract, you are headed for disaster.
Three, if you are a business owner who seeks to enter into a contract with a foreign party, you must (and I cannot stress this enough) HIRE A LAWYER. This is not just a plea to protect my guild monopoly. Yes, you’re as smart as any of us. Yes, you have a wonderful product/service/company/etc. and you do wonderful things. But you cannot foresee what your lawyer can. Global commerce is no place for the faint of heart, and it is no place for self-representation.
These are vital issues your lawyer must contemplate before you sign a contract. If s/he hasn’t thought of them, mention them. If they tell you these issues aren’t important, run away as fast as you can, because your lawyer is dangerously ignorant of transnational litigation procedures (to be sure, just because your lawyer hasn’t mentioned them does not mean s/he hasn’t factored them into the equation). These are not absolutes, but are factors that should unquestionably be mentioned.
- Designate an agent for service in the United States. All U.S. entities must designate an agent for service when they incorporate, organize, or register with their respective Secretary of State. Foreign (that is, non-U.S.) entities usually bear no such responsibility. If a lawsuit becomes necessary, you probably won’t be able to just hire a process server in the foreign country. Your lawyer will need someone like me to handle it for you or, worse, will spend hours just researching how it’s done (and then bill you for that time). With a U.S. agent, regular U.S. practice is perfectly fine. (And to go one better, have the contract stipulate that the agent can be served by email!)
- Include a choice of venue. Even if that venue is overseas (and in many cases, it’s actually smarter to choose a foreign venue than a U.S. venue), agreeing on the appropriate place for a suit prevents a number of headaches—and can even prevent a dispute from arising in the first place. Globally, this is referred to as a “choice of court clause” but has similar binding effect in most industrialized countries.
- Choose a governing law. Amazingly, the choice of what rules govern a dispute is left out of many contracts completely, with each party simply assuming that their own laws will apply. That assumption is incredibly dangerous. To be sure, the negotiated choice of law may not ultimately be the one you hope for, but as the old adage goes… forewarned is forearmed.
- Determine the operative language. Especially if the other party puts two versions of a proposed contract in front of you, make sure you select the operative language early on—and then revise that draft accordingly. An entire civilization once gave over its territory because an ostensibly bilingual contract wasn’t really bilingual.
- Guard against having to enforce abroad by making the other party secure a guarantee of judgment debt from an American bank or other guarantor. Yes, it’s a pain in the neck. Yes, it can drive up the cost of contracting and thus drive up the cost of the entire relationship. But a judgment following a lawsuit is utterly worthless if it can’t be enforced. If the foreign party’s assets are all in a country that won’t recognize and enforce a U.S. judgment, litigating the matter is a massive waste of time.
- Bonus Tip: add an arbitration clause. It serves the same purpose as a choice of court clause, and often designates specific rules and the governing law. Thanks to the New York Arbitration Convention, arbitral awards are far easier to enforce abroad than litigated judgments and, despite their political unpopularity, provide significant cost savings in dispute resolution.
Again, your lawyer may have already pondered these tips, but they are still worth discussing. Viking Advocates assists attorneys in the diligent drafting of global contracts, but the bulk of what we do results from contracts that are silent on these issues. Hiring us now for a consultation now means not having to hire us later to help wage a long and protracted litigation war.
Acknowledgment: Particular thanks to Dan Harris of Harris Moure in Seattle, who pens an outstanding blog on the legal ramifications of doing business in China. Dan’s thoughts on litigating against Chinese opponents are extrapolated more generally here.