20 dec Legal forms and pitfalls of exporting
There is a range of possibilities for the Dutch entrepreneur to implement his or her export strategy. These vary from multiple forms of indirect export to the most direct form: the establishment of a subsidiary based abroad that acts as an independent sales company in that country. What kind of possibilities are there? And is it true that a distributor is outlawed, unlike a commercial agent? What’s the situation in Belgium, in other EU Member States and in the USA? Will there really be an Act in the Netherlands for franchise agreements? And if you ‘only’ sell a machine to an American client do you then have to pay attention to specific legal aspects?
In a rapidly changing world with constantly increasing risks, ‘arranging or documenting nothing’ over and above the pure commercial and technical aspects comes down more and more often to simply burying your head in the sand. This is no longer a responsible way of working. Thinking about the way in which you want to export is important. Whether you want to export occasionally, work with a foreign agent, appoint a distributor or franchisee within our outside of the EU, set up a joint venture abroad, establish your own subsidiary or grant a production licence to a foreign business. Below is a selection from the many examples we encounter in practice.
A) If you don’t document anything then in many cases it means you’ll have to deal with the laws in the buyer’s country – laws that you’ll often be unfamiliar with. That will certainly be the case if it concerns English law or is based on English law (former colonies), or the law of a state in the USA or Canada, where there can regularly be negative surprises when ending the relationship or in the case of liability.
Franchise / distribution / agency
B) It is prudent to pay good attention, even closer to home, such as in Belgium or in the UK in due course, after Brexit. For example, in Belgium there are strict rules for entering into a franchise agreement (even more so than in the potential new franchise legislation in the Netherlands) and there is often clientele compensation that you have to pay to a distributor. On the other hand, possibilities have been recently introduced in Belgium and in other EU Member States to allow occasional deviation from local agency legislation.
C) If arbitration is agreed then it may be prudent to have the Commission evaluate the dispute ‘based on fairness’ and not to simply refer to Dutch law. This depends on the issue of whose interests have to be protected (for example the manufacturer or the distributor).
Sale or purchase agreements in capital letters
D) Your sense of justice is sometimes less in line with a foreign legal system than it is in your own country. For example, did you know that if you wish to limit your liability in a sale or purchase agreement with a client from the USA then that clause must at all costs be written in capital letters? And that the exclusion of client’s ‘consequential damages’ does not simply mean that in the case of liability you don’t have to foot the bill for your client’s lost sales or profit?
Retention of title
E) The retention of title in your general terms and conditions of sale is of no value whatsoever if there are specific registration requirements for being able to exercise that retention of title in the country in which your products are located, even if you have declared Dutch law applicable and have stated that the Dutch courts have jurisdiction in the event of disputes.
F) In many countries (in particular those of which the legal system is based on English law) you are unable to invoke the copyright less quickly in order to protect the design of your products. It is therefore sometimes prudent to (still) organise a design application. A trademark application in the country of the buyer of your product is occasionally more than desirable in order, for example, to prevent your buyer from registering domain names with a country extension using your trade name as a distinctive part of it.
G) A collaboration agreement or shareholders’ agreement for a foreign joint venture has other consideration points, amongst other things because the way the board is managed often deviates from a comparable arrangement in the Netherlands.
In brief, set out the legal basics on one or more pages in any event. The same applies for mirror image situations, for example in the case of an international supply chain in your company. Separate to this, bespoke advice for your product liability insurance is appropriate because you cannot ‘contract out’ this type of liability. The above is of course in addition to the various tax considerations for exporting; a comprehensive approach is highly recommended.
This guest blog about legal forms and pitfalls was written by Roland Heerkens, Partner in the Business Law division at Asselbergs & Klinkhamer (www.ak-advocaten.eu). Roland recently shared his knowledge with staff at Joanknecht in a presentation at our office.