Ensuring Enforceable Cross-Border Contracts When Expanding Abroad

Why the international legal environment differs fundamentally from the domestic market

When a business exports goods or services, it finds itself in a situation where the Czech legal system of the Czech Republic is no longer an automatic safeguard. A foreign business partner operates under a different legal system, follows different laws, and in the event of a dispute your case would be decided by a foreign court or arbitration under their rules.

One of the most common mistakes exporters make is assuming that they can agree things as they would at home—that once they agree on the price, they are done. In reality, the opposite is true. The larger and more valuable the transaction, the more crucial the legal details become.

The key difference lies in the choice of law and jurisdiction ( choice of law and jurisdiction ), which determine which laws will interpret the contract and which court or arbitral tribunal will decide. This is not a formality—it is what, in practice, determines whether you will be able to enforce payment, or whether you will spend years grappling with a foreign legal system and court proceedings you do not know at all.

The attorneys at ARROWS, a Prague-based law firm, know their way around these situations—we understand how to structure an international contract properly and how to prevent you from ending up in a legal trap you unintentionally set for yourself.

Legal framework of international trade: how cross-border contracts work

International trade is governed by several layers of the legal system. To understand the complexity, imagine three layers:

Domestic laws of both countries form the first layer of the legal framework. If you export to Germany, you cannot ignore German commercial law. If you export to Singapore, the sale is governed by Singapore law. Each country has its own rules on contract formation, liability for defects, time limits, and penalties.

The second layer consists of international conventions and standards. There are multinational agreements involving dozens of countries. The best known is the CISG (Convention on Contracts for the International Sale of Goods – the Vienna Convention on the International Sale of Goods).

This convention applies automatically to the sale of goods between traders from different countries unless the parties expressly state otherwise in the agreement. It contains rules on contract formation, making and accepting offers, liability for defects, and withdrawal from the contract.

The third layer is the contractual choice of law. Both parties may choose for themselves which legal system will apply. Typically, the law of a legally developed jurisdiction is chosen—for example, English law (common law), Swiss law, or the law of the Czech Republic.

The key point is that you must expressly agree this in the contract text. If you do not, the applicable law will be determined under private international law rules (e.g., under the Rome I Regulation for contractual obligations), which often follow the place of characteristic performance or the seller’s seat—something that may not always be advantageous for you.

The fourth layer is the choice between arbitration and state courts. If the parties agree on arbitration, the dispute is not decided by a state court but by a private arbitrator or tribunal. Arbitration is usually faster, more discreet, and its awards are more readily enforceable abroad thanks to the 1958 New York Convention, which has been signed by many countries worldwide.

The attorneys at ARROWS understand how to connect these layers correctly so that your contract is enforceable where you need it.

Enforceability of obligations abroad: from contract to court resolution

Having a contract is not the same as having payment secured. Enforceability is a long road.

Imagine the situation: You exported goods worth CZK 500,000 to Poland. The business partner took the goods but does not pay. You have a contract. What now?

The first step is reminders and negotiations. Usually, it starts with a payment reminder and negotiations. Without a written demand for payment with a deadline, you will not get any further.

The second step is dispute resolution. Now you choose: a) Will you go to a Polish court? That means you will conduct court proceedings in Poland under Polish rules. It takes months to years. You must hire a Polish lawyer.

Or b) Will you go to arbitration, if you agreed it in the contract? Arbitration is usually faster (months instead of years), but it also tends to be more expensive.

The third step is a court judgment or arbitral award. When you win, you have a decision. But that is still not payment. The decision only gives you the right to enforcement.

The fourth step is enforcement and debt recovery. You now need to enforce the decision in the debtor’s country. This means starting the process again—this time, however, you are the party with an enforceable decision. In the EU, this is relatively straightforward thanks to the Brussels I bis Regulation and other EU regulations that facilitate the recognition and enforcement of judgments, but in countries outside the EU it can be complicated.

In some countries, you must initiate court proceedings again (so-called exequatur proceedings) so that the local court recognises your foreign decision, and only then can you enforce it.

This entire journey takes months, sometimes years, and costs you thousands or tens of thousands of Czech crowns in legal fees.

That is why prevention is 100% better than dealing with the consequences. A properly structured international contract with a clear arbitration clause, well-designed contractual penalties, and regular monitoring of repayments will save you all of this pain. Lawyers from ARROWS advokátní kancelář help exporters precisely with this prevention—we structure contracts so that they are enforceable and so that the debtor is discouraged from defaulting.

Vetting a foreign business partner: what you need to know before you commit

Recently, the owner of an engineering company contacted us as he was about to ship goods worth CZK 2 million to a Turkish company. The Turkish company offered him a decent volume and long-term cooperation. The owner was excited. Fortunately, he approached us before signing the contract.

We requested basic information about the Turkish company. We found that the company was not legally or financially stable— it was not properly registered in the commercial register, it had no verified set of accounts, and the owner had been through several bankruptcies in the past. The owner would have shipped goods to an unknown entity with no certainty of getting his money back.

This is a typical scenario when a business partner is not vetted thoroughly enough.

Here is an overview of what you need to find out about a foreign partner:

• Legal existence and registration: Is it a real legal entity registered in its country’s commercial register? In the EU, registers are generally accessible; outside the EU it is often more difficult.
• Financial health: Are there any enforcement proceedings against the debtor? Are insolvency proceedings pending? Has it sold off its key assets? You need to find all of this out.
• History and reputation: Has the company been involved in legal disputes? Are there court decisions against it? What is its reputation in the industry?
• Ownership structure: Who owns the company? Is it a person or entity on sanctions lists or linked to high-risk jurisdictions?
• Contractual capacity: Is it authorised to enter into contracts in the relevant sector? Is it subject to a regime requiring special permits?

In the EU, there are public registers that are often available online. In countries outside the EU, it is more complex and you usually need to hire a local lawyer to obtain the information for you.

ARROWS lawyers understand how business partners are vetted in different countries and how to interpret the information obtained. We can provide you with a basic legal due diligence review of your partner so that you do not face unforeseen issues.

Arbitration vs. state courts: how to choose the right solution

In international trade, you will often face the question: should we choose arbitration or state courts?

This is not a minor detail. It is a fundamental choice that can cost you millions of Czech crowns and months of time.

Arbitration has the following characteristics:

• It is usually faster (a decision is issued within months up to one year).
• It is more discreet—the process and the decision are not public.
• The decision is easier to enforce abroad thanks to the New York Convention.
• It is generally more expensive (you must pay the arbitrators, venue rental, and an administrative fee).
• You have limited appeal options—the decision is practically final.
• You can choose an arbitrator with expertise in the relevant field (technical, commercial, legal).

State courts are characterised by these aspects:

• They usually take a long time (one to three years, sometimes longer).
• They are public—records are often accessible.
• Appeal mechanisms are available, so you have more chances to overturn the outcome.
• They usually cost less at the outset, but the duration may surprise you.
• They are tied to the local legal tradition and language—if you have limited knowledge of local law, you are at a disadvantage.
• Enforceability of the decision depends on the local enforcement system.

For exporters, arbitration is usually more suitable for higher-value transactions. Arbitration is advantageous for exporters because you can choose the seat (often neutral, such as Zurich, London, or Stockholm), you can choose the arbitrator, and the decision is more readily enforceable abroad.

Lawyers from ARROWS advokátní kancelář will help you set up the contract correctly— with a clear arbitration clause, identification of the arbitration rules (e.g., ICC Arbitration Rules, UNCITRAL Rules), and a definition of jurisdiction.

Security and insurance in international trade: how to protect against risk

Exporting goods worth millions means bearing risks. Not all of them can be solved legally—you need to insure against them or otherwise secure coverage.

Export credit and export insurance are key. State agencies in the Czech Republic—specifically the Czech Export Bank (ČEB)—provide financial services, and the Export Guarantee and Insurance Corporation (EGAP) offers export insurance to protect you against the risk that a foreign partner fails to pay, as well as against political and war risks in the destination country. This is very valuable for a large exporter—you have certainty of repayment even if something goes wrong.

Bank guarantees and letters of credit: If you want to secure payment, you can have your partner’s bank issue a bank guarantee or agree on payment via a letter of credit. This means it is the bank that undertakes to pay you, not the business partner. This increases your security.

Product liability insurance is also important. If you export goods that could cause damage to a third party (for example, a machine with a technical defect), you must have product liability insurance. In many countries, this is mandatory.

Insurance for goods in transit: Goods are at risk during transport – they may spoil, be lost, or be damaged. The carrier usually bears only limited liability. Therefore, you should arrange insurance for the goods (cargo insurance).

The lawyers at ARROWS advokátní kancelář understand how to properly structure insurance and which legal clauses your insurance contract should contain so that you are truly protected. Insurance without the correct legal structure may not help you in the event of a dispute.

International regulation and compliance: customs duties, taxes, embargoes

When you export goods, your legal tasks are not finished. You must comply with a number of administrative obligations:

It is necessary to comply with customs regulations and proper classification. Goods must be correctly classified under the Harmonized Commodity Description and Coding System (HS codes). Incorrect classification exposes you to fines and detention of the goods.

Taxes and VAT: In the EU, the supply of goods to another EU Member State or export outside the EU is exempt from VAT provided certain conditions are met – but you must meet them and properly document them. If you neglect this, the Financial Administration may assess VAT retroactively and impose a penalty.

It is also important to monitor embargoes and controls. If you export to certain countries (for example, Russia, Iran, North Korea), you must comply with international embargoes and sanctions. Breaching an embargo exposes you to substantial fines and criminal liability.

Export control goods: Certain goods (dual-use items, military technologies) are subject to export controls and require a permit. If you export something that requires a licence without having one, you face legal sanctions.

Also pay attention to GDPR and data protection. If you export and share customer data with a foreign partner, you must comply with the GDPR or local data protection rules.

These are all matters that are not legally trivial, and non-compliance can cost you thousands to millions of Czech crowns.

The lawyers at ARROWS are experienced in exporter compliance and will help you set up internal processes so that you are not caught off guard by an inspection by the Financial Administration, the Customs Administration, or export control authorities.

Structure of an international commercial contract: what it must include

A properly structured international contract should include the following key provisions:

• Parties and their registered offices: They must be clearly identified with their official registered office address and legal form (GmbH, Ltd., s.r.o., etc.).
• Subject matter and specifications: What exactly is being sold? What parameters must it meet? What is considered compliance?
• Price and payment terms: What is the price? What is the method and deadline for payment? Can the price be changed? What if there is a delay?
• Delivery and risk: When and where will the goods be handed over? Who will bear the risk in transit? This is usually governed by .
• Liability for defects: For how long is the seller obliged to guarantee quality? What remedies are available? Can the buyer return the goods?
• Choice of law: Which national law will govern the interpretation of the contract? Typically English, Swiss, German, or Czech.
• Dispute resolution: Arbitration or state courts? Which arbitration rules? Where will the matter be resolved?
• Liability and mandatory insurance: What liability does the seller have for damages? What scope of insurance?
• Confidentiality and intellectual property: If the contract includes licensing elements or confidential know-how, this must be clearly defined.
• Boilerplate provisions: How can the contract be amended? How long does it last? How is it terminated? What if force majeure occurs (war, pandemic)?

A contract that lacks these elements can only be treated as a preliminary agreement, not as a legally binding commitment. In the event of discrepancies, you lack a legal basis and both parties can simply interpret the agreement in their own way.

The lawyers at ARROWS advokátní kancelář will prepare international commercial contracts for you that cover all of these elements and provide you with legal certainty.

Final summary

Export trade brings opportunity, but also legal complexity that cannot be ignored. Properly structured legal protection is not a cost—it is an investment in the security of your transactions and assets.

Key points you should focus on:

• Every international contract must clearly specify the choice of law and the dispute resolution method. Without this, you end up in legal uncertainty when problems arise.
• Due diligence of a foreign business partner is essential. If millions are at stake, you should know who you are dealing with.
• Arbitration is usually more suitable for exporters than state courts – it is faster and more readily enforceable abroad.
• Compliance (customs, taxes, embargoes, export controls) is not a formality – breaches can lead to fines and criminal liability.
• Insurance and security (export insurance, bank guarantees, cargo insurance) protect you against risks that cannot be solved purely through legal means.

If you are dealing with these issues or planning to expand abroad, it will not be just about legal templates—it will be about the future of your business. Our attorneys in Prague at ARROWS have deep experience in international trade and can help you not only draft contracts, but also set up the entire legal framework for your export activities.

Contact us at consultation@arws.cz – we will advise you on which steps are most important for your situation.

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