Legal basics
The Basics for Canadian Exporters

Doing business in a foreign country means adapting to a foreign legal system. Often, laws surrounding commerce in the market you want to infiltrate will be quite different from those you are accustomed to. Assuming a legal system in a different country, even one similar to Canada in business culture, will function similarly to Canada’s is a dangerous misconception.

In addition abiding by foreign laws, depending on the trading relationship between Canada and the country you’re looking to do business in, there might be international laws that affect your operations. These laws are defined by treaties and conventions, but usually only apply to countries that have signed onto those agreements.

Contracts

EDC recommends the following tips for negotiating international contracts:

• If English is not the first language in your target market, your customer may want a contract written in their language in addition to an English language contract. They may also demand that the foreign language contract be valued over the English contract in case of disputes.
  • If you agree to this, make sure the intent of the foreign contract matches that of the English contract. Hiring your own translator (do not rely on your customer’s translator) and local legal council can help with this.
• Have the contract reviewed by local legal and tax professionals.
• Insist that disputes are settled by arbitration instead of litigation (more on arbitration and litigation below).
• Don’t agree to deliver the goods to your customer’s front door, as delivery logistics in a foreign country can be difficult to manage, risky and expensive. Taking responsibility for clearing your goods through customs is also a bad idea, as it can tie up your resources and leave you vulnerable to fines if something goes wrong. EDC recommends agreeing to deliver the goods to the port of entry and no further. More on shipping can be found in sections 5.1.3 and 5.1.4.
• Tie customer acceptance of the goods to certain conditions. Don’t leave it up to the customer to determine the manner in which the goods are acceptable.
• Don’t agree to open account payment terms. This gives your customer upwards of 90 days to pay for the goods after receiving them. Try to find a payment term that allows you to get paid in a timely fashion but still gives the customer some flexibility. More information on getting paid can be found in section 5.3.
• If you agree to open account terms, insure the contract against non-payment or contract cancellation.

Source: EDC

Litigation

Taking a dispute to a foreign court is usually inadvisable. Even if you think you are in the right, legal action may not be worth your time:

• The process is expensive, time-consuming and drains resources that can be better spent elsewhere.
• Local bias against foreign firms could work against you.
• Even if you win, the settlement may not equal the money you’ve sunk into fighting the dispute.
• You may not be able to collect the settlement, even if you win.
• If you lose, you may have to pay your opponent’s legal costs.
• In some countries, you can get a bad reputation for being litigious.

Commercial Arbitration

You can avoid litigation in an international business dispute by using international commercial arbitration, or alternative dispute resolution.

This process uses independent arbiters to find a solution the problem, but both parties have to agree to it. Working an arbitration clause into your contract is a good idea.

This process is beneficial because the arbiter’s decision is normally binding, preventing appeals from either side. The decisions are also recognized under international law. There is also less chance of bias against you, because the arbiter operates outside of the local legal system. Arbitration is also faster and cheaper than litigation.

Product Liability

In many countries, consumers can sue for compensation for injuries that have resulted from a product.

Litigation can be carried out on the basis of manufacturer negligence, breach of warranty or failure to warn of defects in manufacturing.

Product liability damages can be very high, depending on the jurisdiction:

This is especially true in the United States. For this reason, product liability insurance in the U.S. is very expensive.

To protect your business, you should seek advice from a lawyer on how to word your product warranties and assess the risk your company faces.

Rigorous quality control during manufacturing is also important, as is complying with all governmental and industry standards in the market you are operating in.

Source: EDC