Things to note to prevent disputes in international contracts: The critical clause of governing law

With globalization, various types of international contracts have emerged, emphasizing the importance of well-reviewed international contracts. It is important to understand the core of international contracts, as disputes in international trade could dramatically increase the costs in terms of time and money. Here, we discuss the concepts of international contracts with Attorney Han Daeun, from law firm Law-win.

Q. What is an international contract?

An international contract is a legally binding agreement between two or more parties from different countries. With globalization, various types of international contracts emerged such as international supply agreements, distribution agreements, manufacturing agreements, and share transfer agreements. As the parties involved in the contract usually have various sociolinguistic, cultural, and legal backgrounds, they tend to have different understandings of the legal terms or conditions stipulated in the contract, resulting in uncertainty, vagueness, and potential risks. To minimize such uncertainties, an international contract must be advised with precision and checked on a regular basis.

Q: Which country's law applies?

A: Governing law or applicable law is a contractual provision that determines which law shall apply in the event of a dispute in an international contract. Each country has its own private international law that regulates the governing law. In general, in cases where no governing law clause has been stipulated, the contract may be governed according to the jurisdiction that has the most important connection to the agreement. For instance, the location of the contract takes place, where the products are distributed.

Q: Can we choose a governing law for the international contract?

A: The parties can reach an agreement when deciding on governing law. The governing law could be one from either side of the party or any other laws irrelevant to the contract. There are various factors to consider when reaching an agreement on governing law, such as the consistency between the governing law clause and jurisdiction clause, the international customary practice, the types of market, and types of law (civil law or common law). Hence, the company should analyze the market and its business carefully and discuss with the experts which law should be included in their international contract's governing law.

Law firm Law-Win’s international litigation advisory team has been established to effectively resolve domestic and international legal disputes without language barriers, working by competent attorneys specialized in various practical areas such as criminal law, civil law, bankruptcy, etc and 49 interpreters of 14 languages (Sri Lankan, English, Thai, Arabic, Russian, French, Mongolian, Chinese, Myanmar, Japanese, Khmer, German, Vietnamese, and Uzbek. -- Ed.