Contracts

When negotiating a contract in Romania or Bolivia, should your corporate counsel include a "protection clause" for your facility and staff? Andrei Muntean, Special Advisor to U.S. Senator Arlen Specter, recommends it. If it doesn’t, your CEO may end up with far more serious issues than attending a grand opening.

The reality is, 24-hour security is essential for the safety of your plant, your personnel and your everyday activities in dozens of countries like Russia, Ghana and Bulgaria.

The need for extraordinary security measures in international environments is so commonplace, the U.S. Foreign Corrupt Practices Act even overlooks bribery of police officials for safety purposes. Timothy D. Charlesworth, a prominent attorney at Fitzpatrick, Lentz & Bubba, confirmed the U.S. government’s view on maintaining security abroad.

The law allows U.S. companies and individuals to make "facilitating or expediting payment(s)" in order to obtain police protection. This is considered so important that Congress included this provision in a law that was aimed at curbing bribery of foreign government officials. Conversely, the act generally prohibits payments to foreign government officials, or political parties, if the payment is intended to help keep business or get new business.

Could your U.S. corporate counsel quote this provision? Perhaps. But even if you already know as much as Mr. Charlesworth, or Mr. Muntean, you should find a knowledgeable, in-country attorney who can ensure that your contracts are prepared with all the clauses required by their legal systems.

Are all laws common? Of course, all laws are not the same. According to Stephen Hrubala, executive director of the International Law Institute, there are as many legal systems as there are countries. Generally, legal systems can be broadly classified in two groups: common law (as in the United States, except Louisiana which practices civil law, and the United Kingdom) and civil law (used in Europe, the former Soviet Union, etc.). Unlike in the United States, lawyers and judges in Europe go "by the book"—the section of codified language that applies to each case.

Lawyers in civil-law countries are familiar with the ins and outs of code-based provisions and they allow the code to govern. In contrast, cases in the United States are argued by precedent, in front of a jury and lawyers are prone to address every point of the contract.
There are also many additional legal codes that are integral and binding around the world—like Islamic law, or Sharia, which governs parts of the Middle East. Never underestimate the importance of abiding by local legal codes.

Heed this advice One common oversight is the gravity of an agreement with a distributor. The pitfall here is that U.S. firms often don’t realize that a contract with a distributor in, say, Latin America or Asia, is final, and they must retain that representative forever. Once you are aligned with a specific distributor, you often cannot effectively terminate that agreement. Additionally, in many countries, you are obligated to pay his or her fee—whether or not he or she performs the duties to your standards.

Again, the key to doing business internationally lies in the relationships you develop with the people in power who know their country’s legal, political, economic and cultural environments. Without those relationships, you can get mired in the complexities of everything from real-estate ownership in Romania (title search firms are rare), to municipal, state and federal regulations in France.

No one likes to think about worst-case scenarios, but even the most well-intentioned relationships can go sour. Always be sure that your contract specifies arbitration either in your own country or in a neutral environment. If your firm is from the United States and the other is headquartered in Spain, a good country for arbitration would be England. First of all, it makes both legal teams travel, negotiations would be conducted in English, and the legal system in the United Kingdom is similar to the United States.

The last thing you want to do in an international case is resort to the courts. Lawsuits are exceedingly expensive and can drag on for years. Always attempt to resolve disagreements through mutual agreement, or arbitration and mediation.

However, if you opt to sue, you may very well spend tremendous amounts of money and years in a courtroom, where local laws can favor one side or the other. And even if you win, it can be extremely difficult to collect your settlement.

Many experts have expressed their views that all the complexities of international business boil down to the relationships that you develop with your associates in each country, and how much you can depend on each other.

As Mr. Hrubala, from the International Law Institute, summarized it:
Get to know your business partners. A contract is a legally enforceable promise, but is founded on a "relationship of trust" that evolves over time. Frank but polite discussion of concerns always wins out over "gotcha" tactics, or playing one’s hand so secretively that the other side doesn’t trust you. Always looking to the law to enforce something that both parties were uncertain, or dubious, of is not the answer.

Sage counsel is worth remembering in every business relationship.

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