English-Language Contracts for Overseas Expansion: Choosing the Governing Law and Seat of Arbitration, and Provisions Your Team Can Operate
Hello, I'm Noriaki Asato, Representative Attorney at LegalAgent.
When a startup begins expanding overseas, it has more occasions to enter into English-language contracts, such as distribution agreements, SaaS usage agreements, and NDAs. Faced with an English-language contract, many companies first worry about negotiating the governing law and jurisdiction. Dispute resolution provisions are important, but what makes a big difference in practice is whether the day-to-day transaction provisions are in a form that the company can operate without strain. Even if the document looks well drafted, unless the people on the ground, such as sales, development, and accounting, can put the provisions into action, the function of preventing disputes will not work sufficiently.
Dispute Resolution Provisions and Enforceability
In negotiations with foreign companies, a company may express a wish to make Japan the governing law and jurisdiction. It is natural to want to choose one's own country's law, but the governing law, jurisdiction, and in arbitration the legal seat of arbitration (seat) and the actual venue of hearings are legally distinct concepts. Setting these provisions does not guarantee compulsory enforcement abroad. If the counterparty's assets and offices are overseas, the issue remains of whether a winning judgment obtained in Japan can be recognized and enforced locally. Conversely, if the company accepts the jurisdiction of the counterparty's country, the procedural burden becomes heavier in terms of litigation costs, language, and securing local counsel.
Therefore, in international transactions, it helps to build the dispute resolution framework while taking into account where the counterparty's assets are located, local enforceability, and whether arbitration can be used. Even when choosing arbitration, it is necessary to confirm the conditions for enforcement under the New York Convention, the grounds for refusing recognition, and local mandatory laws. Confidentiality, costs, and enforceability of arbitration are judged by researching the applicable rules and the systems of the countries concerned. If the arbitral institution, the legal seat of arbitration, the allocation of costs, and the language of the proceedings are not set in advance, it becomes difficult to act when a dispute arises.
Transaction Provisions and Local Regulations
It is precisely the provisions that will be referred to repeatedly after signing that must be checked against what happens on the ground. In a SaaS agreement, the service specifications, the SLA, and the procedure for returning data upon termination are central to day-to-day operations. In a joint development agreement, background intellectual property held before development, ownership of improvement inventions and resulting intellectual property, the scope of source code disclosure, OSS usage conditions, and acceptance of deliverables are frequently referred to. These come to life only when not just legal but also the development and operations teams understand and can manage them.
In distribution agreements as well, many items are negotiated, such as the sales territory, minimum sales quantities, whether exclusivity applies, conditions for using trademarks and reviewing advertising, conditions for sharing and using customer information, and the disposal of inventory after termination. However, not all agreed provisions are necessarily valid. Resale price maintenance, excessive territorial restrictions, post-termination non-compete obligations, and the like carry a risk of being invalid under local competition law and mandatory laws. It is important to examine commercial negotiating terms and legal constraints separately.
The CISG and Trade Terms in International Sales
In the international sale of goods, it is necessary to confirm whether the United Nations Convention on Contracts for the International Sale of Goods (CISG) applies. Even if the contract chooses Japanese law as the governing law, the Convention may apply because Japan is a contracting state. When the CISG applies, the requirements for liability for non-conformity, termination, and damages are judged by standards different from those of domestic law. If the parties wish to exclude its application, they should expressly state an agreement excluding the CISG under Article 6. Note that, in principle, the Convention does not apply to service agreements that mainly involve the provision of services.
Trade terms also need to be aligned with shipping practice. Trade terms such as ICC Incoterms 2020 set the point at which risk passes and the allocation of freight and insurance costs; they are not rules that determine the timing of transfer of ownership, payment terms, or the governing law. When using them, accurately state the name of the rules, the version, and the named place of delivery. If the terms agreed by the people on the ground and the contract do not match, the allocation of costs in the event of transport problems will not be settled, causing confusion. Put the contract, purchase orders, and invoices side by side and align the transaction terms.
Managing Deadlines with an Internal Operations Sheet
Even if a full Japanese translation is prepared when reviewing an English-language contract, that alone does not connect to operations on the ground. To put a contract into action internally, creating an internal operations sheet listing notice deadlines, deadlines for refusing renewal, termination notice periods, and payment due dates is more effective. By compiling periodic reporting obligations, responses to the counterparty's audits, data deletion deadlines, and deadlines for returning confidential information, and deciding who will handle each, the burden of rereading the contract every time can be reduced.
However, the internal operations sheet is a tool to help with deadline management on the ground and does not replace the body of the contract or legal review. By separating the provisions that legal checks, the transaction terms that sales complies with, and the technical requirements that development observes, the contract can be managed on the ground without strain.
The Limits of Reusing Templates and Fitting the Contract to the Business
In overseas expansion, companies tend to reuse past contracts or templates found online, but the issues in English-language contracts vary greatly depending on the transaction type, the counterparty's country, taxation, export controls, and data protection regulations. A SaaS agreement with a U.S. company, a data processing agreement with an EU company, a distribution agreement in Southeast Asia, and a manufacturing agreement with a Chinese company each involve different legal systems that require attention.
It is not uncommon for provisions with similar wording to have different legal effects depending on the governing law and local practice. It should be kept in mind that using a template does not guarantee compliance with foreign law. Even when using reference language, it is important to check each provision against actual business flows such as invoicing, delivery, and termination, and confirm that it fits the real circumstances.
LegalAgent's Support for English-Language Contracts
LegalAgent supports startups expanding overseas with the review of English-language contracts and the creation of operations sheets that allow the contract terms to be put into action internally. I think it is important to communicate what was agreed in the review to the responsible departments and to put it in a form that allows even notice and payment deadlines to be managed. Details of our support for reviewing English-language contracts and building operating structures for overseas expansion can be found on the following pages.
Services connected to this topic