Whilst such contracts offer growth opportunities, they also bring with them legal, regulatory and practical risks not present in purely domestic deals. Understanding these risks is a key consideration for businesses who envisage doing business beyond the southern tip of Africa.
This article outlines (in summated terms) key legal considerations for those involved in the negotiation and drafting of cross-border commercial contracts.
2. Legal and Regulatory Frameworks
Exchange Control
South Africa’s Reserve Bank governs cross-border movement of funds. Prior to payments, foreign investment, or repatriation of profits, the obligations brought about by so-called “Exchange Control” must be satisfied. Failure to do so can result in penalties or even the invalidation of contractual obligations.
Customs, Import/Export Controls and Tariffs
Where goods cross national borders, contractual terms must account for duties, import/export restrictions, certificates of origin, shipping logistics and compliance with foreign regulatory standards.
Taxation and Duties
Cross‐border contracts trigger tax issues: withholding tax, VAT implications, double taxation, transfer pricing rules. Both South African and foreign tax laws must be examined to avoid unexpected liabilities. Contractual clauses should provide for allocation of tax burdens where possible.
Foreign Law and Public Policy Constraints
While parties may choose a foreign law to govern a contract, there may be mandatory local laws in South Africa (or in the foreign jurisdiction) that cannot be overridden—such as laws related to consumer protection, competition, labour, or environmental standards.
3. Choice of Governing Law and Jurisdiction
One of the most critical elements of a cross‐border contract is the choice of governing law and jurisdiction (or alternative dispute resolution).
Governing Law
What law will interpret the contract, enforce obligations, define rights? It is advisable to make this explicit. For South African parties, choosing South African law may provide familiarity and certainty; choosing foreign law may offer neutrality, predictability or alignment with foreign counterparties.
Jurisdiction vs Dispute Resolution:
Which courts or arbitration forum will hear disputes? Many cross‐border contracts include arbitration clauses because arbitral awards are often more practically enforceable across jurisdictions.
4. Risk Allocation in Contract Drafting
When drafting contracts, special attention should be paid to how risk is allocated. Key clauses include:
Force Majeure / Hardship
What events release or modify obligations?
Currency and Payment Terms
Cross‐border payments are exposed to exchange rates, bank charges, and transfer delays. Provisions for payment in hard (stable) currency, or price‐adjustment clauses, may be prudent.
Termination and Exit
What triggers ending the contract (breach, insolvency, change in law)? What are notice and remedy provisions? Issues of cross‐jurisdiction enforcement need clarity.
Intellectual Property
If intellectual property is licensed or transferred, it is often important to specify ownership, cross‐border registration requirements and any licensing terms arising from the contract.
5. Due Diligence and Counterparty Assessment
Before entering into binding contract s with foreign parties, it is critical that the legal capacity and reputation of any foreign counterparties be assessed.
The aforegoing assessment may be bolstered by investigating the foreign parties’ jurisdiction’s regulatory environment, enforcement record, political and economic stability.
6. Ensuring Enforceability
Contracts are useful if they are enforceable. It is thus critical to confirm the validity of key contractual clauses under local laws in jurisdictions where performance or enforcement may occur.
7. Managing Practical and Commercial Risks
Beyond strictly legal issues, practical considerations matter. It is important to take special cognisance of cultural, language, communication differences. The effectiveness of regulators and any localised challenges relating to logistics, supply chain and/or reporting efficiencies should all be considered.
8. Conclusion
Cross-border commercial contract present both opportunity and complexity. For South African entities, careful planning, rigorous due diligence, precise drafting and foresight around dispute resolution and enforceability are not optional but essential. Engaging legal advisors familiar with both South African law and relevant foreign jurisdictions early in the negotiation process can help ensure that contracts are robust, transparent, and aligned with the party’s risk appetite.
