Dual Law Agreements: Valid Or Not?

When it comes to international contracts, the question of whether an agreement can be governed by two laws is a complex one. Jurisdiction and choice of law are crucial considerations, and the absence of a clear jurisdiction clause can lead to costly and time-consuming court battles. While parties to a contract are generally free to choose their governing law, the decision has significant ramifications for where proceedings may be issued and the associated issues of certainty and flexibility. In certain cases, such as when contracting parties are domiciled in different jurisdictions, careful consideration is required to ensure clarity and avoid potential problems in the event of a dispute.

International contracts, one agreement, two jurisdictions

International contracts can be complex, and it is not uncommon for one agreement to fall under two jurisdictions. The main contracting parties may be based in two different countries, and the contract's performance could even take place in a third country, further complicating matters. This makes it crucial to determine which legal system will govern the contract.

When negotiating jurisdiction clauses, parties should carefully consider how the court system operates in different countries. For example, England and Wales share the same court system, while Scotland has its own. Jurisdiction clauses relate to which courts will hear a dispute, and there are three main types: exclusive, non-exclusive, and asymmetric (or unilateral). An exclusive jurisdiction clause specifies that only the courts of a particular jurisdiction will deal with disputes arising from a contract. Non-exclusive clauses specify that some courts have jurisdiction while acknowledging that others might also have it. Asymmetric clauses set out how one party is restricted to suing in a particular jurisdiction, while the other party has more choice over where they start proceedings.

When drafting an international contract, it is essential to include a jurisdiction clause. While it may not reduce the risk of a dispute, it will keep the expense and complexity of litigation down, as seen in the case of Conductive Inkjet Technology Ltd v Uni-Pixel Displays Inc. In this case, an English technology company, CIT, and a Texan company, UPD, entered into a non-disclosure agreement (NDA) without a governing law or jurisdiction clause because they could not agree on one. When a dispute arose, CIT sought and obtained permission to serve the English proceedings out of the jurisdiction, leading to costly and complex litigation.

If a jurisdiction clause is not included in an international contract, there may be unwanted and expensive court battles solely on the question of jurisdiction. This will result in uncertainty of outcomes and difficulty in assessing the risks and merits of any proposed litigation. For example, if a party wishes to bring proceedings in the English courts against a non-EU defendant in the absence of a jurisdiction clause, they must obtain the court's permission by establishing one or more of the 20 jurisdictional gateways set out in Practice Direction 6B. One of these gateways is that the claim is in respect of a contract made within the jurisdiction.

In conclusion, international contracts with one agreement and two jurisdictions can be complex, and it is essential to include a carefully considered jurisdiction clause to avoid unwanted costs and uncertainty.

Jurisdiction and choice-of-law clauses

When drafting a jurisdiction clause, it is important to consider how the court system operates in different countries. For example, England and Wales share the same court system, while Scotland has its own. Parties should also be aware that the choice of law may impact the outcome of a dispute. In the case of Apple Corps Ltd v Apple Computer Inc, a dispute arose regarding an agreement that did not contain a governing law or jurisdiction clause. Mr Justice Mann commented that each party was "overtly adamant" that they did not wish to accept the other's jurisdiction or governing law.

In addition to the above, parties should also consider the following when drafting a jurisdiction and choice-of-law clause:

• The types of disputes that could arise from their agreement
• Whether the law will be from a common or civil law jurisdiction
• How friendly or hostile a jurisdiction would be to their claim
• Whether sufficient precedent exists in that jurisdiction
• The law that is applicable to any agreement to arbitrate that may be contained in an arbitration clause
• The seat of the arbitration and the venue of any hearings
• Whether the term "submit" or "attorn" is used, as this may determine whether the choice of law clause is enforced (in Canada)
• Whether the choice of law is bona fide, legal, and not contrary to public policy

The role of arbitration in international contracts

International contracts can be complex, involving parties from different jurisdictions. In such cases, it is essential to include a jurisdiction clause in the contract to avoid unwanted and expensive court battles over jurisdiction. While a jurisdiction clause does not reduce the risk of disputes, it helps keep the expense and complexity of litigation down.

When drafting an international contract, parties should consider including an arbitration clause, which outlines the process for resolving disputes. Arbitration is a mutually agreed-upon form of dispute resolution that offers a neutral forum for cross-border disputes. It is particularly useful when parties want to avoid giving the other a local court advantage or when the domestic judicial system of one party is unfamiliar or challenging to navigate.

The arbitration clause typically specifies critical aspects of the arbitral process, such as the arbitral institution, the number of arbitrators, their appointment process, the legal place of arbitration (the "seat"), and the language of arbitration. Parties can also specify the governing law of the arbitration, which need not be the same as the substantive law governing the contract.

International arbitration awards are generally final and binding, with no right of appeal. These awards can be enforced in most courts worldwide due to the New York Convention, a multilateral treaty with over 170 signatories. The private nature of international arbitration ensures confidentiality, and the flexibility of the process allows parties to agree on procedural rules and the arbitration hearing's location.

In conclusion, arbitration plays a crucial role in international contracts by providing a neutral, flexible, and confidential means of resolving disputes. By including an arbitration clause, parties can tailor the dispute resolution process to their specific needs and ensure enforceability across different jurisdictions.

The impact of location on governing law

The location of the parties involved in a contract has a significant impact on the governing law that is chosen. The governing law refers to the specific jurisdiction's laws that will be applied in the event of a dispute or breach of contract. When parties are located in different places, determining the governing law can become complex and may lead to uncertainty, increased costs, and time spent arguing over the applicable law.

In an international contract, for instance, between parties in New York and France, the legal cultures differ, and only the law of one jurisdiction can be chosen. In such cases, it is advisable to examine the nature of the relationship and the subject matter of the contract. If products are involved, New York's strong non-compete laws may be beneficial. On the other hand, if the work is primarily online, France's stronger data privacy laws might take precedence. The size of the parties involved could also influence the decision, with the smaller party's governing law being chosen as a show of good faith.

The location of where the contract is made or concluded can also be a factor in determining jurisdiction. In the case of Conductive Inkjet Technology Ltd v Uni-Pixel Displays Inc, the court found that the contract was made in both England and Texas, and as a result, the English court had jurisdiction.

While parties are generally free to choose the governing law of their contract, it is essential to ensure that it is a law that the courts will give effect to. For example, the Rome I Regulation, applicable in the UK, requires the law of a "country" to be chosen. Therefore, it is crucial to consider the specific location and its legal system when determining the governing law of a contract.

To summarise, the impact of location on governing law is significant, as it determines the specific laws that will govern a contract and any potential disputes. The location of the parties, the subject matter of the contract, and the jurisdiction in which the contract is made can all influence the choice of governing law.

The importance of consistency between governing law and jurisdiction clauses

A governing law clause sets out which law governs the contract's formation, construction, and interpretation. The laws, principles, rights, and remedies will be those of the state (or country) that is chosen to govern the contract. This is particularly important if the parties to the contract are located in different states or countries. For example, a contract between an English company and a company from Texas should specify whether English or Texan law will govern the contract.

The jurisdiction clause is equally important as it designates the location where any legal disputes will be resolved. An exclusive jurisdiction clause obligates parties to bring proceedings about a dispute under the agreement only in the jurisdiction specified. On the other hand, a non-exclusive jurisdiction clause nominates a preference but does not prevent parties from commencing proceedings in another jurisdiction. For instance, a contract between an English company and a Texan company may specify that disputes will be resolved in the English courts, even though the contract is governed by Texan law.

Failing to include consistent governing law and jurisdiction clauses can lead to unwanted and expensive court battles solely on the question of jurisdiction. This will result in uncertainty of outcomes and difficulty in assessing the risks and merits of any proposed litigation. Therefore, it is essential to give careful consideration to these clauses when drafting a contract, ensuring that both the governing law and the jurisdiction are explicitly agreed upon by all parties.

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