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20th June 2019

Choosing the law for your contracts

David Patterson looks at the factors that are most important to business people when choosing the law and jurisdiction to be applied to their contracts.

The Chancellor of the High Court of England & Wales, Sir Geoffrey Vos, recently gave his views as to the above during the course of seminars in Germany.  The seminars also focused on the future for the UK’s jurisdiction and English law after Brexit, and technology in the law, including Smart Contracts and AI.

What is the choice?

In some contracts the choice of law will not be up for negotiation.  The Chancellor gave the example of investment in real property in China: PRC law would apply automatically.  However, there are more than 200 legal systems in existence in the world, which serve the needs and interests of the local population.  The Chancellor observed that each legal system usually only operated in the language of the country in question, and sometimes used their own “… peculiarly parochial procedural rules…” to determine disputes.

What are the factors?

The factors affecting choice of law and jurisdiction were identified by the Chancellor as follows:

  • the rule of law: an independent legal system operated by “… high quality independent judges”
  • costs of the legal system
  • the speed taken to resolve disputes
  • certainty and consistency
  • reciprocal enforcement of judgments

What factors do you take into account when agreeing to such terms in your commercial contracts?  Do you in fact regard law and jurisdiction as important in the context of overall negotiations?  What advice do you seek from your lawyers especially when contracting with an entity in a different country?

Brexit

The Chancellor’s view was that the UK’s system would not be affected.  The UK would continue to appoint “…highly expert independent business and commercial judges”, and that the UK’s procedural system would maintain its position as a jurisdiction “well-suited” to resolve international disputes.  Further, any party arbitrating in the UK has the comfort of the supervisory jurisdiction of the Commercial Court under domestic law.

Alternative Dispute Resolution

In the context of Artificial Intelligence (“AI”), the Chancellor observed that disputes, which had not been resolved by online dispute resolution systems, would still need judicial determination, and that ADR was fundamental to this approach.  He felt that ADR was currently being used “… in a rather disjointed and insufficiently integrated fashion”.  I fully agree with this comment.

Conclusion

In the light of Brexit, and the ongoing political turmoil, there is a strong case for business people to pay far more attention to the law and jurisdiction being applied to their contracts, especially if contracting with foreign businesses.  If your contract is not going to be subject to UK law what risks are there for your business?  Are you in fact aware of the risks?

For further commentary on this article, or for help and advice on dispute resolution issues, please contact David Patterson.

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