WHICH COMES FIRST IN CROSS-BORDER CONTRACTS, THE CHICKEN OR THE EGG?

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. 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. 

Every once in a while, something happens that makes you recognize and respect your own mortality. As you have probably noticed, the top international story this weekend was the murder of ‪#‎LukeSomers‬, a photojournalist kidnapped in Sana'a, #Yemen in September 2013. Where was I in September 2013? That's right -- in Sana'a, Yemen, giving lectures to their commercial law judges about how to apply international law in their courts. Before leaving the US, I had a meeting with my staff to give them instructions about how to handle cases and administrative issues in the office while I was gone. We had to plan for all contingencies and called it the "Vacation, Kidnap, Death" memo and meeting. Now I feel sick in the pit of my stomach, knowing that there but for the grace of God go I.

For those who are unaware, for two weeks in September and October 2013, I was the special guest of the Yemen Ministry of Justice at the High Judicial Institute in Sanaa, Yemen. I was appointed by the International Development Law Organisation (Rome, Italy) to teach 60 commercial law judges presiding in the Yemeni trial and Appellate courts how to apply international laws in their courts. I taught the judges about cross border contract enforcement, global Anti-Bribery laws (such as the Foreign Corrupt Practices Act and the UK Bribery Act 2010), protection of intellectual property rights, and international arbitration.

The people I met in Yemen were wonderful. I would do this type of guest speaking engagement again in a heartbeat (who knows, maybe something in Havana now that Cuba's restrictions on professional visits are relaxing #TravelToCuba). The people I met (mostly judges and those who worked to bring me to Yemen) were the most hospitable, friendly and lovely people. However, I was definitely insulated from the factors that resulted in Somers' kidnapping. I had 24 hour security. I could not go anywhere without my personal security team. Also, I was the guest of the Minister of Justice and so the people who I met were not likely to be anywhere around AQAP people. The only time I was in public was when I went to the market just before I left, to shop for items to bring home. I had my security team with me that entire time. But still it is crazy to think how close I was to having to invoke our "Kidnap" portion of the VKD memo.