Businesses must be aware of the legal system which operates in particular overseas markets as this may have important implications for legal agreements and contracts and their enforceability. Three basic types of legal system are in use globally:
System is based on tradition, precedent and usage as practiced in Australia, UK, USA and many Commonwealth countries. Business contracts tend to be lengthy to accommodate possible contingencies and interpretations. However there is flexibility which takes into account particular situations and circumstances.
System is based on a detailed set of written rules and statutes which constitute a legal code. It is practised in Western Europe and throughout Asia & Africa. Because all laws are codified and concise, parties to contracts are concerned with explicit wordings. This system is less adversarial than common law.
Legal tradition is based on religious teachings such as Islamic and Jewish. Businesses which operate in such countries must be extremely sensitive to local cultural values and beliefs and all activities must comply with local laws and traditions.
Whichever legal system is operating businesses must be aware of the enforceability of agreements such as those relating to confidentiality and sales contracts. Enforcing a contract may be a very expensive option and may involve arbitration. The International Commission on Arbitration is responsible for the settlement of commercial disputes and the legal and procedural aspects of arbitration.
The most commonly used rules for the interpretation of trading terms are those set down by the International Chamber of Commerce and are known as Incoterms. They establish clearrules as to where the responsibilities of exporters and importers lie in relation to sales contracts.