International Contracts- How Do I Choose What Law Applies?

When doing international business, the contract is critical. It sets out your relationship, rights, responsibilities and what to do if things go wrong.

However, contracts don’t exist in a vacuum. The interpretation and effect of the terms may differ depending upon which country’s laws govern them.

Definitions, damages and even the duration of your contract may vary significantly under different legal systems.

Deciding which law will regulate your contracts is therefore critical when you go global in order to maximise your profit, minimise your risk and help you do business more efficiently.

Here are our three Cs to consider when choosing the governing law for your international business contracts.

1. Cost

At every stage of your contract’s lifecycle, from negotiation to business as usual, to enforcement on a contractual dispute, it is wise to consider the costs associated with your choice of law.

During negotiations, you can avoid those nasty ‘how much?!’ bills by choosing a legal system that you’re familiar with. Knowing the procedural aspects, applicable legislation and typical cost of preparing a decent robust contract beforehand will enable you to budget and stick to it.

When enforcing the contract, costs can be substantially reduced by choosing the same jurisdiction as the asset is located in, or where the service is provided. This can avoid the complexity and associated costs of navigating foreign procedures.

If your contract does end up in court, costs can vary considerably across different country’s court systems. Ensuring consistency between the governing law and jurisdictional clause (which states which country’s court system will be used in litigation) can avoid lengthy and expensive disputes. Considering disclosure rules, follow on costs, rules of evidence, specialist courts and the speed of court proceedings from the outset is also important for your financials.

2. Certainty

One of the main reasons why parties insert a governing law is to achieve legal certainty. It therefore makes sense to choose a legal system which is known for certainty and predictability.

By choosing a system with an established body of precedents and well-reasoned decisions, you can assess your rights and responsibilities with confidence.

3. Commerciality

You should consider choosing a legal system that speaks your language, and the language of international business.

Does your chosen legal system respect party autonomy and freedom of contract?

Are the laws known for promoting a pro-business approach?

Is the court system accessible to foreign businesses and experienced in cross-border business matters?

Choosing to conclude your contract in a legal system that supports the needs of modern commerce and evolves with current market practice is more likely to set you up for future success.