THE KOSLOW REPORT

Vol. 1; No. 7, October 2011

BUILDING AND MAINTAINING AN INTERNATIONAL
IN-HOUSE LEGAL PRACTICE

PART 2 OF 2

By:  LAWRENCE E. KOSLOW

In the last Report we examined some of the critical issues relating to building an international in-house legal practice. These included: (1) how a company perceives its role in the international marketplace and; (2) what are the means by which the company sells its products and services and, how it obtains its revenues. In this Report we will consider some critical issues associated with building and operating the international legal function.

MANAGING INTERNATIONAL LEGAL AFFAIRS
 

1. If your company has significant international sales, but no in-house international lawyers, consider the following:
    
   • Determine if one or more of your existing lawyers would like to play that role. Provide training.
      
   • Develop an international paralegal function. Train paralegals to understand international commercial law including an understanding of foreign trade policies; importing and exporting; INCOTERMS, and the legalization of documents crossing national boundaries - especially the Apostille.
      
   • Decide how much international work the Department can do and how much it should act like a traffic cop. Consider hiring a semi-retired international attorney on a part time basis.
      
   • Develop a solid contact with an international lawyer or law firm in your home community. Give them some work from time to time so you can get their attention when needed.
      
   • Develop a list of attorneys/firms in countries that you do business in or are likely to do business in, so you/they will be ready when you need them.
      
2. If your company has one or more international attorneys, consider the following:
    
   • Have these attorneys each responsible for their own budget.
      
   • Use these attorneys to provide in-house preventative law training on key international issues. For example, the Foreign Corrupt Practices Act (FCPA).
      
   • If you have more than one attorney, have them specialize by division and/or geography depending on their expertise.
      
   • Consider having these attorneys report both to the head of the division or geography and to the General Counsel. If international operations and/or sales are a key part of your business, consider making one of your international attorneys your General Counsel.
      

BUILDING AN UNDERSTANDING OF THE DIFFERENCES BETWEEN COMMON AND CIVIL LAW AND OTHER UNIQUE LEGAL SYSTEMS AND CONVENTIONS

All U.S. lawyers understand our Common Law System that is based primarily on past judicial opinions. These opinions are generally interpreted from legislation which is often looked on as more of a guide than a literal requirement of the law. Thus the law is built over time and is constantly changing with new court decisions. However, the Common Law system will almost always honor contracts unless they are very poorly drafted. The United States and The United Kingdom and their former colonies follow common law.

In Civil Law, the legal system is based upon legal principles and written codes usually developed from laws of the Roman Empire. Any updates from the Codes must be made by legislation or other lengthy processes. The role of the Courts is to enforce the laws with minimal interpretation. France, Germany and Spain and their former colonies follow civil law.

Another example of a unique legal system is the Chinese, where law which is in a fluid state of development as the legal system is in the process of being separated from the influence of the Chinese Communist Party. As a result the system is still lacking in neutrality and complexity .

One attempt to create a viable international system for most international business agreements is the U.N. Convention on Contracts for the Sale of Goods (CISG). Adopted now by over 70 countries, it sets up rules that govern the rights and obligations of the parties to international sales contracts. Once accepted by both parties the contract in question can be brought to a court of any national signatory for interpretation and resolution of disputes. While a significant advance, most parties that use complex contracts still prefer to develop and implement their own contract terms and conditions. Because of the requirements of the U.N. Convention, be sure you formally "opt-out" of the CISG by a written notice if you are not going to use the Convention.

LEARN TO APPRECIATE AND APPLY THE OPERATIONAL CODE

Even a mediocre lawyer may know the written law but it takes a good lawyer to understand the operational code. The operational code is the combination of written and unwritten rules and practices that determine what can and cannot be done in a particular country at a given point of time. In the international environment, understanding the operational code in the key countries where your Company does business can place you at a distinct advantage over both the government and your competitors.

Virtually all laws, decrees, regulations, and directives are subject to some interpretation. The degree of interpretation will depend on the subject matter of the law and the country. While many developing countries will develop strict interpretations of nearly all commercial laws, some countries like the U.S.A. are known for the broad authority to make situational exceptions to their tax and immigration laws.

An example of the Operational Code works is how the government of Mexico treated foreign based informatics (computer) companies in the 1980's and 1990's. In the 1980's, a major U.S. based Computer Company asked the Mexican government for an exception to the 49 percent foreign ownership rule. The government eventually said yes but only after requiring the company to locate its plant in a rural area and agree that they would sell part of the company to Mexicans within five years. In the 1990's, another major computer company asked for a total exception to the 49% rule and received an approval without any additional considerations.

Both companies had good lawyers and other professionals. The difference was that, in 1980s oil prices were high and Mexico was undergoing a major expansion. By the early 1990's, oil prices had declined substantially and Mexico was mired in the global monetary debt crisis.

It is a wise company that has its in-house legal staff learn to understand and use the operational code and to seek in-country lawyers and other advisors who know how the operational code works. They should always remember that in many cases, knowledge of the written law is only the beginning of the total legal equation.

©Koslow & Associates, 2011