Jurisdiction and international contracts

Cross-border contracts can involve multiple businesses which operate in entirely different legal systems. Not only might the primary contracting parties be based in two different countries but performance of the contract could take place in a third country, making matters even more complicated. This makes it all the more important to decide under which legal system the contract is governed.

A governing clause expressly sets out the choice of law which applies to the contract, eliminating the need for any preliminary arguments about which country's laws should be used when interpreting the contract. These types of clauses are known as 'boilerplate' clauses and are standard in almost every contract and are usually set out towards the end of the agreement.

While a governing law clause determines which country's laws apply to an international contract, a jurisdiction clause specifies which country's courts should hear a dispute. Including a jurisdiction clause helps to avoid preliminary battles to decide where a case should be litigated or the situation of parallel litigation in multiple jurisdictions.

Jurisdiction clauses are often 'exclusive' or 'non-exclusive'; the former means that only the specified courts can hear a case, whereas the latter means that the specified courts can hear a case but the parties can also litigate in other courts.

Governing law and jurisdiction clauses may ultimately change the way an international contract is interpreted and enforced (ie in line with the laws of a specific country or in accordance with the precedents by which a certain court is bound). Therefore, careful attention should be paid to the wording of such clauses to ensure there is no room for ambiguity. Furthermore, reference to any country-specific laws should be avoided unless they pertain to the agreed governing law. It is useful to Ask a lawyer for advice on drafting international contracts.

When considering which governing law or jurisdiction to include in an international contract, it is necessary to understand the implications of relying upon the laws or courts of different countries. The key deciding factor should be what best serves your interests in the contract; on occasion this may be the legal system of the other party to the contract rather than your own, or even a completely different country. It is useful to Ask a lawyer for advice on governing law and jurisdiction clauses.

International contracts will sometimes include an arbitration clause. Arbitration is a form of Alternative Dispute Resolution (ADR) which can help to resolve a commercial dispute without the need for litigation, thereby avoiding going to court and tackling the ensuing jurisdictional or governing law issues altogether.