International Business allows us to smoothly trade all around the world, export and import products from and to different countries with no restrictions. However, a fundamental aspect is not to be forgotten: once you have entered a foreign territory, you also indirectly agree to enter their legal systems and regulations. The importance of legally compatible contracts in this environment is really not to be underestimated. Facing legal charges for international business disputes could cost you thousands and thousands of dollars: better consult a professional in advance!
Different legal systems
Unfortunately in most cases the surprise comes much later! The following case for instance, has become the bitter reality for many companies: the contacts were promising, the phone calls assuring, good orders were placed, everything was delivered on time, but the payment was pending and the foreign customer could not be prosecuted.
Those foreign traders must be aware of the risks they are running by signing cross-border contracts. International agreements are not necessary subject to German Law and German courts have no jurisdiction on most of them.
Both the European Commission and the United Nations or the World Trade Organization (WTO) have unsuccessfully attempted, mutually accepted terms of delivery or terms and conditions to formulate. Model Agreements have been formulated only for trades in machinery and equipment for durable consumer goods. These can be requested at the Verband Deutscher Maschinen- und Anlagenbau.
Which commercial law should apply?
If you want to avoid difficulties, you should clarify with the foreign partner before signing the contract which commercial law should apply to the agreement. This can either be the UN Sales Convention – unchanged or in a modified form – or the purchase right of the concerned country. Written form is recommended, as it can be eventually easier to prove in a dispute that, for example, the German Commercial Code applies. In principle however, it can be agreed upon any arbitrary commercial law, including that from a third country, for instance. If you want that only the German provisions apply on the contract, it is sufficient to use the wording that “the contract is governed by German Law” or “German Law applies to this agreement”. At the same time, the explicit exclusion of the application of the UN Sales Convention is also required (“with the exclusion of the UN Sales Convention”).
Other than a German court, it can also be agreed upon a foreign jurisdiction. The jurisdiction question plays an important role, especially from the point of view of the costs. In fact, if you decide to choose a foreign jurisdiction, the costs will significantly arise, as there is often the necessity to hire an attorney resident at the court. When deciding on the place of jurisdiction, of course, it also plays a role, how long a possible legal proceeding may last in the chosen country. Difficulties frequently arise at this stage.
Alternative Dispute Resolution: Arbitration Court
In case of problems with the enforcement of foreign judgments, the German Institution for Arbitration (DIS) can help you find a solution to your matter. The main international organizations in the field of commercial arbitration are the International Chamber of Commerce in Paris (ICC), the American Arbitration Association of New York City (AAA), and Investment Disputes in New York City (ICSD). Often the relevance of German Law is difficult to agree on, for example, because this seems to be unenforceable due to the tough competitive situation. It should not be forgotten that German Law is not always more advantageous compared to the laws of other countries. Information about foreign law is provided by the respective Foreign Trade Chamber as well as by the German Trade & Invest (gtai).
Formulate purchase contracts in detail
The more detailed you formulate a purchase contract and the easier will be for you to handle possible legal disputes in the future. Therefore, it is usually not enough that the text of a German sales contract and the terms and conditions is simply translated into another language. This is mainly due to the fact that in most countries of the world the terms and conditions are given a different weight than in Germany.
If certain legal requirements are formulated in a certain manner in Germany, this does not mean that those terms and conditions will be the same in foreign countries. For this reason, it is always necessary to check in advance that the law of the state concerned applies to the effectiveness of general terms and conditions. On the basis of the private international law in Germany, the law of the concerned State applies on the contract in question.
Terms and Conditions applicable on an international level
It is important that the general terms and conditions fit into the legal system of the country whose regulations rule the contract. Anglo-Saxon law (US or UK) is fundamentally different from the legal systems in Japan or other Asian countries. The differences range from the role of the parties to the contract, the burden of proof, the role of lawyers or experts, the approach of the court to deadline matters and deadlines. In particular, the possibility of retention of title until final payment, as is customary in Germany, does not exist in other countries. This applies in particular to the extended retention of title vis-à-vis third parties, i.e. the delivery of parts abroad, which are processed by the buyer into a final product and then sold.
Lawyers from other countries
When drawing up foreign general conditions or model of purchase contracts, it is advisable to consult a foreign lawyer. This also applies in case of adaptation of the German terms and conditions to the legal system of the respective country of delivery.
We have a fine network of reputable law firms and, in many countries of destination. We can consult several lawyers – depending on the problem – in accordance with national law and translate the results for you.
Many countries not only have totally different legal systems, they also have a completely different court system. This starts with different responsibilities, deadlines or jurisdictions. As already described above, it is often difficult to relocate the place of jurisdiction to Germany in a sales contract. Therefore, the difficulty arises in case the contractual party only operates abroad and has no assets in Germany. In doing so, the German party/exporter relies on foreign courts to enforce any claim. It should be also considered that the remuneration of attorneys abroad can be regulated differently than in Germany: even in case of victory in court, there might be the possibility to have to pay attorney fees. Those latter are in most countries not regulated as in Germany by specific state fee tables, but can be decided freely. In principle, however, the enforceability of claims is governed by the respective provisions of procedural law in the foreign state.