A global market is much more lucrative than a national one. First of all, a global market is larger. Secondly, a global market is more diverse which can, in turn, mean higher profits. In an increasingly global world, Americans conducting business internationally are encountering both great opportunities and great obstacles. In particular, the legal dispute setting can present obstacles that are costly and difficult to overcome if not prepared for in advance.
Oftentimes, businesses don’t realize the importance of updating their contracts until after they face their first legal issue with an international client. To protect your business from financial loss and the stress of an international lawsuit, it’s important to take into consideration the possible challenges you could face if things do go wrong. The following illustration is an example of a common scenario.
Imagine you are an architect. You negotiate to draw up building plans for a company located in Dubai, United Arab Emirates. You put together a form contract that requires payment upon delivery of the blueprints. The building will be built in Washington, DC. For reasons unknown, the building project is scrapped and you are left unpaid. You have spent a considerable amount of time on this project and want to get paid. In fact, you need to get paid. You know that the Dubai company is well-resourced, but they do not have any assets or any sort of physical presence in the United States. What do you do?
This is just one example that raises myriad issues better resolved at the beginning of the relationship. The following are four questions to ask and issues to consider before you draft your business contract and begin doing business internationally.
First, can you sue in your jurisdiction? In our example, we have a written contract, but as is very often the case, the contract terms may be vague. Make sure an attorney with experience in international corporate law reviews your contract to ensure that you are protected this way and you’re not litigating in far-flung destinations.
Second, who are you suing? Companies in foreign jurisdictions are not always cloaked with limited liability so are you suing principals instead? Both individuals and their business entities perhaps? A well-drafted international business contract can require disclosure of such details and perhaps even personal guarantees.
Third, how will you serve the other party? Not every foreign jurisdiction is a member of the Hague Service Convention, which outlines a central authority to receive service within a foreign state as well as standardized forms to use. It is also faster, cheaper, and doesn’t require you to hire a foreign attorney to advise on how to properly and legally serve someone. In the case of our example, the United Arab Emirates is not a signatory member. Generally, a lengthy and complex process must occur if there is not some other acceptable method of service (e.g., personal service or registered mail) authorized by domestic law.
Fourth, even if you were to win in court, will you be able to enforce the judgment? In other words, will you be able to collect? Our example is a foreign company without any assets in the United States and it is located in a country that is typically hostile to foreign money judgments against its own citizens.
These issues do not mean that you should abandon your goal to get paid, but that you should consider these and other more case-specific factors carefully. Only a detailed consultation with a business attorney experienced in international legal disputes can help you determine whether full-fledged litigation is right for you.
Many of these issues can be preempted by having a well-drafted contract that resolves questions surrounding your international business. For other issues, a dispute resolution mechanism provides the procedure to resolve them when the contract itself cannot. For instance, a forum selection clause can ensure only one court having jurisdiction over any dispute arising out of the transaction. If the parties agree, arbitration can be a process by which resolution of cross-border claims can be faster and less costly.
Diligent investigation into the identity and the operations of the other parties to your contract can help gauge and mitigate risk. The more established a company is, the more accommodating you may be. An investigation can sometimes reveal assets stateside that can perhaps serve as collateral or provide other creative terms to help the parties reach ‘yes.’ If no assets exist stateside, then escrowing funds may be advisable. Knowing in advance what your counterparty has or does not have in the U.S. can significantly guide your contracting approach.
Even if there are serious deficiencies, a well-resourced foreign company may still want to satisfy a U.S. judgment despite being beyond the local court’s subpoena power. A U.S. market is tantalizing for them too, after all, and they may not want to jeopardize it.
Hire an attorney with experience in international contract law to advise you about your international sales or service agreement, to draft your agreement, and to consult with you about legal disputes that arise in this global marketplace.
Jabaly Law is ready to discuss international corporate law matters and help you prepare or revise your contract to ensure that your business is protected in the event of an international lawsuit. Contact us today to schedule a consultation.
