How a UK Company Can Contract Internationally: A Legal Guide

Expanding internationally is an exciting milestone for any UK company, but contracting with foreign entities requires careful legal planning to mitigate risks and ensure enforceability. This guide outlines the key considerations for UK businesses entering into international contracts, including drafting, execution, and important clauses like governing law and jurisdiction.

1. Understanding International Contracts

An international contract involves parties based in different countries. These contracts must account for differences in:

• Legal systems: Civil law vs. common law traditions.
• Language: Terms should be clear and translated if necessary.
• Regulations: Compliance with local laws such as employment rules, tax codes, or consumer protection standards.

2. Key Elements of International Contracts

For an international contract to be effective, it should include:

1. Clearly Defined Terms: Specify obligations, timelines, and deliverables.
2. Payment Terms: Address currency, exchange rates, and methods of payment.
3. Language of the Contract: Define which language governs the agreement to avoid ambiguities.
4. Dispute Resolution: Outline methods for resolving disputes, whether through arbitration, mediation, or litigation.

3. Governing Law and Jurisdiction Clauses

Why Governing Law Matters

Governing law determines which country’s laws will interpret and govern the contract. A well-defined governing law clause avoids uncertainty and ensures predictability in legal disputes.

Why England and Wales?

Many UK companies choose England and Wales as the governing law for their contracts because:

• Predictability and Clarity: English contract law is well-developed and provides clear principles, making outcomes more predictable.
• Global Reputation: England and Wales are renowned for their neutrality and fairness in resolving disputes.
• Flexibility: English law allows parties significant freedom to structure agreements without excessive statutory interference.

Jurisdiction Clauses

The jurisdiction clause specifies which court or legal forum has the authority to hear disputes. Opting for English courts ensures:

1. Expertise: Judges in England and Wales are experienced in handling complex commercial disputes.
2. Efficiency: The Commercial Court in London is globally recognized for resolving disputes efficiently.
3. Neutral Forum: Especially for cross-border disputes, English courts provide a neutral ground.

Example Clause:
“This Agreement shall be governed by and construed in accordance with the laws of England and Wales. Any disputes arising under this Agreement shall be subject to the exclusive jurisdiction of the courts of England and Wales.”

4. Drafting Tips for International Contracts

1. Include an Arbitration Clause: Arbitration can be faster and more flexible than court proceedings. The UK is a signatory to the New York Convention, ensuring international enforceability of arbitral awards.
2. Force Majeure Clause: Protect against unforeseeable events like natural disasters or political instability that prevent contract performance.
3. Intellectual Property (IP) Protections: Clearly define ownership and usage rights for IP, especially if the contract involves technology or creative works.
4. Tax and Compliance: Address cross-border tax obligations and ensure compliance with import/export laws.

5. Managing Risks in International Contracts

Due Diligence

Before entering a contract, investigate the financial stability, reputation, and legal standing of the counterparty in their jurisdiction.

Local Legal Advice

Engage local counsel to understand how laws in the counterparty’s country may affect the agreement, including tax compliance.

Insurance

Consider trade credit insurance to mitigate risks of non-payment or breach by the foreign party.

6. Enforcing International Contracts

Enforcing a contract internationally can be challenging, but measures like arbitration clauses or reciprocal enforcement agreements can help. The UK is a party to several international treaties, including:

• The New York Convention: Facilitates enforcement of arbitration awards.
• The Hague Convention on Choice of Court Agreements: Supports enforcement of court judgments in member states.

7. Key Takeaways for UK Companies

• Be Precise: Draft contracts with clear terms, considering differences in legal systems.
• Choose England and Wales for Governing Law: Benefit from the predictability and efficiency of English contract law.
• Anticipate Disputes: Include arbitration or jurisdiction clauses for efficient dispute resolution.
• Seek Legal Advice: Work with specialists familiar with both UK and foreign legal systems.

By proactively addressing these legal considerations, UK companies can confidently expand their international footprint, ensuring that their contracts protect their interests and facilitate successful global relationships.

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Please email wewillhelp@jonathanlea.net providing us with any relevant information ensuring that any call we have is as productive as possible. After this call, we can then email you a scope of work, fee estimate, and confirmation of any other points or information mentioned on the call.

This article is intended for general information only, applies to the law at the time of publication, is not specific to the facts of your case and is not intended to be a replacement for legal advice. It is recommended that specific professional advice is sought before relying on any of the information given. © Jonathan Lea Limited.