Does My UK Subsidiary Need English Law Contracts?

If you are an overseas company planning to establish a subsidiary in the UK, structuring your contracts is one of the most important decisions you will face as a trading business. Your overseas parent company may already have foreign law contracts in place, but entering the UK market presents new legal rules and challenges. Relying on your existing foreign law contracts might seem more straightforward and a quick fix, but this approach could create legal risks. By structuring your contracts under English law, you can protect your business and ensure enforceability in UK courts. This article will explore vital contractual considerations for a foreign company launching in the UK (whether through a subsidiary or other means) and which contracts to consider implementing when doing so. 

Why Are Contracts Vital for a Trading Business?

Contracts are fundamental to any trading business because they clearly define the rights, obligations, and expectations between parties in commercial projects. A well-drafted contract protects both parties from risk and disputes by setting out key terms around payment, delivery of goods or services, liability, and dispute resolution. Contracts can ensure that, if something goes wrong, you have a legal basis to enforce your rights and various remedies. 

Contracts take on an even more significant role for a foreign business entering the UK market by ensuring compliance with local legal frameworks. Without robust agreements, your business risks exposure to disputes, non-performance and contract breaches by the other party, and potential legal penalties.

What Are the Benefits of Using English Law Contracts?

Using contracts governed by English law can offer you significant benefits for your business as it enters the UK market, e.g.: 

• legal enforceability could be easier for you. English law contracts can help by providing clarity and predictability when resolving disputes in the UK; 

• compliance with UK regulations. English law contracts can help ensure that you comply with crucial English law legal rules, such as the Consumer Rights Act 2015 and data protection laws (e.g., UK GDPR), which foreign law contracts might not adequately cover; and

• avoiding confusion and speeding up negotiations. UK customers or business partners may not be too familiar with foreign legal frameworks, and, as such, using foreign contracts could hinder contractual negotiations and cause bottleneck issues, slowing business progress. This unfamiliarity could, for instance, lead to delays or misunderstandings. Using English law contracts instead can help you streamline your business operations and build trust with UK partners and customers, which can be particularly important when breaking into a new market. 

When Should You Implement English Law Contracts?

If you choose to use English law contracts, it is essential to implement these contracts as soon as your UK subsidiary begins trading and avoid delays. Relying on foreign law contracts may contain gaps and result in inadequate coverage of mandatory UK legal requirements, exposing your business to risks such as unenforceable terms or fines for non-compliance.

For example, if your business processes personal data from UK individuals as a data processor, your contracts must comply with the UK GDPR. Failing to include the mandatory clauses can also result in severe penalties and reputational damage. Further (if your business deals with UK consumers), your contracts must reflect UK consumer protection laws to avoid potential disputes or legal liabilities. Trading in breach of these rules can lead to negative consequences and several additional risks. 

An English-qualified lawyer can guide your business through the legal framework that applies to your UK company, ensuring that your contracts meet all mandatory rules. They can draft or review contracts to ensure compliance with local English laws and advise on potential risks and liabilities you may have yet to consider. By actively identifying gaps in your existing contracts, they can help you to fully tailor agreements that offer protection and smooth business operations in the UK market.

Can You Use Foreign Law Contracts in the UK?

You can use contracts governed by foreign law when operating in the UK, which could add various legal complexities and risks. Mandatory English laws (such as those related to consumer protection, employment, and data privacy) must apply even if you use foreign law contracts. These local protections cannot be waived simply because a foreign law governs the contract.

Supplier Contracts Checklist

Download this free Supplier Contracts Checklist to ensure your contracts will meet your business’ needs.

Download Now

Enforcing foreign law contracts in UK courts can be more complicated and costly. Your business might face delays, higher legal costs, and legal uncertainties when relying on foreign law agreements within the UK legal system. In contrast, using contracts governed by English law may help simplify enforcement potential and reduce legal risks, providing more of a chance for smoother business operations. 

Key Takeaways

Using English law contracts for your UK subsidiary offers clarity and legal protection and helps demonstrate your compliance with mandatory UK laws. While foreign law contracts are an option, they come with additional complexities and risks, which you should know. Working with a UK-based solicitor can help ensure that your contracts are legally sound and tailored to the English legal framework, helping reduce risk when operating in a new market. 

If you need help with English law contracts for your business, LegalVision’s experienced contract lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.

Frequently Asked Questions 

1. Why is a contract vital for my business?

A contract protects your business by clearly defining the obligations and expectations of both parties, reducing the risk of breaches of obligations and disputes.

2. How can a lawyer help my overseas business with English law contracts?

A lawyer can help your business ensure that its contracts comply with UK legal rules and are enforceable in UK courts, protecting it from legal risks.