Monday, December 22, 2014


One of the areas of a cross-border contract which US businesses tend to overlook is that of the choice of law.  It is relegated to an area at the end of the contract, hidden in so-called boilerplate clauses.  You know, the one you stole off the internet from some other company.  You know, clause 72(a)(3)(ii).  Nobody reads that junk.  Nobody cares what it says, right?


Wrong. Wrong. Wrong.

Many businesspeople, regardless of whether they are the sole owner of a small company, a Vice President of International Affairs for a growing mid-size business, or a contract negotiator for a Fortune 500 company, think the most important aspect of the international deal to negotiate is the monetary part.  After all, if you get concessions on your price, that means you are going to bring in more money.  Be a hero in the eyes of your boss.  Ultimately grow the business.  Maybe receive a promotion or a raise.

However, the law that you choose for the contract governs much more than just what a judge is going to apply if you end up in court.  It is a mistake to say "We will never sue them, so the choice of law doesn't matter!".  Initially, you must remember that the other party could sue you, and so a court might be called upon to apply the law while you are a defendant. 

But, more importantly, every single clause of the contract you took so long to negotiate (including those very important price provisions) will be interpreted according to the chosen law.  So, if you negotiate a contract thinking you are applying New York law, and you then say "OK, OK, we will give in and let them apply Chinese law just to get them to shut up and sign the darn contract", then you have changed the meaning of EACH AND EVERY SINGLE CLAUSE IN THE CONTRACT THAT YOU JUST SPENT A MONTH NEGOTIATING.

When you are negotiating a cross-border contract, it is extremely important to know how your chosen law will affect the clauses in your contract, how the other party's home country law will affect the clauses, and if there is a possibility you will choose to apply a neutral country's law, how that neutral country's law will affect the clauses.  Only by understanding all of those issues can you make an informed decision about which country's law should apply to your contract, and whether it is acceptable to negotiate away your preferred law because the changes will not make a difference to you, considering the risks you perceive in this transaction.

We have a saying here at our law firm.

The point is that you need to learn what you don't know.  That is, at essence, the purpose of a business lawyer.  Before you sign a cross-border contract, you should know the implications of the clauses in that contract, based upon the risks that you, in that deal, actually have.  If you don't know how the law (from whichever country) will interpret your contract, then you are "writing evil" and really have no idea what you are signing. 

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