All you need to know about cross-border business

This article has been written by P. Gnanam pursuing Diploma in Banking & Finance Practice: Contracts, Disputes & Recovery and edited by Shashwat Kaushik.

This article has been published by Sneha Mahawar.

Industrially produced goods and services may not always meet the actual needs of society. Instead, they often create new needs and introduce new products into the market. What was once considered a luxury eventually became a necessity. Therefore, industries and commerce are vital to a country’s economy. Trade and commerce involve the exchange of goods and services through business transactions, which create contractual agreements between the parties involved. To regulate such contracts, states have enacted strict rules and regulations to formalise all business activities. This is how the Indian Contract Act of 1872 came into existence.

Download Now

Before enacting the Indian Contract Act, there was no codified law to regulate business activities; contractual relationships were governed by personal laws of different religions’’, like Hinduism and Islam. If any contracts occur among different communities’, a lot of confusion arises about which law prevails between the two. The first codified law was enacted Before the advent of the Indian Contract Act, English law was applied in the Presidency Towns of Madras, Bombay, and Calcutta under the Charter of 1726 issued by King George to the East India Company. This law did not fulfil all the needs for redressal of all issues, such as distinct types of business houses, indemnity, insurance, etc. Under the India Contract Act, two rights are available right in rem and right impersonal.

Cross-border business or transnational business means trade and commercial business being held between two different nations. When the business expands beyond its territory, it must face and find solutions to other challenges like language barriers, legal area issues, managing coordination and shipping, the formation of global contracts, foreign exchange, coordination of goods and insurance, and dispute resolution mechanisms. Therefore, the Contract Act alone is not sufficient to sort out the above issues. The international community found necessary solutions by way of international business treaties.

International organisational support

The United Nations Industrial Development Organisation is one of the wings of the UNO to maintain and regulate international trade and commerce between member countries. present Director of UNIDO, Mr Gerd Müller, describes its goal “My goal is that UNIDO provides concrete and practical solutions to pressing global challenges. Sustainable industrial development can deliver a world without hunger, using sustainable energy for productive activities, and creating jobs, particularly for young people”.

Different countries deal with their currency for transactions, but international trading needs a common exchange system for payment and receipt. The Reserve Bank of India issued some guidance for Cross-border Payments concerning AML limits, etc. In Singapore, the MAS oversees cross-border payments. In Europe, they use the SEPA system and other legislation like PSD2. Hence, there is no uniform way these payments can be regulated.

Landmark case related

Banco National de Cuba vs. Sabbatino (1964)

This case involved a contract dispute between a Cuban national company and an American company. The issue of the case is whether the US Supreme Court shall enforce the payment to a Cuban company, given the political circumstances involving the nationalisation of foreign assets in Cuba. The US Supreme Court, “led by Justice John Marshall Harlan II, applied the act of state doctrine, refusing to declare the expropriation of land a violation of international law due to lack of international consensus. The court also noted that a single court enforcing US law in another country could disrupt sensitive international negotiations”.

English has become a widely used language in international business. However, language barriers can still pose a challenge to effective communication. With the invention of computers, it has become easier to overcome such obstacles. Companies are now providing language classes to their employees, using visual aids, and conducting seminars and conventions to develop cultural knowledge. In some cases, interpreters are also hired to translate important agreements and business treaties.

Cross-border trade and commerce face a significant challenge. Countries need to comply with the rules and regulations of other countries to conduct business with them. The main aspects to consider are the taxation, labour laws, and environmental laws of the respective countries. Developing countries are now offering more relaxed labour laws and tax holidays for certain periods, such as exemptions from paying income tax and local taxes, to attract new foreign investment and create employment opportunities for their citizens. They are also providing land for business and industrial establishments by subsidising subsidy costs and introducing a single window system to provide all necessary approvals.

Leading case law for cross-border juristic obstacles

Hadley vs. Baxendale (1854)

This case is not linked to transnational business but deals with the consequential damage of the breach of contract. The breaching party is liable for all losses the parties to the contract should have predicted. If the breaching party lacks knowledge that the other party has, they’re only liable for foreseeable losses based on available information.

Nowadays, other than perishable goods, all other goods are coordinated by shipping. Whenever seaborne trade began, collation by two ships in the deep sea, losses from pirates, and shipwrecks caused by storms and hurricanes were normal phenomena. Shipping company owners and traders faced huge losses; during this time, entire ships, capitals, and businesses were sunk. Marine insurance has overcome the above difficulties. Contract of indemnity base for insurance, and it was developed as the marine insurance branch of general insurance. Marine and General Insurance Company underwriters of high-volume risk and losses in voyage and shipping underwrite insurance policies individually or collectively by reinsurance mechanisms; even the different insurance policies belonging to different countries share their premiums and perils. Insurers and insurance companies sort out their disputes towards the settlement of claims through international treaties. THE UNCLOS (UNITED NATIONAL CONVENTION OF LAWS OF THE SEA) UNO held a 1958 conference for laws of the sea at Geneva, resulting in four treaties to regulate and streamline the disputes:

This international agreement was signed by the member countries engaging in international trade and commerce and international agreements that establish a legal framework for all marine and maritime activities. The courts also play a key role in the redressal of maritime issues.

Leading case law in maritime issues

The Mary Nour (1989)

In this case, there was a disagreement regarding a time charter party agreement for a ship that was transporting sugar from Brazil to Jordan. The ship encountered several unforeseen events, such as harsh weather conditions and labour strikes, which caused delays. The main issue was whether these events could be considered “frustration of purpose” under the contract. The case focused on the concept of frustration in international shipping contracts and how it affects the obligations of the parties involved.

The common occurrence of business is raising disputes if different opinions arise between the parties’ civil courts and some special tribunal takes a vital role in redressing the dispute. The new developments in national and international business, Alternate Dispute Resolution Methods, Arbitration, and Mediation, play a key role in the redressal of disputes, as none of the “ADR” parties opt for this to save money and time in some important international arbitration forums.

1.     International Court of Arbitration (ICCI-ICA) Paris;

2.     World Intellectual Property Organisation (WIPO);

3.     London Court of International Organisation (LCIA);

4.     Singapore International Arbitration Centre (SIAC);

5.     Hong Kong International Arbitration Centre (HKIAC);

6.     Dubai International Arbitration Centre (DIAC);

Leading case of international arbitration in border business

Bharat Aluminium Co. vs. Kaiser Aluminium Technical Services Inc. (2012)

In this case, the Supreme Court of India affirmatively held as follows:

  1. The Act of 1996 has accepted the territoriality principle, which has been adopted in the UNCITRAL Model Law.
  2. Section 2(2) of the 1996 Act makes a declaration that Part I of the 1996 Act shall apply to all arbitrations that take place within India. Part I of the 1996 Act, therefore, has no application to international commercial arbitrations held outside India. Provisions contained in Section 2(2) of the 1996 Act are not in conflict with any of the provisions, neither of Part I nor of Part II of the 1996 Act.
  3. No application for interim relief in a foreign-seated international commercial arbitration is maintainable, neither under Section 9 of the 1996 Act nor under any other provision of Part I of the 1996 Act.

The world has become smaller due to the improvement in internet connectivity and digital money transactions, which will make it easier to communicate business activities and transfer funds quickly and safely. It can be said that the advancements in web development and artificial intelligence in the past two years have revolutionised not only the business world but also all activities.  However, it is important to acknowledge that these discoveries come with their own set of risks and benefits. The main threat from hackers is data production. Business institutions spend a major part of their earnings on data protection and intellectual property protection from infringements.

The Contract Act has a major role in cross-border business. Even though the world has become a global village, with the rapid expansion of business activities, it is necessary to meet challenges like language barriers, area issues, managing planning and shipping, the formation of global contracts, foreign exchange, the coordination of goods, and dispute resolution mechanisms. Therefore, the Contract Act alone is not sufficient to sort out the above issues.

Students of Lawsikho courses regularly produce writing assignments and work on practical exercises as a part of their coursework and develop themselves in real-life practical skills.

LawSikho has created a telegram group for exchanging legal knowledge, referrals, and various opportunities. You can click on this link and join:

Follow us on Instagram and subscribe to our YouTube channel for more amazing legal content.

Leave a Reply

Your email address will not be published. Required fields are marked *