Cutting corners on legal agreements can lead to major problems even when trading within the UK. So how can you ensure that language barriers don’t create a costly legal mess for your business?
In business, communication is king. Strong ideas, good products and innovative solutions mean nothing if you can’t find a way to communicate these unique selling points effectively to your ideal audience. Of course, in negotiations, small differences in interpretation can lead to big consequences further down the road.
Consensus can be hard enough to achieve when two organisations are operating in the same language and jurisdiction – trading internationally, it’s even harder.
After going through the long process of finding a partner or customer in a new country, convincing them to choose your company and agreeing how you will work together, it’s easy to be complacent. “My people will talk to your people,” as the saying goes, and a business owner’s attention drifts away when the legal documents are being drafted.
This is, however, a cardinal mistake. It’s easy to imagine that, with a common market and increasing harmonisation, corporate and contract law is more or less the same across the EU. This is not the case, and differences between jurisdictions make it easy for misunderstandings or ambiguities to arise.
Moreover, watertight legal agreements are essential protection for your business when trading internationally. Ironing out any misunderstandings, and ensuring both parties have a clear and common understanding of their obligations, is therefore vital.
THE LOCAL JURISDICTION
As a starting point, consider which country’s legal framework to base the contract upon – this will determine which court, if things go wrong, will first hear any dispute. After all, while legal harmonisation has advanced within the European Union, there is no set pan-continental corporate law. Rather, each jurisdiction sets its own laws depending on its own government’s priorities and evolving European regulations.
Particularly as you take your first steps into exporting, it will probably be tempting to push for all agreements for be framed with regard to UK common law. However, a few factors may make you think twice.
In the first case, the UK courts cope with a considerable workload of cases. If a dispute arises with the contract, you should consider how quickly the courts can deal with the matter.
Secondly, the question of enforceability should come into your thinking. If you win a judgement in a UK court for a bad debt incurred by an Italian buyer, for example, enforcing that judgement across international boundaries is possible – but typically longer and more complicated than enforcing a judgement secured in an Italian court.
As a general rule, basing the legal agreement on the law of the country where the goods or services are actually delivered is the most sensible approach.
LOCAL KNOWLEDGE – AND ESTABLISHMENT
For many UK businesses, this will mean enlisting local legal knowledge. It may also entail setting up a legal entity to enforce your contractual rights in the jurisdiction.
Fortunately, the UK has one of the largest and most professionally organised legal sectors in the world.
Commercial law firms in the UK often have in-house expertise on a number of jurisdictions, enabling you to access appropriate legal advice even if you’re not actually in-country. Even if they don’t, your law firm may well have links with local lawyers, giving you rather more piece of mind about selecting your legal representation.
When looking for specialist local advice, therefore, don’t be afraid to discuss it with the firm that regularly represents you in the UK. You can also speak to the British chamber of commerce in your target export market – typically, several firms will be on the organisation’s radar.
Setting up a legal entity is usually relatively quick within Europe, and not too expensive either. The European Commission has set an ambitious goal for each Member State to have a single regulator for registering a company within 3 days and at a cost of less than €100.
Some jurisdictions – including the UK – already meet this goal. In general, it is becoming progressively easier to establish a legal entity within an EU Member State. Larger firms with a significant commitment to exporting may consider establishing a European Company, or Societas Europaea. Details on what this is, and the process for doing so, is below.
Societas Europaea, or, The European Company
Societas Europaea, also known as the European Company, is a public limited liability company regulated under EU law. It is a way of simplifying the situation for businesses that operate in more than one EU company.
The legal form is a relatively new one, but it is proving popular. Since it was introduced in 2004 it has been adopted by more than 1800 companies. It is the result of forty years of fervent attempts to come up with a pan-European entity with limited liability, and available to companies that do business in more than one EU state.
Establishing your business as a Societas Europaea (SE) offers greater simplicity. It allows for greater mobility – for example you can move your registered office to another EU country as your business evolves without having to dissolve and reform your existing company. Your business activities across the EU can be carried out under one entity or label. The form also sets out a framework that allows for efficiency with regards to staff working across different countries.
In order to meet the criteria for setting up as an SE, your business is required to have a minimum subscribed share capital amount of €120,000. The currency in which the share capital is held does not matter, but it must be at least this value when converted to euro. The rate of conversion taken is the last day of the month preceding the formation of the SE.
Your organisation must also include some level of employee involvement which is unusual in a British business. Specifically, when forming an SE, you will need to establish an employee “special negotiating body” and to negotiate in a spirit of cooperation to try to reach a voluntary agreement on what form the employee involvement should take. If agreement is not reached, then default rules will apply, setting out an obligation to inform and consult with employee representatives on a regular basis.
After getting specialist legal advice, and establishing a legal entity in a new jurisdiction if necessary, you can start to consider the greatest source of honest but expensive disagreements between international trading partners: poor translation.
Often, businesses make the mistake of investing a lot of money into translating a pitch and tender documents only to scrimp on the contract. While winning business is important, exposing your business to risk is a foolhardy exercise. Even small mistakes can cause huge problems and that’s why getting a good professional is critical.
Translation is not cheap, good translation with an appreciation of nuance can be quite expensive, and specialist legal translation will probably be pricier still. All the same, it is usually a smart investment.
While you may employ someone who speaks the language of the original document (the source language) and the language it is being translated into (the target language), a good specialist translator should be able to pick up ambiguities, identify the precise technical translation of a term based on past precedents, and be familiar with the jurisdiction’s corporate law.
CHOOSING A TRANSLATOR
Finding the right translator will depend on local knowledge and shrewd questioning. If you are working with a major international law firm, they should have in-house expertise – or at least a number of translators that they have previously worked with.
If not, your local British chamber of commerce may be able to help. Armed with a list of potential candidates, you can make your choice based on their price, speed, accuracy, and relevant experience.
Of course, when you are getting translation services, you don’t want to write a blank cheque. That’s why you should find out more than just the per-word cost of your translator: is it per source or target word? Will the translator offer raw, uncorrected translation or include proofreading in the cost? Don’t be afraid to ask for an estimated total project cost.
However, budgeting an additional 15% given the complex nature of the work is a good idea. Also, ask your translator whether he or she will accept revisions and how many revisions will be taken before additional charges add up.
While you are better off waiting a day longer for a better translation, your prospective partner or customer probably won’t wait forever. That’s why you should ask for a reasonable turnaround time on the translation work, possibly with agreed incentives to make sure it is completed promptly.
Accuracy and confidentiality should be a given – don’t hesitate to ask a translator for referees, ideally clients that had requirements of similar complexity to your own. If your industry is particularly specialised, with technical terms that may not be familiar to your translator, flag this in advance.
Some translators may be willing to provide trial translations for larger, more complex projects – while these usually come with a charge, it is often worth the investment to ensure that he or she works well with both your organisation and your prospective partners.
It is important that your translator does not simply rely on his or her own judgement to decipher any possible areas of misunderstandings, but instead should refer to the company who drew up the contract to verify the intent. This can lengthen the process, particularly if your business partner is not used to this kind of transaction.
However, it is the best way of putting together a contract that there is mutual understanding upon. If your organisation is drawing up the contract, it is good practice to spend a lot of time making sure that the terms of the contract are clear and expanding upon a number of details so that you avoid misunderstanding.
Particularly if you have spent considerable time and resources to win a client or close a partnership agreement in a new jurisdiction, the last thing you may want to do is spend more money on legal and translation services.
However, unless you have professionally drafted, legally enforceable contracts, all your export transactions represent a leap of faith. Paying for qualified advice, and the specialist translation that makes contracts clear to both parties, will often save you considerable money and time in the long term.