International Expansion and Growth Insights | Sales contracts and terms of service

Written on 21 Nov 2019

Sales contracts and terms of service

When expanding internationally, it may be tempting to contract on the same terms as in the US to ensure uniformity and familiarity. However, this approach generally fails to accommodate mandatory laws or terms implied by law in other countries. This can create uncertainty, render terms unenforceable (in particular those that seek to limit or exclude liability) or leave businesses exposed to legal and financial risks that could otherwise be mitigated or avoided. While localization will necessarily involve some deviation from the US contract terms, the changes can often be limited. The exercise will also help to manage risk, demonstrate a commitment to the market in question, and make for smoother contractual negotiations.

US businesses are often understandably keen to create a set of terms that will “work” in as many relevant territories as possible. Localization for multiple territories is generally possible, although businesses may need to make compromises or take a risk-based approach in some areas. Risks and liabilities, if they cannot be excluded or limited, can be fully understood and addressed.

A key issue to be aware of is that consumer protection legislation in many jurisdictions is heavily regulated, especially in e-commerce. It tends to be more difficult to limit liability in business-to-consumer (B2C) relationships and it will most likely be necessary to make amendments to cover mandatory law risks. No attempt to localize is likely to result in unwanted attention from a regulator and runs a high risk of unenforceability of key terms. For example, imposing US governing law on overseas citizens will often be unenforceable and those citizens will be able to bring proceedings under their own legal system. Similarly, there are many countries that require B2C terms to be “fair” and drafted in plain, understandable language. When dealing with consumers and business customers, US firms should consider whether a separate set of terms for each customer base is advisable.

Aside from purely legal issues, terminology varies between jurisdictions, so there is normally a need to localize some language. The balancing act is to try to avoid significant deviation from the original meaning while ensuring the new wording looks familiar to customers in the relevant country. This avoids simple misunderstandings and can help to minimize significant legal risks, for example when discussing concepts such as heads of loss for which the US business is seeking to exclude or limit liability.

Finally, some matters that can be dealt with by the parties to a US contract can only be enforced by a court in other countries. For example, in a number of countries outside the US, there are certain termination rights that can only be exercised with the permission of a court, and not simply at one party’s election (for example by exercising a contractual termination right).

Businesses looking to expand internationally should always consider tailoring agreements for each individual country or creating a balanced set of terms that can apply to customers in multiple targeted countries. There are many factors to consider in choosing the correct approach, failing to consider the issues at all will likely prove a false economy in the long run.