Sales and purchase agreements (SPAs) in business contracts are often seen as just a set of formal documents that need to be signed and neatly stored in the company’s contract folder. However, did you know that a single sheet of contract paper could determine the fate of your business? Especially if your business operates internationally or involves foreign parties, a simple translation error could land you in unexpected legal trouble.
Let’s dive deeper into why translating SPAs is crucial and explore the steps to keep your business safe!
Why Is Contract Translation Important?
Imagine you’re excited to sign a contract with an international business partner. Everything seems perfect until a dispute arises over the fulfillment of contractual obligations. It turns out the problem isn’t with the business agreement itself but with the contract’s translation!
Contract translation is not just about converting words from one language to another. It’s about understanding the context, legal culture, and technical terms applicable in your business partner’s country.
For example, the English word “warranty” can mean “jaminan” (assurance) in Indonesian, but in certain legal contexts, it could also mean “garansi” (guarantee) or even “pertanggungjawaban” (liability). If your translator misinterprets this, legal issues may become unavoidable.
Legal Risks Due to Contract Misinterpretation
You definitely don’t want your business to suddenly face legal action just because of a translation error in a contract, right?
Here are some legal risks you might encounter:
1. Incorrect Contract Interpretation
If your contract translation is not accurate, both parties might interpret it differently. For example, in an international sales contract, the term “delivery” could mean “shipping of goods” to you, while the other party might understand it as “transfer of ownership.”
In the event of a dispute, the court may interpret the contract according to its original language, and if the translation is inaccurate, you could end up at a disadvantage.
2. Legal Uncertainty
A poorly translated contract can lead to legal uncertainty. For instance, the phrase “within a reasonable time” translated as “as soon as possible” or “immediately” can affect expectations around the timeline for fulfilling contractual obligations.
This ambiguity often opens opportunities for the opposing party to avoid responsibility or, worse, to file a lawsuit against you.
3. Contract Nullification by the Court
In certain jurisdictions, an ambiguous or poorly translated contract may be considered invalid. For example, in Ramos v. Westlake Services, LLC, the California Court of Appeal ruled that a car dealer who translated a sales contract into Spanish but did not include an arbitration clause in the translation could not enforce the arbitration agreement.
Ensuring accurate and precise contract translations is crucial to avoid these legal pitfalls and maintain the integrity of your business agreements.
What Are the Key Components That Must Be Accurately Translated?
Actually, every part of a contract is important to translate accurately, but some components require extra attention:
1. Definitions and Terminology
Most business contracts begin with the definitions of terms used throughout the document. Ensure that these terms are translated consistently across the entire contract. For example, the term “force majeure” in international business law should either remain in its original language or be translated with an equivalent legal meaning in the target language.
2. Rights and Obligations of the Parties Involved
This section is the heart of the contract. Even a slight mistranslation can limit your rights or increase your obligations. For example, the word “shall” in English usually indicates a legal obligation, not just a suggestion.
3. Dispute Resolution Clause
This is where many issues arise. For example, if the original text says arbitration in Singapore but it is translated as “court in Singapore”, this could drastically change the dispute resolution mechanism. Arbitration and formal court proceedings are two very different things in legal processes.
How to Avoid Mistakes in Contract Translation
To avoid legal risks, you can take the following steps:
1. Use Certified Translation Services
Certified translators typically hold special certifications from the government or specific legal institutions. They have a better understanding of legal terminology and know how to accurately translate legal documents. Avoid being tempted by cheap translation services without certification!
2. Consult with Legal Experts
Before signing a contract, it’s a good idea to consult with a lawyer or legal consultant who understands international law or the laws of your business partner’s country. They can help ensure that your contract translation is accurate and free from potential legal issues.
3. Conduct Regular Reviews
Business contracts usually last for the long term. Regularly reviewing the contract translation can help identify sections that may need revisions, especially if there are regulatory changes in your business partner’s country.
The Role of Professional Translators in Avoiding Legal Risks
Why Should You Use a Professional Translator? While automatic translation technology has become increasingly advanced, when it comes to business contracts, the human touch remains irreplaceable.
Here are a few reasons why:
1. Understanding Legal Context and Terminology
A professional translator with legal expertise not only understands the language but also grasps the legal terminology applicable in both countries involved in the contract. This is crucial to avoid misinterpretations that could lead to legal issues.
2. Bridging Cultural and Legal Gaps
Contract translation must also consider cultural differences and legal systems. Professional translators can bridge these gaps while maintaining the accuracy and relevance of the contract within the local legal context.
3. Certification and Legal Validation
In certain jurisdictions, translated legal documents need to be certified by a sworn translator or other authorized parties. Professional translators often hold these qualifications, ensuring that your contract remains legally valid.
Case Study: The Fatal Consequences of Translation Errors
In the banking and finance sector, translation errors can have extremely serious consequences. One well-known case occurred with HSBC in Australia. Due to a simple translation error, the bank suffered a loss of up to $10 million just because of a misinterpretation between “m” for million and “th” for thousand. This mistake not only resulted in financial losses but also damaged the bank’s reputation and public trust in its risk management and compliance systems.
Another equally shocking case involved Merrill Lynch, which lost $500 million in a legal dispute with a South Korean company. An error in translating a contract clause gave the company the right to terminate the agreement, and Merrill Lynch failed to meet the contractual targets. As a result, they became embroiled in a costly and prolonged legal battle.
These cases serve as real examples of how important it is to use professional translation services to ensure that business contract translations are accurate and align with legal contexts.
So, if you run a business that involves foreign parties or contracts in other languages, never underestimate the importance of contract translation. Make sure you use professional translation services and always consult with legal experts. Even a small misstep could lead your business into costly and time-consuming legal risks.
Translating contracts correctly may require additional costs and effort, but trust me, it’s worth it for the legal protection you gain. From now on, let’s pay more attention to every detail of your business contracts to keep your business safe and running smoothly!
References:
https://tarjama.com/how-translation-errors-can-derail-your-banking-business/
https://www.tomedes.com/translator-hub/translation-of-contracts
https://natlawreview.com/article/inaccurate-translation-invalidates-arbitration-agreement
https://www.languageconnections.com/blog/blog-5-ridiculous-contract-translation-mistakes/
