PRIVATE INTERNATIONAL LAW
Each country has different legal systems and has their own set of laws. The two main systems of law are common law system which countries such as Australia, Singapore, the UK and the US adopt and the civil law system which is in use in France, Germany, Indonesia, and Vietnam among others. In addition, there are other less prevalent systems such as the socialist and religious legal systems. Sometimes even in common law countries; there are differences in contract law.
CROSS BORDER CONTRACTS
Cross border contracts may take many forms and may involve different parties and countries. We would have asked these following questions:
- Should the law to be applied be that of the country where the contract was formed or where the contract is to be performed?
- What is the relevance of the place of residence of the contracting parties?
- Where judgment has been obtained against a party and is sought to be enforced?
Choosing the governing law
One problem which parties engaging in cross-border contracts face is to determine which law to be applied in the contract, which is also called ‘proper law of the contract’.
In making the choice, the parties should take the trouble to determine the following:
- The suitability of the chosen law for the contract (eq. whether the transaction entered into is recognized under the law which as been chosen);
- The impact which the chosen law will have on the rights and obligation of the parties; and
- Any difficulties which may be encountered in enforcing the contract using the chosen law in the country where disputes are to be resolved.
Another method of alleviating this problem is to apply rules which have been agreed upon by the international community to govern the cross-border contract. Those international rules such as United Nations (UN), World Trade Organization (WTO), South East Asian Nations (ASEAN), etc.
Implied choice
If there is no agreement on which law should apply to their contract, common law courts will either imply or impute a choice for the parties. This is done by looking for the country with which contract has its closest and most real connection.
Factors which are taken into account to determine the issue include:
- the place where the contract is made and is to be performed
- the form, terminology and language used in the contract
- the place where any dispute which arises is to be resolved.
It
is advisable to make an express choice of the governing law as the failure to do
so may lead to great deal of uncertainty.
TERMS FOR INTERNATIONAL CONTRACTS
Another difficulty faced by parties entering into international contracts is that of the operation and interpretation of the terms of the contract.
First, the differences in culture and different methods employed by various systems of laws and countries in treating and interpreting terms may result in a particular phrase in a contract being understood differently by the contracting parties.
Second, Language difficulties arise as to which language should be used to interpret the contract. Dispute may arise as to the precise interpretation of the words and phrases.
The International Chamber of Commerce publishes a set of standard terms referred as INCOTERMS which contain a series of different sets of commercial terms defines the obligations which seller and buyer undertake and range from those which place minimal responsibilities on the seller to those which require him to bear a greater number of obligations under the contract.
RESOLVING DISPUTE
Forms of dispute resolution
There are many ways which parties may resolve disputes arising from contracts. Some forms are informal and only involve the parties in dispute, such as where the parties are able to negotiate a satisfactory settlement. Others, such as mediation and conciliation, although informal require the assistance of a neutral third party to assist in resolving the matter. The decision of the mediator or conciliator is usually no binding on the parties.
International arbitration
There are some conflicts why arbitration is preferred over legations. Those benefits are:
- less costly
- have fast outcome;
- had flexibility for the parties to determine how the proceedings are to take place;
- the disputants allow to select an adjudicator that they are both comfortable and also required technical expertise to deal with the dispute
- proceedings may be kept confidential.
Arbitration is particularly useful in situations where the courts system is not seen as being reliable by the parties. Generally, both parties must agree, to use arbitration as the dispute resolution mechanism. It is thus common to find ‘arbitration clauses’ in many contracts.
The clauses include the following matters:
- where the arbitration should take place
- the number of arbitrators and method of choosing them
- the rules to be applied in the arbitration proceedings
- the language in which the arbitration is to be conducted
- the governing law of the contract.
Litigation and court’s jurisdiction
The power of the particular court to hear and decide a dispute is referred to as jurisdiction. In the case of cross-border contracts, however, the issue becomes more complicated. A court, in deciding a dispute in an international contract, may be called upon to apply another country’s laws. Its decision may affect the rights of a citizen of a foreign land or may affect the performance of a contract in another country.
The jurisdiction of courts to hear contractual disputes in various countries depends on the relevant laws of that country.
The more commonly found requirements are:
- the contract is being performed or to be performed in that country.
- the party being sued defendant is domiciled in that country
- the contracting parties have agreed to submit themselves to the jurisdiction of the courts of that country.
Factors which the court will take into account when deciding other jurisdiction include the relative cost and inconvenience of having the case heard before it, domicile of the parties of the contract, the law which to be applied to the contract and the presence and effect of jurisdiction clauses.
ENFORCING JUDGMENTS AND ARBITRAL AWARDS
Enforcing judgments
One issue which arises in the context of cross-border contracts relates to the ability of a party to enforce a judgments or award obtained from foreign jurisdiction. This would be particular significance in cases where the party against whom the judgment or award is given either resides or is domiciled in another country or has assets outside the country in which the judgments or award was obtained.
Two ways to solve the problem:
Firstly, to commence proceedings all over again in that other country this would incur additional cost and expense.
Secondly, the statute only applies to judgments which require the defendant to pay a sum of money. All reasonable costs incurred in the registration of the judgment may also be recovered as if they were part of the judgments debt.
Enforcing
arbitral awards
An arbitral award, on
the other hand is viewed with less suspicion owing to the ability of the
disputing parties to independently select the tribunal which is to resolve their
dispute. Also some countries such as Indonesia and the People’s Republic of
China.
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Reference
Incoterm
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