GOVERNING LAW & JURISDICTION
In a transaction with no foreign element involved it will not usually be necessary to specify the system of law which is to govern the transaction or the courts which are to have jurisdiction in the event of a dispute. However, when drafting an International Sale Contract is necessary to set out in the contract both the governing law and jurisdiction – i.e which country’s laws govern the terms of the contract and in which country’s courts will any dispute be finally decided.
The principal foreign element aspects that impact materially on a transaction are:
a) where the parties to the contract are not both based in the same country;
b) where each party only has substantial assets in the country where it is resident;
c) where the transaction is governed by the law of another country, e.g. because it may be considered that the contract was formed in that other country;
d) where the whole or part of the transaction is to be performed in a different country from that in which one or both parties are based.
Where any one or more of these foreign elements are present in International Sales Contracts it will be appropriate for the parties to be precise as to which system of law is to govern the contract, and which country's courts are to have jurisdiction in the event of a dispute.
Simplistically, parties will tend to choose the system of law with which they are familiar, and such a choice of law will generally be respected by the courts of another jurisdiction - subject to matters of public policy and the mandatory laws of that other jurisdiction.
The question of which courts are to have jurisdiction in the event of a dispute, or where perhaps emergency enforcement of a contractual provision is to be sought, is also an issue. The parties may wish to submit to the exclusive jurisdiction of the courts of one country, but this may not be wise where one party has material assets in another country, or it may be necessary to obtain immediate enforcement of contractual obligations in that other country. Also, it is appropriate to consider whether there are reciprocal enforcement rights between separate jurisdictions.
Partly to avoid some of these problems, arbitration is quite often chosen as the method of resolving disputes in international contracts, rather than leaving it to the courts.
A typical governing law and jurisdiction clause in the International Sale Contract is as follows:
The Parties shall exercise their best efforts to resolve by negotiation any dispute, controversy o difference between them arising out or relating to this Contract. If the dispute is not be resolved by direct negotiation, it will be finally settled by legal proceedings in the Courts of the country of the ................. [Seller o Buyer] and, specifically, to those of the town/city where the ................ [Seller or Buyer] has its registered offices, except if the ......................... [Seller or Buyer], if it were the complainant, were to bring its claim before the Courts of the town/city where the other Party has its registered offices.