WORLD: WHEN IS A CONTRACT NOT A CONTRACT?

WORLD: WHEN IS A CONTRACT NOT A CONTRACT? - To the Swiss, Germans, British, Americans and Finns it's final and binding; to the Asians it's only a statement of intent. Beware: in cross-national deals the contract may not be worth the paper it's written on

by Richard D Lewis.
Last Updated: 31 Aug 2010

To the Swiss, Germans, British, Americans and Finns it's final and binding; to the Asians it's only a statement of intent. Beware: in cross-national deals the contract may not be worth the paper it's written on.

For many who do business overseas it's a familiar scenario. After weeks sometimes months of negotiations you finally get the contract signed. Only a few weeks later you find that the other side has reneged on the terms or now wants to renegotiate.

So, when is a contract a contract? When a decision has been entered into the minutes of a meeting; when the ink is dry; or, perhaps, when an arrangement is working to the satisfaction of both sides? As many have discovered, what is understood by a contract in the UK - a mutual, binding agreement - is not always taken as such elsewhere.

The Swiss, Germans, British, Americans and Finns are among those who regard a written contract as something which, if not holy, is certainly final. When they put their name to an agreement they will, in most cases, honour it - the good name of the company is here at stake. The same principle applies at the national level - British and French adherence to longstanding commitments in transnational projects such as Concorde and Airbus is taken for granted.

The French tend to be precise, often extremely finicky, in the drawing-up of contracts, and, having got what they wanted, can usually be relied upon to follow through. Other Latins, however, require more flexibility. The Italians or Argentinians see the contract as an ideal scheme in the best of all worlds, which sets out the prices, delivery dates, standards of quality and expected gain. But the world, as we all know, is not perfect. Things may, and probably will, go wrong.

South Americans and Spaniards often fail to meet deadlines and deliver late. They will, by way of insurance, have spent considerable time and energy building up a good relationship with their trading partner and will expect understanding if they run into difficulties in meeting the contract. They may also pay late - in this the French join them.

For the Chinese and most Asians, on the other hand, the contract is merely a statement of intent. They will adhere to it as best they can but will rarely feel bound by it - particularly if they feel cheated or legally trapped, if anything in it contradicts common sense or if market conditions suddenly change. New tax laws, currency devaluations and drastic political changes can all, in their eyes, render a previous accord completely meaningless.

The Japanese, meanwhile, see the 'real' contract as the one made orally in good faith during a meeting where they trusted the other side, were too polite to offend and, in all probability, understood less than two-thirds of what was being said. Equally, they expect the written contract to reflect the harmonious style of the discussion. If the small print turns out to be rather nasty, they will ignore it or even contravene it without any qualms of conscience.

Understandably, such an approach has led to frequent disputes between Japanese and American firms. The Americans are well-known for their love of detailed written agreements which guard against all contingencies with legal redress. The Japanese, who have just 10,000 registered lawyers to back them up (as against the US's 300,000), regard contingencies to be force majeure. In such circumstances they will press for the contract to be sensibly reworked and modified at another, doubtless harmonious, meeting.

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