The Importance of Well-Written Contracts

bretton_sciaroniBy Bretton G. Sciaroni

As any lawyer knows, contracts are a critical component of both maintaining the rule of law and managing the day-to-day requirements for doing business. There is not a law school on the planet that doesn’t require first-year law students to plough through the subject. All straight forward and simple, right?

Nonetheless, many business people miss the point that well-written contracts, especially in developing nations such as those in ASEAN, can help avoid a range of problems down the road in any business relationship involving public institutions, private sector entities or even individuals.

This issue gains added importance in light of ASEAN’s establishment of the ASEAN Economic Community (AEC), set to take off this year.

One of the key goals of the AEC is to enhance the flow of goods and services among ASEAN’s member states. Simply put, to increase trade for the benefit of all.

It is expected, therefore, that the private sector will play a lead role in this process and that companies, say from Singapore or Indonesia, will increasingly interact with firms from Vietnam, Cambodia or elsewhere.

While the objectives of the AEC are relatively clear, the process of encouraging greater integration and interaction among member states will present difficulties.

For starters, the legal systems of the member states vary widely, from those that follow a common law system, to those with civil law systems, and countries with hybrids of both.

A well-written contract can help avoid the pitfalls and ambiguities of doing business among players in a region with such social, cultural, political, linguistic and legal diversity. Of similar importance, one ought to be aware of cultural norms when determining the appropriate length of a contract and its content. Businesses in certain ASEAN member states, such as Cambodia, prefer to forge agreements in short form, unlike their counterparts in Singapore who retain a tendency to use long-form contracts.

Moreover, given the relatively weak judicial systems of some ASEAN member states, contracts can outline in specific detail Alternative Dispute Resolution (ADR) mechanisms to be used should a conflict arise. Many commercial contracts include provisions mandating ADR, often specifying the form to be used, which may include arbitration, conciliation, mediation, negotiation, dispute review boards or expert determination.

The Hong Kong International Arbitration Centre and the Singapore International Arbitration Centre are two of the more widely known and respected institutions where cases are heard. However, Indonesia, Malaysia, the Philippines, Thailand and, more recently, Cambodia, have all established institutions that offer various forms of ADR.

International arbitration is generally the preferred method of resolving disputes if it is decided that litigation is not desired.

While arbitration may not always be less expensive than utilising a jurisdiction’s court system, it is usually more expeditious. It also involves a greater level of confidentiality.

Experience in recent decades has also shown that commercial arbitral awards involving cross-border business transactions are more easily enforceable than those rulings provided by courts. In this same vein, it is relevant to note that more than 120 countries have ratified the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.

With contracts including ADR provisions, the documents take on greater importance. They also enhance efficiency and transparency, and they make clear the intentions of all parties.

A tightly written contract with detailed provisions covering a broad range of what is expected from all signatory parties can only add to the development of more beneficial and productive business relationships. Just make sure to read the fine print before you sign.

Bretton G. Sciaroni is the Senior Partner of Sciaroni & Associates, a professional services and investment advisory firm based in Cambodia with offices in Laos and Myanmar

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