Quick Tip #18: Some practical advice when you can’t agree which governing law to use
A contentious issue in multi-national agreements is which law should govern the agreement. Every party will have a preferred governing law and agreeing which law will govern the agreement can be tricky. Each party is normally attempting to avoid the cost of litigating outside of their country of incorporation. This is not a comment on the complexities of having to determine substantively which law governs your contracts or which courts should have jurisdiction but rather sets out some practical points the parties can consider:
Typically, its more cost effective to hold proceedings where the majority of the relevant personnel are based. If, for example, all of the customer’s relevant personnel are based in London then the cost of proceedings being held in London will be much cheaper than if they were held in New York.
If services are being performed by people, where are the services being provided? The cost of contentious litigation may be lessened if the courts with jurisdiction are located in the same place as where the services are being provided. This is because key witnesses that will be required in the legal proceedings are likely to be in the same country.
If using either the supplier or customer standard terms, what law was expected to govern those terms when they were drafted? For example, if the parties are starting on supplier paper which would have been drafted in the supplier’s country of incorporation, the laws governing the supplier are inevitably already being considered and integrated when drafting. So if an indemnity has a specific meaning under the law of California, be cautious about simply changing the governing law to English law without a full understanding of the implications in the drafting of the indemnity itself.
Is the governing law and jurisdiction the same? It is generally preferable to avoid having a court applying a law which is different to that of the jurisdiction of that court. This is again because of costs – it will increase the costs of the litigation to have to provide expert witnesses to guide the court on what the governing laws state. There are exceptions where courts have indicated a level of comfort with the law from another jurisdiction. For example, we have frequently found that US suppliers are willing to use English law because it’s an established, known, reliable and understood legal framework.