01 Aug Cross-Boarder Transactions
When contracting with overseas entities it is common to assume that the same commercial practices and legal principles apply to the party you are dealing with, engage or contract with. This is a common assumption that, without legal advice, can leave you without much recourse and can often be an expensive and painful learning curve.
In the online global market we are frequently dealing with entities in overseas jurisdictions (directly or indirectly) as this can often be the more cost effective option and can occur instantaneously, without having to meet in person or build a relationship of trust. The trust element that is already assumed in the online market can often be the point of concern and you should still take the same precautions you would otherwise take as though you were buying the goods/services face-to-face in your own City.
Whether you are sending your files offsite on cloud-based storage; engaging a software developer abroad to design a platform; contracting with an international manufacturer to build widgets; or outsourcing your marketing services to an offshore enterprise, you should ask yourself the following questions and always seek advice from a lawyer who knows about cross-border commercial dealings:
- What is the name of the entity you are dealing with and where are they based?
- Have you done your due diligence on their services, products or goods?
- Do you know specifically ‘which entity’ you are dealing with and have you checked whether or not the entity is a company, individual, partnership, trust or other structure?Remembering that other countries apply different laws and also have different variations to commercial structures. If you know the entity name and type you are dealing with, then you will be able to do some preliminary research on their background.
- Exactly where is the entity located?This sounds like a simple question which should have a very straightforward and clear answer. But that is not always the case. You should be digging a little further to find out the location of the entity (both country and region), which is not necessarily the business address they display on their website. You should consider whether the entity is ‘stand-alone’ or part of a group of entities and where it has its main place of residence or its ‘registered’ business address or main centre of trade. If it is entirely online, it may still have a physical location it is predominantly connected or linked with (such as where the business owners/directors reside or where most of the work is performed). Even if you are contracting with the other entity online, their main place of residence or registered business address will be important as it will have a part to play in deciding where any dispute should be heard and/or what laws are to apply to your agreement.Remember, different countries have different laws and therefore the way your agreement is interpreted and the laws that would apply to your transaction will differ.
- Do you have a written Agreement, Contract or other binding document?If there is nothing in writing; no agreement, no contract and no email chain (at the very least), then the only evidence you have is your word and your memory of the Agreement terms, which may or may not be accurate. Even if the overseas entity doesn’t offer you a written agreement or set out the terms clearly in some written form, you should offer up a contract or terms sheet. This does not have to be complicated and we can assist you with the drafting of this document.
- What would happen if the services/goods were not delivered or some other failure to carry out the agreement occurred?
- What does the Agreement say about the law governing the contract?If there is an Agreement, it should refer to the laws that will apply to the terms of that contract. If so, this is very useful should you need to interpret the terms of the contract or engage in a dispute. Look at this before entering into the contract. Some contracts have fictitious locations or apply the laws of a very different country that has nothing to do with the parties or the services/goods being provided. This can be a pitfall and if you need a lawyer to review it for clarity, don’t hesitate to email a copy to us.You should be aware that if there is a dispute the:
- location of the parties; and
- the clause referring to the laws that will apply,Will be considered when deciding where to have the dispute and what laws to apply. But these are not the only factors and you should talk to your lawyer if a dispute does arise.
- What can you do about debt recovery and enforcement?This is the main aggitation for many businesses. Not all countries allow for a court order in Australia to be recognised overseas. Making it difficult to enforce that order and recover any money you have lost as part of the commercial deal. Again, having a lawyer clarify this for you from the outset will avoid a lot of heartache later on.
There are many other considerations that you should take into account when dealing with overseas entities such as trade relationships and barriers; acknowledging the commercial and business culture; and familiarising yourself with business etiquette such as Guanxi in China.
You can find more resources below on these issues as a good starting platform.
The above is just a guide, but you should take all of these concerns into consideration before you decide to contract with an overseas entity remembering that it is easier to put in place some risk measures at the outset rather than trying to engage in a dispute with an overseas entity. You should always seek legal advice specific to your circumstance and have the right conversations before you begin.
Contact our legal team at Artstein Legal today for further advice.
- Tips and practical insights into cross-border dealings:
- Tips for doing business in China (Australian Government):
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