Summary
- When working with overseas suppliers or clients, UK businesses face unique legal challenges, particularly around contract disputes and the enforcement of judgments.
- Brexit has made enforcing English court judgments in EU countries more difficult, increasing legal risks and costs for UK businesses.
- Arbitration often provides better cross-border enforcement than litigation, thanks to the New York Convention covering over 170 countries.
- Smart contract drafting, including clear governing law, jurisdiction and dispute resolution clauses, can significantly reduce risks and costs.
- This guide explains cross-border contract disputes for UK businesses working internationally. LegalVision, a commercial law firm that specialises in advising clients on international commercial contracts and disputes, provides this information.
Tips for Businesses
Always specify governing law, jurisdiction and dispute resolution methods in international contracts before signing. Consider arbitration over litigation for better enforcement across borders. Include tiered dispute resolution clauses requiring mediation first. Build in payment protections like letters of credit, retention-of-title clauses and clear currency terms to manage commercial risks effectively.
When you expand your business internationally, you open doors to exciting opportunities. However, working with overseas suppliers or clients can also bring unique legal challenges, particularly if a dispute arises. Understanding how to protect your business before problems occur can save you significant time, money and stress. This article covers the key legal considerations UK businesses should be aware of when working with overseas suppliers and clients, including how to structure contracts and resolve disputes.
Getting the Basics Right: Governing Law, Jurisdiction and Dispute Resolution
As a business entering into contracts with overseas parties, you need to address three fundamental questions:
- which country’s laws will govern your contract?
- where will you resolve any disputes?
- how will you resolve these disputes?
The way your contract is interpreted and applied will depend on which country’s legal rules your contract falls under. This is referred to as the governing law clause. Once this is determined, the jurisdiction clause will then decide which country’s courts will hear any dispute. While these are technically separate concepts, your lawyers will typically align them to avoid unnecessary complexity and cost. For example, if you choose English law, you will usually also choose English courts or London arbitration.
The dispute resolution method determines whether you will use:
- litigation (court proceedings); or
- arbitration or mediation as an initial step.
You should always specify these elements clearly in your contracts. If you do not, you may find yourself facing these issues in addition to the actual dispute. This is because when a contract fails to specify this information clearly, courts in different countries are faced with complex rules for determining which law should apply and where the case should be heard. This uncertainty can create great risk and expense.
The Challenge of Enforcing Judgments
Winning your court case is only half of the battle. You then need to enforce that judgment, and this is where cross-border disputes become particularly tricky.
As a UK business, you must be aware that Brexit has significantly changed the enforcement landscape. Previously, under the Brussels Regulation, you could enforce English court judgments across the EU member states with relative ease. However, the law no longer recognises those judgments automatically.
Today, you would need to check whether the UK has an enforcement treaty with the country of the overseas party if you obtain a judgment from an English court against them. This process was created post-Brexit once the UK rejoined an international treaty tailored to help with court judgements in other member countries, such as the EU. While this makes it simpler to use a UK court judgement in countries covered by the convention, it does not cover as many situations or countries as before. Legal risks, therefore, remain higher than pre-Brexit, particularly in countries outside the EU.
In many countries, you will need to start fresh proceedings to enforce your English judgment. This means additional legal costs, delays and uncertainty. Some countries may refuse to enforce your judgment altogether or may re-examine the merits of your case.
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Why Arbitration Often Makes More Sense
Given the enforcement difficulties you may experience with court judgments, many UK businesses working internationally choose arbitration instead of litigation.
Arbitration offers a significant advantage: the New York Convention. This international treaty, which over 170 countries are party to, makes arbitration awards much easier to enforce across borders than court judgments. If you obtain an arbitration award, you can generally enforce it in any Convention country without re-litigating your case.
You can also choose arbitration rules and a venue that suit your needs. Popular options include the London Court of International Arbitration (LCIA) or the International Chamber of Commerce (ICC). These institutions provide established procedures and experienced arbitrators who understand international commercial disputes.
Arbitration also offers privacy. Unlike court proceedings, which are generally public, arbitration remains confidential. This matters if you want to protect sensitive commercial information or maintain business relationships.
However, arbitration is not always the answer. It can be expensive, particularly for smaller disputes. You should also consider mediation, which can resolve disputes more quickly and inexpensively while preserving business relationships. Many businesses, therefore, choose to include a tiered dispute resolution clause, requiring mediation before arbitration.
Protecting Yourself Through Smart Contract Terms
Beyond dispute resolution clauses, you can build other protections into your contracts with overseas parties.
Consider your payment terms carefully. You might require letters of credit, bank guarantees or advance payments to reduce your risk. If you are supplying goods, include retention-of-title clauses to maintain ownership until you receive full payment.
You should also address currency issues explicitly:
- will you invoice in pounds sterling or the other party’s currency?
- who bears exchange rate risk?
Include clear limitation of liability clauses, but remember that foreign laws may interpret them differently. You should also consider a force majeure clause, which excuses parties from fulfilling their obligations due to unforeseeable or uncontrollable events (e.g. sanctions, wars, shipping disruptions). These clauses do not apply automatically, so you must clearly include them in the contract.
This guide outlines how to resolve commercial disputes.
Key Takeaways
Cross-border disputes present unique challenges, but you can manage these risks through careful contract drafting.
If you agree on:
- the governing law;
- where disputes will be heard;
- how they will be resolved from the outset; and
- include practical protections;
You give your business the best chance of resolving disputes quickly and efficiently.
The key is to think about these issues before you sign contracts, not after disputes emerge. Taking legal advice when entering significant international arrangements is an investment that can save you far greater costs down the line.
LegalVision provides ongoing legal support for businesses through our fixed-fee legal membership. Our experienced disputes lawyers help businesses manage international contracts, cross-border disputes, and more, with unlimited access to specialist lawyers for a fixed monthly fee. To learn more about LegalVision’s legal membership, call 0808 196 8584 or visit our membership page.
Frequently Asked Questions
It depends on what your contract says. If you have included an exclusive jurisdiction clause specifying English courts, then yes, disputes must be heard here. However, if your contract does not specify jurisdiction or includes a non-exclusive clause, the other party may be able to argue that proceedings should be heard in their home country or elsewhere.
Not necessarily. Winning a judgment does not guarantee payment; you still need to enforce it. If the other party is overseas, you will likely need to take separate legal action in their country to enforce your English judgment, which means more legal fees and delays. Some countries may not automatically recognise English court decisions, and may even need to re-examine your case.
Yes. Force majeure clauses excuse parties from obligations during unforeseeable events like wars, sanctions or shipping disruptions. Unlike some jurisdictions, these are not automatic rights under English law, so you must explicitly include them in your contract to rely on this protection.
Governing law determines which country’s legal rules interpret your contract. Jurisdiction determines which country’s courts hear disputes. While technically separate, you should typically align them to avoid complexity. For example, choosing both English law and English courts together.
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