Governing Law (Does the Contract do what it says on the Tin?)

mirkwood evans vincent pen on paper contract indemnities

Why not just give in when a customer or supplier wants a contract to be governed by the laws of the country they are based in?

Well it might work and it might not, and whilst this is not an exhaustive list, here are a few things to think about…..

1. The Biggest Show in Town Problem
If you are contracting with a big player in a particular country, or where you are submitting to the courts of a city or state where your contracting partner is the biggest employer/ a highly respected company, just think about whether you will get a fair hearing if it all ends in tears. Depending on the country and the industry sector, think about the likelihood that the directors of the business you are contracting with may have high-level government or judicial connections. That does not necessarily mean that the legal system is going to be corrupt in that country, but it may make it harder for a judge to consider your position fairly vs the position of individuals s/he plays tennis with.

2. Common Law vs Civil Law
Contracts subject to the law of a civil law jurisdiction may be noticeably shorter than contracts subject to the laws of a common law jurisdiction……but that is because in a civil law jurisdiction, the law is codified and a lot of the legal “stuff”, which you see in a contract under the laws of a common law jurisdiction, is implied. The problem may be that you will not know what exactly is incorporated into the “implied” terms unless you have a very good idea of the local laws…..and that means getting the opinion of local counsel, which may be costly and time consuming. Just because ordinary commercial contracts are more likely to “do what it says on the tin” if they are subject to the laws of a common law jurisdiction, I am inclined to recommend to clients laws of England, New York, Singapore, Hong Kong, Australia, New Zealand, South Africa. I tend not to recommend laws of India, even though it is a common law jurisdiction, just because there can be quite horrendous delays in the Indian court system. Many countries have a hybrid legal system, incorporating elements from both common law and civil law traditions. Again, my advice would be to treat the laws of such countries with respectful distance unless you have access to good cost effective local legal support.

3. Will the Courts Accept Jurisdiction?
Swiss law often seems to be a popular option when business clients choose a “neutral” law. It is never my preferred choice because Switzerland is not a common law jurisdiction. Be aware also that the Swiss courts will typically refuse jurisdiction when neither party is a Swiss company/national.

4. Jurisdiction of the Courts
Even if the parties have a contract under the laws of country X and refer disputes to the courts of country X, the body of law known as “conflicts of law” may have the disconcerting effect of referring jurisdiction to a foreign court Y. Whilst it is wrong to trivialize the body of law and the international conventions applicable in each country, which govern how such decisions are made, it is wise to opt out of anything which might look like a “defendant plays at home” principle or even just risk that if a dispute does arise, you end up in endless (and costly) jurisdictional border skirmishes, which never allow the parties to fight about the meat of their dispute. Therefore if you want the courts of a particular country to have jurisdiction over disputes in your contract, then (a) make clear that your chosen law applies “without reference to its conflict of law principles” and then (b) make absolutely clear that both parties “submit irrevocably to the jurisdiction of the courts of [country], and that neither party will contest the selection of the courts of [country] on grounds of forum non conveniens or at all”.

5. Rules and Regulations that You Cannot Opt Out Of
Whichever law you choose to govern your contract, depending on the nature of the contract, there will be certain rules and laws which you cannot contract out of, and therefore you need to have an understanding of the key regulations which apply in the country where services are being delivered or enjoyed; or formalities which apply in relation to the sale of businesses and/or real property. If you are buying or selling shares or assets in a business, or are involved in the purchase or sale of land, then good local legal advice is essential and not a luxury. Think also about telecommunications regulations if you are involved in the sale of technology services. Think also about privacy laws, financial services regulations and employment laws, if these might be applicable to any local transaction you are considering.

6. Arbitration
Where there is a contract between parties based in different jurisdictions, international arbitration is typically a good option. (See our blog of 19th October 2015 entitled Arbitration vs Litigation for further information).

If you would like advice about governing law, jurisdiction for disputes or arbitration vs litigation, please contact