What do I need to consider before having business dealings with foreign companies?

There are many elements of consideration when it comes to conducting business deals with a foreign company. Depending on the rules that apply, the result of each process may differ, such as the negotiation phase, concluding a contract, executing the transaction and dealing with breach of contract.

Conducting Due Diligence

Due Diligence, in the context of conducting business deals, is an inspection process to confirm the legitimacy of certain matters or details of a transaction. For example, in the context of conducting a business with a foreign company, you may want to check whether the prospective business partner is a company that is duly registered in the company’s registry in that foreign country.

The Governing Law of the contract

The choice of law that governs the contract will directly affect the types of remedies that a party may be entitled to. Also, where there are ambiguities within the contract, the governing rules of the contract will determine how the contract should be interpreted.

Dispute Resolution & Jurisdictional Clauses

In a business transaction, conflicts are bound to arise and it is common for businesses to litigate or arbitrate on contractual matters. Some businesses may wish to resolve their matters in arbitration, as the award may be enforced in multiple jurisdictions. Some companies may choose litigation as the hearing is public and hence there are more transparency and accountability in the entire process.

• Example
  • If a Hong Kong company is conducting business with a Singaporean Company, they may choose to go to resolve their disputes under arbitration if their contract permits such a method of dispute resolution. Both Hong Kong and Singapore are parties to the New York Convention, hence, the award rendered in either jurisdiction will generally be enforceable. It may only be set aside under very limited circumstances. See Article V of the New York Convention for more information on grounds to set aside an award.

Regulatory Concerns

Generally, there are no restrictions on doing business with foreign companies. There are several restrictions under United Nations Ordinance that prohibit businesses from Hong Kong to conduct business in several jurisdictions (Cap. 537). The complete list of sanctions is available on the Hong Kong e-Legislation website. Also, if you plan to acquire investment abroad, it is best that you consult a local lawyer on the relevant protections that you may get as a foreign investor.

Key Takeaways

• You may need to conduct due diligence to confirm the legitimacy of the foreign company that you would like to work with.
• It is best that you consult a local lawyer regarding regulations on acquiring and maintaining foreign investment.
• The law governing the contract, jurisdiction clauses of the contract have a huge bearing on the operation of the contract.

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