Michael Luckman: David Lowe is one of our most experienced commercial contracts lawyers with a great deal of expertise on the international area.
I am going to be talking to him about international contracts.
Why, in high level terms, is it important to recognise that we are dealing with an international contract?
David Lowe: Two main reasons really, one is if it is an international contract, foreign law might well apply,
laws of France or Germany or Brazil and that presents a different risk,
the other reason is of course there will be special issues that can arise from going cross border, export control, sanctions and so on,
so you need to spot an international contract so that the alarm bells go off that you are going to need an additional tool kit.
Michael: How do you know when you are dealing with an international contract?
David: Well sometimes it's really obvious if it's subject to a foreign law,
this contract is subject to the laws of Argentina it's obviously an international contract,
if you are performing the contract, supplying the goods and services in another country it's obviously an international contract
but it's important to watch out for where one of the parties is based in another country even though performance might be in this country
it still means that local law might apply or even if it's a company based in this jurisdiction it might have most of its assets in another jurisdiction,
in which case you are going to have to enforce the contract somewhere else.
Michael: Given the option what would be the preferred choice of law and why?
David: English law does have an international reputation. It's been around for centuries.
English contracts are wordy which is not normally seen as an advantage but at least with an English contract you get what it says,
there are rarely hidden traps hidden in some background code.
So code based countries you can get away with very short contracts but the catch
is you then need to go and read their codes to understand the detail while with an English law contract you can read all of it.
But English law might not be the best, it might be perfectly acceptable to use another law,
you know New York law, Swiss law, Swedish law all have good reputations as alternative neutral laws.
You know you do need to think carefully about what those laws mean but
English law isn't the only law that you can use in an international contract
and there might be times when it is best to use another country's law
so if you are appointing a Chinese manufacturer whose assets are entirely in China and therefore you are going to enforce in China
you are probably going to end up having to use Chinese law,
it's better to have Chinese law because at least your contract might be worth something,
while if it is an English law contract it may be difficult to enforce.
Michael: Why is it so important to decide on a jurisdiction?
David: If you don't decide on the jurisdiction and state the jurisdiction and the jurisdiction by which I mean is where is the dispute going to be heard,
which court or arbitration is going to hear it, you are going to end up having a dispute about a dispute
and that's a lawyer's heaven but isn't good for business to find themselves spending money and energy
on arguing about where to have their fight, better to concentrate on having the fight.
Michael: How do you choose between arbitration and litigation?
David: In international contracts the big decision is about enforceability.
It is obviously really important that whether it is arbitration or litigation is that whatever you get at the end you can enforce.
Now English court judgments are readily enforceable under the European Union under the various European regulations
so if your contract is purely within the European Union, nothing wrong normally with an English court's jurisdiction.
Once you step outside the EU, well not every country has a treaty with the UK allowing the enforcement of English court judgments.
Important jurisdictions like the States, Japan, you can't readily enforce an English court judgment without significant local legal support.
However, more than 150 countries have signed the New York Convention and that means you can have some confidence.
But if you choose arbitration, in many countries around the world you at least in theory should be able to enforce easily and at a local level.
Michael: Do you have any tips if litigation is the selected option?
David: You need to decide which court obviously, so is it an English court or is it a French court, you need to specify that.
Having decided on that you then need to decide is it exclusive or non-exclusive.
Exclusive means just this court is where the dispute can be heard.
Non-exclusive means we all agree this court could hear it but maybe it might be better if another court is used.
So brings flexibility because after all you do not really know what your dispute is going to be about
when you are drafting the contract and having that flexibility can be useful.
The problem with non-exclusive jurisdiction is with that flexibility comes uncertainty.
There is a higher risk of an argument to argue that that is not a convenient court and you end up having the dispute about the dispute.
Michael: You mentioned arbitration. Is there anything in particular that should be taken into consideration?
David: So having chosen arbitration, the key issues you then need to address is are you going to use an arbitration institute?
It is usually better to do so, they provide the infrastructure for your dispute but it is possible not to have one, called ad-hoc arbitration.
Commonly used international contracts ICC, LCIA arbitration but there are others, there is Singapore, Dubai and so forth.
It's about what you are familiar with, you might get a friendly arbitration lawyer to give you a view on what is preferred.
You then need to decide is it one or three arbitrators.
Three gives you some confidence in the result, it's less likely that a maverick arbitrator is going to come up with a bit of a bonkers decision
but three are expensive and getting three in one place at the same time is cumbersome and is going to cause delay
and therefore actually often people end up going for one arbitrator and trusting the Arbitration Institute to choose a good arbitrator.
And then finally the seat.
The seat means what country's procedural rules will act as a background and sponsor that arbitration.
So you might say it will be an arbitration with three arbitrators subject to the ICC rules, the seat of the arbitration is London.
That will mean English arbitration and procedural law will provide a background and the English courts are the sponsor effectively with that arbitration.
Michael: What types of contracts come with a high risk of foreign law intervening?
David: Agency distribution franchising is sort of top of my list.
Many jurisdictions have laws that protect agents, distributors, franchisees in some way and it's also quite unpredictable, you know,
who would have thought that say in Europe, that in the UK we have no protection for distributors,
yet in Belgium which is not very far away, there is significant protection for distributors.
I know that as an English lawyer but if you are in South Africa would you have known that and there are similar patterns across the world.
America always surprises me, the land of the free, liberal capitalism and so forth,
yet many of their state laws have laws to protect distributors, agents, franchisees and can catch out the unwary.
Insolvency laws often vary around the world and that's particularly relevant to your termination clause
where typically in a termination clause you are referring to insolvency events.
You do not care about that until somebody becomes insolvent.
Now, if a German company has gone into German insolvency, are you allowed to terminate or not?
That is going to become suddenly a very important question at the time and you'd need to go and ask a German lawyer the answer to those kinds of questions.
Consumer law, employment law, property law are all also very common areas where local law will have a big impact.
Michael: Are there any particular legal risks that General Counsel ought to be aware of?
David: Yes, so having talked about high risk areas which might crop up, there is also the general kind of risks that pop up frequently wherever you go around the world.
Good faith is one, we don't really have in the UK in English law concept of good faith, but many other countries do,
even the States has a concept of good faith and what that means in different countries can vary tremendously, so that commonly crops up.
Liability, I think it's very interesting to see how actually many countries approach liability in a similar way to how we do in English law.
They accept that between companies we might want to carve out certain types of liability and you may wish to cap liability.
So that kind of principles are there but many legal systems have concepts of gross negligence which we don't really have in the UK, we certainly do not define.
Many countries say you cannot control or limit liability for gross negligence
and define it in their local laws and similarly wilful default commonly comes up as an area where people have local laws that will have an impact.
Michael: Can you give me an example of how this might work with an international contract?
David: Yes let me give you two contrasting examples.
Let's imagine you are sorting out global distribution contracts and you have got one distributor who is Scottish
and is going to be appointed to have Scotland as his territory and you have got another distributor that's for Saudi Arabia.
So you immediately look around and go well it is a high risk kind of contract,
there is a high risk that local law might impact because it is around distribution.
So your immediate thought, your antenna is it is an interesting contract in a high risk area, what do I think now?
Now, with Scotland, as an English qualified lawyer based in England, it's actually a low risk jurisdiction.
Even if you have never checked it out you know subconsciously that Scottish law is very similar to English law,
particularly on contract law and lots of similarities so although it's a high risk contract in terms of type,
it becomes low risk because you know instinctively that although distribution law is a high risk area that Scottish law is unlikely to be a problem.
We would all know wouldn't we if there were special laws in Scotland protecting distributors.
So therefore that might lead you to a place of not getting local legal advice in Scotland just taking a bit of a view and a risk on that.
Let's contract to Saudi Arabia. So it's a high risk area because it is distribution but it's a really high risk jurisdiction.
The courts in Saudi Arabia are pretty aggressive in a certain jurisdiction, they have got very protective laws in Saudi Arabia.
You would not do that contract without local legal advice unless of course you've got advice in the past
and are familiar with the laws in distribution and requirements.
So same contract but very different reactions because of their geographies.
Michael: Thank you David that was really useful.
David: Thank you very much.