Across the Border, Between the Lines: Contracting With U.S. Businesses

Cross-border business relationships can create valuable opportunities for Alberta companies. Access to new customers, suppliers, distributors, technology providers, and strategic partners may help a business expand beyond the Canadian market.

However, a contract between an Alberta business and a U.S. company involves more than adapting a standard domestic agreement. The parties may operate under different legal systems, use different currencies, face separate tax and regulatory obligations, and have very different expectations about how disputes will be addressed.

A carefully structured written agreement can clarify these issues before goods, services, money, or confidential information begin moving across the border.

Identify the Correct Contracting Parties

The first step is confirming exactly who is entering the agreement. A business name used in emails, on a website, or in marketing materials may not be the legal name of the corporation or limited liability company responsible for performing the contract.

The agreement should identify each party’s full legal name, jurisdiction of formation, business address, and organizational structure. It may also be appropriate to confirm whether the person signing the agreement has authority to bind the organization.

Corporate structures can differ significantly between Canada and the United States. For example, a U.S. limited liability company may be treated differently for Canadian and American tax purposes. The contracting structure should therefore be considered alongside the broader tax and operational arrangement.

Choose the Governing Law

A governing law clause identifies which jurisdiction’s laws will be used to interpret the contract. Without a clear clause, the parties may first have to determine which legal system applies before addressing the substance of a disagreement.

An Alberta business may prefer the laws of Alberta and the applicable federal laws of Canada. A U.S. company may instead propose the law of the state where it is incorporated or maintains its principal office.

This issue should not be treated as routine wording. Contract law, limitation periods, available remedies, implied obligations, and rules of interpretation can vary between Alberta and individual U.S. states. The chosen law should be assessed in the context of the transaction and the locations where the agreement will be performed.

Decide Where Disputes Will Be Resolved

Governing law and dispute location are related, but they are not the same. A contract could theoretically be governed by Alberta law while requiring proceedings to take place in a U.S. court.

A forum selection clause may identify the courts that will hear a dispute. The parties should specify whether that jurisdiction is exclusive or whether proceedings may also be brought elsewhere. Canadian courts generally give significant weight to valid forum selection clauses in commercial agreements, although enforceability can depend on the contract and surrounding circumstances.

The parties may alternatively choose arbitration. Arbitration provisions can address the location of the hearing, applicable rules, number of arbitrators, language of the proceeding, allocation of costs, and method for enforcing an award. The practical expense of sending witnesses, records, and representatives across the border should be considered when selecting a dispute process.

Consider Whether the CISG Applies

Contracts involving the international sale of goods may be affected by the United Nations Convention on Contracts for the International Sale of Goods, commonly known as the CISG. Canada and the United States are contracting states, and the CISG addresses matters such as contract formation, buyer and seller obligations, and remedies for non-performance.

The CISG does not apply to every cross-border arrangement. Its relevance depends on factors including the type of transaction and the locations of the parties. Contracts for services, licensing, employment, and certain other transactions may fall outside its scope.

Parties to an international sale of goods may also address whether the CISG is intended to govern or is expressly excluded. Simply selecting Alberta law or the law of a U.S. state may not always provide the desired level of clarity because the CISG forms part of the applicable sales law in participating jurisdictions.

Define Payment and Currency Terms

A contract should state whether prices are expressed in Canadian or U.S. dollars. Using only a dollar sign can create ambiguity, particularly where invoices, deposits, refunds, or damages may be calculated in either currency.

Payment provisions may also address exchange-rate fluctuations, banking charges, wire-transfer fees, payment deadlines, interest on overdue amounts, deposits, holdbacks, and the consequences of a disputed invoice.

The agreement should identify which party bears the cost of currency conversion and when the exchange rate will be determined. For longer-term contracts, the parties may consider a pricing adjustment mechanism if exchange-rate movements could materially affect the economics of the arrangement.

Allocate Shipping, Customs, and Delivery Responsibilities

Contracts involving physical goods should identify who is responsible for shipping, insurance, customs documentation, brokerage fees, tariffs, duties, and taxes. The agreement should also state when risk of loss and title to the goods transfer from the seller to the buyer.

Delivery wording should be precise. References to recognized trade terms can help define responsibilities, but those terms should be incorporated consistently and should identify the applicable version of the rules.

The parties may also need to address rejected shipments, inspection rights, damaged products, customs delays, product returns, storage charges, and the consequences of a border closure or regulatory hold.

Address Tax and Withholding Obligations

Cross-border contracts can create Canadian and U.S. tax considerations for both parties. Relevant questions may include where services are performed, whether a party is carrying on business in another country, whether a permanent establishment is created, and whether sales or indirect taxes must be collected.

Under Canadian rules, payments to a non-resident for services provided in Canada may generally be subject to 15 percent withholding, although treaty relief, waivers, or other rules may affect the final result.

Business Profits and Permanent Establishments

The Canada-U.S. tax treaty also contains rules addressing business profits and permanent establishments. Tax treatment often depends on the specific activities, organizational structure, and location of personnel involved in the transaction.

A contract can allocate responsibility for taxes, reporting, documentation, and withholding. However, contractual wording does not necessarily override obligations imposed by tax authorities.

Protect Intellectual Property and Confidential Information

Cross-border projects frequently involve the exchange of software, designs, customer information, technical processes, branding, data, or other commercially sensitive material.

The agreement should distinguish between intellectual property that existed before the relationship and material created during the project. It should explain who owns newly developed work, what licences are granted, where those licences apply, and whether sublicensing or modification is permitted.

Confidentiality provisions may define protected information, permitted uses, required security measures, disclosure exceptions, and obligations when the relationship ends. The parties should also consider whether privacy, cybersecurity, data-location, or breach-notification requirements apply in either country.

Plan for Regulatory Differences

A product or service that may be lawfully sold in Alberta is not automatically compliant in every U.S. state. Depending on the industry, cross-border arrangements may engage rules relating to product labelling, consumer protection, advertising, competition, professional licensing, export controls, sanctions, privacy, employment, or environmental standards.

Contracts may require each party to maintain specified licences, permits, registrations, or insurance. They can also allocate responsibility for monitoring regulatory changes and responding to investigations, recalls, complaints, or reporting obligations.

Representations and warranties should be drafted carefully. A broad promise to comply with “all laws” may create uncertainty when the parties operate in multiple jurisdictions and do not control every aspect of the transaction.

Prepare for Delays and Unexpected Events

Cross-border performance can be disrupted by customs delays, transportation interruptions, supply shortages, regulatory changes, labour disputes, severe weather, tariffs, or government restrictions.

A force majeure clause can identify events that may excuse or delay performance. It should also outline notice requirements, mitigation obligations, payment consequences, and any right to terminate if disruption continues beyond a specified period.

Termination provisions should address what happens to outstanding orders, deposits, confidential information, licences, customer data, inventory, and unpaid invoices. These details can be particularly important when assets and records are located in different countries.

Build the Contract Around the Transaction

A cross-border contract should reflect how the business relationship will actually operate. Templates developed for domestic transactions may not adequately address currency, governing law, international sales rules, customs, withholding taxes, regulatory compliance, or enforcement across jurisdictions.

Before signing, the parties may benefit from mapping the full transaction, including where work will occur, where goods will travel, how payments will be made, what information will be exchanged, and where the other party’s assets are located.

Clear drafting cannot eliminate every commercial risk. It can, however, establish common expectations and provide a structured process for responding when performance does not proceed as planned.

DBB Law: Reliable Cross-Border Contract Guidance for Alberta Businesses

Alberta businesses entering agreements with U.S. customers, suppliers, distributors, service providers, and commercial partners may face legal and operational issues that are not present in domestic transactions.

The business lawyers at DBB Law advise Alberta companies on drafting, reviewing, and negotiating cross-border commercial contracts, including governing law provisions, dispute resolution clauses, payment terms, intellectual property protections, confidentiality obligations, risk allocation, and termination rights. Contact us online or call 403-265-7777 to discuss a proposed Canada-U.S. agreement and the contractual issues affecting your transaction.