WHY CHOICE OF LAW IS IMPORTANT IN CROSS BORDER CONTRACTS

Global business means global contracts.  Each of the parties are resident or domiciled in different countries.  As laws and legal language differs from country to country contracts need to reflect language that accommodates and clarifies provisions that might not be familiar in that foreign jurisdiction.  In addition, the cost of litigating in a foreign jurisdiction can exceed all expectations and thus is difficult to quantify.

The choice of law can be dictated by the contract itself, yet the choice of law can also be different than the place chosen for resolution of the dispute.  Thus, a foreign court could be in the position of, for example, an English court interpreting U.S. law.  In this example, parties before an English court are permitted to present experts to assist the court in interpreting U.S. law.  This can become a battle of the experts. 

Where a standard form is used, which is meant to provide a uniform interpretation providing some certainty, however, foreign courts are not necessarily familiar with such universal interpretation and may alter the operation and effect of the underlying agreement.

Contracts provide certainty in business.  Such potential alteration eliminates this certainty and creates risk that is difficult to quantify.  With regard to specific provisions, U.S. courts generally takes a broad view and interpretation of contract provisions and are willing to imply provisions, for example, good faith.  Yet courts in other jurisdictions are not willing to imply what is not spelled out by specific language.  Interpretations also varying with regard to specific legal concepts.  “Gross negligence” is a well-recognized legal concept in U.S. law, however, in England for example, there is no concept of gross negligence, rather this concept is replaced by a notion of serious error or conduct falling significantly short of expectations. 

Whenever possible, check with a lawyer in the foreign jurisdiction to ensure the differences are fully understood and clarified wherever possible.  If possible carefully draft provisions keeping in mind a foreign court may be interpreting the terms should a dispute arise.