Contracts 101 – Part 2: Which Contract? : StevenClark.com.au

Contracts 101 – Part 2: Which Contract?

Disclaimer: I’m not a lawyer and I have no claim that this advice should be taken as legal advice in replacement of seeking out professional help. What I hope to do is educate you over a series of small posts about what constitutes a contract and you should be able to figure out when you might need to see a real lawyer. Although this series is in the Australian context many of the principles apply in other countries.

This article, the second in the series on Contracts 101, is intended to get you thinking about the context of contracts that you sign. Let me ask you this question – were you to enter a contract with a Bulgarian PHP programmer to create some software then which legal system would apply? If there was a dispute then in which country or city will the proceedings be held? Can your legal system impose the penalty within their geographic location? Its an important point because every country has its own legal system and you need to know for sure before signing a contract what you’re getting yourself into. What if the Bulgarian programmer sues your sorry ass and you have to defend yourself in their country? Or the US? Or the UK? Can you afford that?

The follow on point from that is the question of what constitutes an enforcable contract in the jurisdiction in which it was undertaken? In other words, whose rules are at play and what exactly do those rules entail?

Legal Systems are not all Equal

There are various types of legal systems at play in the world. In Australia and the UK we have Common Law. This means that cases are governed by precedent and that contracts need to be explicitly detailed. Much of Europe, on the other hand, comes under the governance of Civil Law. This means that large swathes of what you can and cannot do in those countries are explicitly codified and your contracts will be lighter because courts do less interpretation and more enacting of set instructions. Third, we can see that much of the world comes under Theocratic Law. This means that religious laws are enforced and they have their own perspective on issues such as fairness and just business practices. For example, Islamic Law considers the charging of interest to be immoral (and I have to concede they may have a point).

And you need to realise that within an international business contract you need to uphold the laws of the foreign country and those of your home country – and any applicable international agreements. Is the applicable law in China? How would that pan out for you? India? Its important to know that any legal action in the Indian courts will take you a decade to get in the door.

So What is that Document you’re Signing?

The explicit message of this installment in Contracts 101 is simply to get you questioning the document you’re thinking of signing. A contract isn’t just a contract all over the world in an equal sense. You and the other party could, in fact, be under the misconception that two entirely different legal systems should apply. Does that misconception mean that there isn’t a contract to breach? Lawyers get rich off this stuff. You need to know what the rules are, where the jurisdiction lays and how much it might cost you to either enforce a contract or defend yourself against litigation from the other party. Just to be clear, the main legal concerns of international business are fourfold: contracts, property rights, intellectual property rights, and product safety and liability. You need to understand this stuff to be an efficient business person in the global arena.

Oh and a little word of advice – if someone is the sort to threaten legal action as their first retort in a dispute then avoid them in business like the plague… but that should be obvious. I have no doubt they believe such threats are ‘professional business practice’ but it actually just makes them an inconvenient bully. Legal action is your last resort… and only when it turns a profit.

Now the ground rules are laid we can begin discussing in Part 3 what constitutes a contract under Australian Common Law.

Note: Resources used for this series are identified in the first installment – Contracts 101 – Part 1: Outline.

Installments in Contracts 101

This entry was posted on Sunday, November 8th, 2009 at 7:01 am and is filed under business, contracts 101, legal. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.

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