Our judge’s wig represents the applicable law and jurisdiction for the contract.
All contracts should state their applicable law and jurisdiction, even if they are between parties who are both located in the same country. This is because there is a plethora of international conventions and treaties which set out their own methods for determining the law and jurisdiction applicable to any particular dispute, based upon the location of the vendor, the location of the buyer, and the location of the goods or services.
To make sure that the law you’ve chosen will apply, rather than whatever the most relevant convention decides upon, it’s essential to state explicitly in the contract which law you intend to have as the governing law of the contract.
So what’s the difference between law and jurisdiction?
The applicable law will determine which set of rules is to be used for interpreting the contract and the circumstances, in the event of a dispute. This can be very important, as some provisions will work differently under one law or another. For example, penalty clauses are unenforceable under English law, but are completely acceptable under many other countries’ legal systems.
The jurisdiction determines which Courts have authority to hear and decide upon any dispute under the contract. Usually, the jurisdiction and the applicable law go together – so you might have English law, and the jurisdiction of the English Courts, for example. But this is not necessarily the case, and it is possible (for example, if the contracting parties are in different countries) for them to choose a neutral third country as the place of jurisdiction for their disputes.
If you are contracting with an overseas party, you should think carefully about the best jurisdiction for your contract. While having your own local courts may be most cost effective (meaning less travel costs for you, no language difficulties, etc), you may find it difficult to enforce their ruling against the other party in the event that the other party breaches the contract.
For that reason, it’s best to consider which party is most likely to be in breach of the agreement at some stage, and whether you are more likely to be on the defending or the prosecuting side. Look at what treaties exist between your country and the other party’s home country, to see how easy it would be to enforce a judgement by your Courts in their territory.
You should also consider including a mediation provision in your contract, specifying that the parties must try mediation before taking a dispute to Court. This can save a great deal of time, money and embarrassment, as mediation hearings are in private rather than the public glare of the Courts.
One final note – remember that there’s no such thing as “UK law” or “British law”. This fine Kingdom (Queendom?) has an interesting range of legal statutes within its borders. Generally, when people say “UK law” they mean “the laws of England and Wales”. Many things work very differently in Scotland, for example! So you should either reference “English law” or “the laws of England and Wales”, if you intend English law to apply to your contract.
Want to know more? Contact Devant for contract assistance!