Governing Law – get advice before you commit

12th December 2018

As a general principle, contracts made between parties incorporated and resident in the same country, governing activities to be executed exclusively within that country, will fall to be governed by and construed in accordance with the law of that country.

The parties are usually free to provide for a different system of law in these circumstances, but what is the point?

However, the choice of applicable law becomes very relevant when the parties are of different nationalities or residence, or where obligations are to be performed in another country. In these circumstances, there are legal principles that can be applied to determine what should be the applicable law, but in the interests of certainty, the parties should agree what it is to be.

The choice of law may be determined by the relative commercial strengths of the parties; a France-based international manufacturer of aircraft with a US$ multibillion turnover is unlikely to agree on English law at the request of a two-person subcontractor in Devon.

International contracts are more often than not in the English language, irrespective of nationality of the parties and applicable law. Over the years, English law has shown a tremendous capacity to evolve to reflect changing circumstances, practices, and values. Our court system is second to none and our profession has centuries of experience of high value international trade.

The use of the English language does not automatically mean English law will apply. Irrespective of nationality, the first clause to be looked for and considered has to be the applicable law clause. This clause determines where you need to seek legal advice on the effect of the contract.

We often receive requests for advice on contracts in a form arrived at after a long process of negotiation, but which need to be signed as soon as possible. If the applicable law is English, we are readily able to provide the advice.

If the applicable law is not English, there is a choice: we can advise on the contract on the basis that it is in fact subject to English law, or we can seek advice from other lawyers admitted to practice in the relevant jurisdiction.

The first, although often useful, does not fully meet the client’s requirements and can be a high risk strategy: for example, there are fundamental differences of principle between systems based on English Common Law on the one hand and the Roman Law based systems elsewhere in Europe on the other. The second approach is what is needed and there will be an inevitable delay while we seek the advice from a competent source.

Best practice is therefore to contact your solicitor at the beginning of negotiations if there is any question of the applicable law being other than English, so that an experienced lawyer admitted to practice in the relevant jurisdiction can be instructed in good time.

Not only are there differences of legal principles in different jurisdictions, but there may also be differences in procedure should disputes arise. That issue will be the subject of a later article. For advice or further expertise, contact David Ashcroft on 01432 349670 or at [email protected]

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