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.
Arbitration is often a choice made by those who find the court systems to be too out of their control and costly. In arbitration, those who are having the unsettled dispute can either test their case before heading to court with non-binding arbitration or forgo the court system entirely and agree to binding arbitration. For these reasons and more, arbitration clauses are written into many business contracts leading those who are forming the contract to believe that they will have more control of the process if an unresolvable dispute or breach of contract is to occur. Whilst choosing arbitration for domestic business contracts may make sense, in cases where arbitration is chose by businesses located in or operating in different countries, it is often more complex and governed by more sets of laws than one would have anticipated.
Whilst almost all contracts contain an express choice of law clause in the case of a contractual dispute, the parties often fail to choice a seat of arbitration. Many will think that the express choice of law clause will cover the entirety of the contract, including the arbitration clause, but this is not the case. The arbitration clause is read as a contract on its own and therefore must also have the seat of arbitration defined. The seat of arbitration determines the procedural law of the arbitration. Procedural laws of arbitration differ from country to country and can be researched by examining the national arbitral laws of each given state. National arbitral laws can override procedural laws set out in contract, so choosing and agreeing upon the seat of arbitration is important for retaining the idea of arbitration that was agreed upon.
In the UK, the courts have given guidance as to what to do when determining where the seat of arbitration is to be. The court determined that there are three ways in which the seat of arbitration can be found: 1) it is expressed in the arbitration clause in the contract, 2) it is implied or 3) the system of law with which the arbitration agreement has the closest and most real connection. The court will consider the express choice of law clause as the evidence of the intention of the parties but it is not decisive.
If your business is contracting with a foreign business and you require assistance in drafting contracts, please contact us for help.