Category Archives: International Business

WHY CHOICE OF LAW IS IMPORTANT IN CROSS BORDER CONTRACTS

Global business means global contracts.  Each of the parties are resident or domiciled in different countries.  As laws and legal language differs from country to country contracts need to reflect language that accommodates and clarifies provisions that might not be familiar in that foreign jurisdiction.  In addition, the cost of litigating in a foreign jurisdiction can exceed all expectations and thus is difficult to quantify.

The choice of law can be dictated by the contract itself, yet the choice of law can also be different than the place chosen for resolution of the dispute.  Thus, a foreign court could be in the position of, for example, an English court interpreting U.S. law.  In this example, parties before an English court are permitted to present experts to assist the court in interpreting U.S. law.  This can become a battle of the experts. 

Where a standard form is used, which is meant to provide a uniform interpretation providing some certainty, however, foreign courts are not necessarily familiar with such universal interpretation and may alter the operation and effect of the underlying agreement.

Contracts provide certainty in business.  Such potential alteration eliminates this certainty and creates risk that is difficult to quantify.  With regard to specific provisions, U.S. courts generally takes a broad view and interpretation of contract provisions and are willing to imply provisions, for example, good faith.  Yet courts in other jurisdictions are not willing to imply what is not spelled out by specific language.  Interpretations also varying with regard to specific legal concepts.  “Gross negligence” is a well-recognized legal concept in U.S. law, however, in England for example, there is no concept of gross negligence, rather this concept is replaced by a notion of serious error or conduct falling significantly short of expectations. 

Whenever possible, check with a lawyer in the foreign jurisdiction to ensure the differences are fully understood and clarified wherever possible.  If possible carefully draft provisions keeping in mind a foreign court may be interpreting the terms should a dispute arise.

 

 

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NON-DISCLOSURE AND CONFIDENTIALITY AGREEMENTS: THE IMPORTANCE OF REMEDIES

Non-disclosure, confidentiality, and/or proprietary information agreements are one of the most frequently used agreements in business today.  Businesses entering into a new relationship or extending the scope of an ongoing relationship with clients, vendors or customers will often require a formal agreement between the parties outlining the use and further disclosure of confidential information.

Confidential information can include a myriad of information from intellectual property, source code, financial information, trade secrets, employee names and/or salary data, client names, methodologies or any information which is not publicly available.  These agreements are widely required prior to the disclosure of such information by a disclosing party, and can be one-sided or mutual.   The term usually extends for some period of years beyond the end of the relationship.

Customary provisions include:

  1. the purpose of the disclosure of confidential information;
  2. the type of information being disclosed;
  3. restrictions regarding onward disclosures;
  4. permitted use of information disclosed;
  5. restatement of ownership and whether disclosure grants a license;
  6. standard of care;
  7. disclaimer as to the accuracy;
  8. term and termination;
  9. return or destruction of confidential information in tangible form; and deletion if disclosure was in intangible form;
  10. consequences for breach;
  11. general clauses regarding assignment, choice of law etc.

Among the most controversial provisions is what happens in the event of a breach.  What happens when, for example, confidential information is made public or misused by a receiving company?  First, here’s an example of a typical provision regarding breach:

  ” A breach of any of the promises or agreements contained herein will result in  irreparable and continuing damage to Discloser for which there will be no adequate remedy at law, and Discloser shall be entitled to injunctive relief and/or a decree for specific performance, and such other relief as may be proper (including monetary damages if appropriate).”[1]

The purpose of injunctive relief and/or specific performance is to halt further disclosures or misuse of confidential information.  Monetary damages, on the other hand, go to the heart of the harm, the purpose of which is to compensate the disclosing company for the loss suffered by any prohibited disclosure.  There are two types of monetary damages, direct and indirect.  Direct damages are reasonable and ordinary damages that may be expected from a breach; while indirect damages compensates for the unexpected damages, including lost profits, lost use, reduction in value of the confidential information, loss of goodwill or customer business.  The indirect or consequential damages represents a much higher value damage since they are difficult to predict and, more importantly, to quantify.

Disclosing parties want to keep indirect damage provisions in the non-disclosure agreement and receiving parties want them out.  Best practice would be to define “direct damages” to include some of the types of damages that a disclosing party might expect from a prohibited disclosure or misuse.  This way some indirect damages might be re-characterized as direct damages.  The more closely damages can be quantified the more likely an agreement will be reached.  In addition, a receiving party may insist on a shorter term by which it is bound to hold the information confidential, or waive the need for a bond if seeking injunctive relief.

In the current business climate, non-disclosure agreements are frequently used, but standard versions no longer adequately protect both parties, each use should be reviewed and tweaked to suit the purpose.  As this is one of the most important agreements used every day by many businesses it deserves a bit more attention to the detail.

 

[1] This is a very general example, and the language will vary depending on the parties, the information disclosed and a number of other factors.

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EU-US Privacy Shield: Legal Certainty for US Companies

A new data privacy protection agreement has been tentatively reached between the U.S. and the EU. This new agreement to be called the “EU-EU Privacy Shield” replaces the 15 year old EU-US Safe Harbor Program that US companies have relied on to ensure legal certainty when personal data from the EU to the US.  The EU-US Safe Harbor was struck down late last year as not providing sufficient protection of personal information.

One of the most difficult obstacles to overcome in reaching this new agreement was the scope of access and transfer by U.S. government intelligence agencies. This new agreement should replace current uncertainty with clearer limitations and robust oversight and enforcement powers given to the Federal Trade Commission.  US companies will be subjected to vigorous obligations on data processing guaranteeing individual rights.   The new agreement also provides new redress options to any citizen who believes their personal information has been misused.

The EU-US Privacy Shield must now be approved by the European Union’s 28 member states. There will be both detractors and advocates, but it is nevertheless expected to pass muster.  Details of the new agreement should be drafted over the next two weeks and if approved it would be effective from early April.

 

 

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HOW FATCA REPORTING IS MAKING FOREIGN INVESTMENT CHALLENGING

U.S. citizens and permanent residents are required to report all income wherever earned together with the existence of foreign accounts and certain investments. In an effort to prevent U.S. citizens and permanent residents from avoiding taxation of foreign held assets, the U.S. government has obtained the agreement of many foreign governments to require local financial institutions to report account existence and activity.  FATCA, the Foreign Account Tax Compliance Act requires financial institutions that offer accounts to U.S. citizens and permanent residents identify and report account information to the Internal Revenue Service.  As a result, FATCA has made it increasingly more difficult to open a foreign account since it requires foreign financial institutions to undertake these reporting efforts, at their own expense, effectively making opening such an account extremely difficult and, often, those accounts are now unavailable.

Financial institutions, including, banks, stock brokers, insurance companies, mutual fund companies, are now required to report the following assets owned by U.S. citizens and permanent residents: cash accounts, stocks, bonds, options, derivatives, mutual funds, interests in foreign partnerships, pension plans and any financial instrument that has a foreign issuer, and real estate held by a foreign entity.  Financial institutions that do not participate in will be penalized by a withholding tax of an additional 30% on all U.S. source fixed and determinable, annual or periodic income. Other penalties may also apply making foreign financial institutions shy away from offering accounts to U.S. citizens and permanent residents.

There foreign assets that are exempt from the FATCA reporting requirements. Cash accounts with less than $10,000, gold, silver or other tangible assets held in foreign safety deposit boxes, real estate held in the name of the individual, personal property located in foreign countries provided these are owned directly in the individual’s name and some foreign investments held by a retirement plan, IRA, SEP or 401(k).

Investments in foreign countries are a very good way to diversify your portfolio and can provide excellent returns. If this strategy is attractive to you, consider investing in real estate or obtaining a safety deposit box where you can accumulate gold, silver or other tangible asset, such as diamonds or other gems. Please contact us if you have any questions or would like to discuss your options to discover great returns through foreign investment.

 

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Tips For Drafting Enforceable Contracts

Ensuring your Contracts are Enforceable.

Often when negotiating a contract the parties are on friendly terms and understand the intention behind each provision whether express or implied. The difficulty lies somewhere down the road should the parties dispute the meaning of one or more of those terms.  When drafting a contract you should be keenly aware that it will likely be construed by a court who has little knowledge of the party’s intentions and will have to assess the contractual language objectively, setting aside any subjective notion of the party’s intention.

Although the court is entitled to consider the objective commercial purpose, the origin of the transaction, and often its context in the marketplace. But it is prevented from looking at prior drafts, notes, emails, or other indicia of the negotiations.  The court interprets the contractual language in a clear and natural meaning of the language used.  The court will rely on the express terms, as drafted, providing clarity to those terms that are, perhaps less clear resulting in the dispute.

There is some precedence that the court may recognize implied terms in very specific and highly restrictive circumstances. The court will not conclude a term is implied unless a reasonable reader would consider the term to be so obvious as to go without saying or be necessary for business efficacy.  It seems the reasonableness standard is not applied lightly, rather the exercise of construction applying traditional notions of interpretation.

Thus when drafting a contract you should keep in mind the importance of the language used as well as what might be interpreted by a reasonable reader as obvious and necessary to fulfill the terms of the contract. One example of this might be, termination fees for early termination of a contract.

Here are a few tips:

  • Draft clearly using plain language and eliminate any ambiguity
  • Address issues that may be implied by the circumstances
  • Define the meaning of specific words to avoid confusion later
  • Use recitals to outline the background the more detail set out the more information the court has to determine relevant circumstances
  • When using dates, monetary payments, cure periods etc be very specific rather than language such as “On or before” or “commencing on”
  • When reviewing make certain there are no conflicts between the various provisions
  • Ensure all section/provision number references are correct

Please contact us if you would like any assistance with drafting your contracts, we would be happy to help.

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How changes to UK Consumer Law affects ecommerce businesses?

Effective earlier this year, the UK Consumer Contract Regulations came into force replacing the prior law on distance selling. Ecommerce businesses selling to UK customers will now need to review and update their sales process, terms and conditions of sales and refund policies to comply with the new regulations.

The Regulations were designed to implement the specific provisions of the EU Consumer Rights Directive (Directive 2011./83/EU). The directive applies to all consumer contracts for goods and services, including most particularly, online sales. The new regulations set out the information that must be provided to customers before the goods or services are purchased:

1. A specific description of the goods or services and the length of time any commitment on the part of the customer will last.

2. The total price of the goods or services, or manner in which the price will be calculated.

3. The cost of delivery and if the customer returns items, who will be responsible for the price of any return shipment.

4. Order cancellation details. Pursuant to the new rules the customer has no less than 14 days following receipt of the goods in which to cancel, this is an increase from prior law which mandated only 7 days.. There are exceptions to the 14 day right to cancel, including CDs, DVDs, or software if the wrapping seal is broken, the goods are perishable, tailor-made or personalized.

5. Information about the seller of the goods or services must be provided, including geographical location address and telephone number.

6. If the product is digital content, then the seller must provide information on the compatibility of the content with hardware and other software.

Sellers will no longer be able to charge a customer for an item that is selected for the customer as a pre-ticked box, rather the customer must actively tick the box. Finally, premium rate telephone numbers for help lines or other customer contact during the sales and return periods are no longer permitted.

Bottom line is that ecommerce companies selling to UK customers should review and revise, if necessary the terms and conditions of sale to ensure compliance with the new regulations. Failure to comply may result in contracts being unenforceable and criminal penalties may be imposed. Please let us know if you need any assistance or would like to discuss these new regulations to ensure your compliance.

Double Irish Take Break to End in 2020.

Bowing to pressure from the OECD and the European Commission, Ireland has agreed to close a loop hole that exploited the differences between U.S. and Irish tax law. France, too, has been particularly outspoken in its attempt to bring attention to unfair tax competition. The Double Irish loophole is used by large companies with significant royalties arising from intellectual property holdings. Ireland recognizes a company’s tax residence as the place where the company is operated from, while the U.S. focuses on where a company is registered. Thus, an Irish registered company being controlled from a tax haven like Bermuda, is considered, by Ireland, to be tax-resident in Bermuda. However, the U.S. considers that same company to be a tax resident of Ireland. Leaving royalty payments made to the Irish company untaxed or minimally taxed.

Starting in 2015, newly registered Irish companies will be regarded as Irish tax resident. The tax rate for an Irish tax resident company is either a 12.5% rate on trading income or otherwise 25%. This is still one of the lowest tax rates in the EU. Pre-existing companies using the double Irish structure can maintain that structure and its advantages until 2020, after which all Irish registered companies will be deemed Irish tax resident.

Because of its already low corporate tax rates, you may not see a rush to move from Ireland. Ireland’s Minister of Finance has also hinted at additional potential tax breaks or credits that might ease the loss of this loophole.

 

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South Africa and U.S. Sign Agreement over Tax

Earlier this month, South African Finance Minister and the U.S. Ambassador to South Africa signed an inter-governmental agreement between the two nations that brought South Africa into the many jurisdictions that exchange information with the IRS under the Foreign Account Tax Compliance Act (hereinafter “FATCA”).

FATCA, enacted by the U.S. Congress in 2010, attempts to cast more transparency over the foreign accounts of U.S. citizens living in foreign countries. With this agreement made with South Africa, no longer will individual banking institutions have to make agreements for exchanging information with the U.S. government.

The impact for Americans living in South Africa will be that their banking information will be shared with the IRS and, as the agreement signed by the nations is reciprocal, the banking information of South Africans living in the U.S. will also be shared back with the South African Government and the Tax Office. The U.S. Ambassador noted upon signing: “The signing of these agreements is an important step forward in the collaboration between the United States and South Africa to combat tax evasion.”

If you are an American living or banking in South Africa or a South African living or banking the U.S. and require more information about the impact of the signing of this agreement, then please feel free to contact us for more information specific to your situation.

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China’s New Trademark Law

China revamped their Trademark Law and it has been in effect now since May of this year. With so many counterfeit and imitation goods coming out of China, many people across the world struggle with giving China creditability when it comes to respecting trademarking but their new trademarking laws will give them back some of the lost credibility. Not only will trademark infringement be taken more seriously, but misuses of the system will no longer be tolerated. The aim with the new law is to increase the protection against piracy, shorten the prosecution times, strength the well-known mark protection, increase fines, compensation and statutory damages for infringers. Additionally, the legal standing for oppositions and invalidations has been narrowed, sound marks and multiple class trademark applications have been made available and now challenged marks will proceed through the registration process more easily.

China has been a hotbed for trademark squatting for years. International businesses coming to China in the past would often have found that they’re mark had already been spoken for. With the revision of the trademark law, there has been a crack down on trademark privacy and registrations made in bad faith. Additionally, misuses of well-known mark status through fake litigation will come to an end. Moreover, opposition and invalidations will only be allowed to be brought by prior rights holders or interested parties thus reducing the arbitrary and bad faith oppositions to mark registration.

In terms of filing, e-filing is now allowed but is really only available domestically at the moment for standard goods items. It seems that the early hype about original powers of attorney and trademark applications being signed by the applicant have fallen away as the China Trademark Office has reverted back to the old filing requirements as set forth before the revised trademark laws.

If your business is considering registering their mark in China or already has a registered mark in China, it is best to review the new laws. We can help with any confusion and can assist in getting your trademark through the process of registration and recordal. Please don’t hesitate to contact us if you require more information.

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