1. Trading arrangement – agency, distribution, franchise?
If you are thinking of trading internationally, it is important to consider how your business will operate and which trading arrangement you will use to market your products/services overseas. There are different laws and advantages that apply to various trading arrangements which make it an important decision to think about.
Agency, distribution and franchising are examples of channels to market your products/services internationally. Under an agency arrangement, an agent sells products/services to customers on the principal's behalf and is remunerated by commission on sales concluded through the agent's efforts. By contrast, under a distribution arrangement, a distributor buys the products from a manufacturer and then resells them as an independent principal for its own benefit.
Under a franchising arrangement, the franchisor grants to the franchisee a licence to distribute the franchisor’s products or services, using the franchisor’s business method, technology and trademarks. The franchisor supervises that use and provides training and other assistance to the franchisee to help them in running the franchise. Talk to Tollers for further information of the differences between these arrangements and we can assist you in making a decision on which trading arrangement best suits your business needs
2. Transport, delivery and risk management
If equipment, materials or goods are being sourced from different countries, transport and insurance issues will need to be considered. Most contracts will rely on reference to the Incoterms® 2010 Rules to address and allocate the responsibilities, liabilities and costs of transporting goods between the contracting parties in different countries. The benefit of incorporating Incoterms® 2010 Rules is that they are internationally recognised and deal with provisions which are key in international supply agreements such as the allocation of costs, risk, delivery, insurance and other arrangements.
3. Products, pricing and payment
An agreement should set out what the products are, whether they can be removed from the range on offer and/or whether new and future products can be added in. The agreement should also specify the prices for the products, whether (and when) the prices will be reviewed and whether the prices can be increased. Probably one of the most important provisions in the agreement is how payment is to be made. The provision should be clear as to the currency payment is to be made in, the security for payments and interest on overdue payments. Having clear terms will help eliminate disputes later down the line.
4. IP protection
It is important that you protect any intellectual property rights that you own and which are associated with your brand, products or packaging. It is particularly important to ensure that your brand or product is protected in the countries that you wish to market them in by registering intellectual property rights in that country. This process will require you to check whether your brand or design infringes third party intellectual property rights in that country before you can register your rights.
Once you have registered your intellectual property rights, you will be able to licence the use of such rights to third parties as necessary for the effective marketing of your products/services. To protect your interests, you may want to set out specific circumstances which the other party may use your intellectual property rights to prevent them from damaging the reputation of your name or brand. Tollers can assist you by including such terms in an agreement.
Confidentiality clauses or agreements provide an additional layer of protection over your trade secrets and valuable know-how where these are not otherwise adequately protected by intellectual property rights. For example, confidentiality is especially important in a franchise arrangement where a franchisee uses the franchisor’s business know-how to operate the franchise. You will therefore want restrictions on the use of such confidential information. We would recommend that you have confidentiality obligations properly included in all agreements with employees, suppliers, prospective business partners, public organisations and other people with whom you do business with in order to protect your interests.
6. Language of the agreement
You will have to think about what language the trading agreement (and documentation relating to it) should be drafted in. If you are presented with a document in more than one language, it is imperative that a clear agreement is reached as to which version takes precedence.
7. Choice of governing law
Parties to an agreement are generally free to choose the law applicable to the agreement between them and that law will govern any disputes. When you trade internationally, different business cultures, legal environments and languages increase the risk of confusion and disputes.
As parties will be based in different jurisdictions, you will need to decide which country’s law will govern the agreement. When deciding on which governing law to use, you should consider various factors such as whether you are comfortable with the applicable processes of dispute resolution in the chosen jurisdiction, legal certainty in relation to the laws which will apply to your chosen trading arrangement, the nature of available remedies and your ability to enforce judgments.
8. Dispute Resolution: Arbitration v Courts
As explained above, when you are dealing with different business cultures, legal environments and languages, disputes may arise and it is particularly important to have a clear dispute resolution process set out in an agreement so that you are able to resolve any disputes quickly and focus on your business.
Arbitration is an alternative form of dispute resolution which does not require recourse to the courts and has been a popular method of resolving disputes for international agreements. The common starting point in deciding whether court litigation or arbitration is more appropriate is to understand the advantages and disadvantages of the different forums. For example, arbitration is flexible and parties are able to agree who the arbitrator will be, what the language of the tribunal will be and which rules will apply.
Tollers can go through the pros and cons of arbitration and court litigation with you to help you make a well informed decision and ensure that you have well drafted dispute resolution clauses in the agreement accordingly.
9. Anti-bribery and corruption laws
Business practices vary in different jurisdictions and what may be permissible in one country may not be permissible in another. In particular, when making arrangements for international supply of goods, it is important to ensure that the arrangements are compliant with applicable anti-bribery and corruption laws which, if not followed, can lead to a penalty of a fine, imprisonment or both. It is therefore important that you take advice and become aware of such laws so that you minimise the risk of breaching them. Remember that the UK Bribery Act 2010 applies to international dealings by UK nationals and businesses.
10. Export controls
It is vital that you are aware of the controls imposed on the export of your goods. All countries have some form of an export control policy, legislation and enforcement mechanisms in place which you should be aware of in order to avoid facing a penalty. Penalties can range from de-registration of your licence to fines or even a potential prison term.
You may need to obtain an export licence for your products and you will need to ensure that you have solid export control systems and procedures in place in terms of record keeping, training and lines of responsibility. To minimise your risk of non-compliance, you should set out clearly in an agreement each party’s obligations including which party is responsible for export licences and duties.
If you are considering trading internationally, talk to Tollers on 01908 396 230 and ask for Liz Appleyard or Ayesha Devlia in our Commercial Team, who will happily assist you.