Why Choice of Law is Important in Cross-Border Contracts

The Internet makes cross-border transactions possible for even the smallest businesses. Whether you sell apps through the App Store or Google or run an online e-commerce storefront, someone will likely buy from you across international lines.

Global business means global contracts. Each of the parties are resident or domiciled in different countries. As laws and legal language differ from country to country, contracts need to reflect language that accommodates and clarifies provisions that might not be familiar in that foreign jurisdiction. In addition, the cost of litigating in a foreign jurisdiction can exceed all expectations and thus is difficult to quantify.


The contract itself can dictate the choice of law, yet the choice of law can also be different than the place chosen for resolution of the dispute. Thus, a foreign court could be in the position of, for example, an English court interpreting U.S. law. In this example, parties before an English court are permitted to present experts to assist the court in interpreting U.S. law. This can become a battle of the experts.

Where a standard form is used, which is meant to provide a uniform interpretation providing some certainty, however, foreign courts are not necessarily familiar with such universal interpretation and may alter the operation and effect of the underlying agreement.
Contracts provide certainty in business. Such potential alteration eliminates this certainty and creates a risk that is difficult to quantify.

With regard to specific provisions, U.S. courts generally take a broad view of the interpretation of contract provisions and are willing to imply provisions, for example, good faith. Yet, courts in other jurisdictions are not willing to imply what is not spelled out by specific language. Not to mention, interpretations also vary concerning specific legal concepts.

Take, for instance, the standard of “Gross negligence,” it is a well-recognized legal concept in U.S. law, however, in England, there is no concept of gross negligence; instead, this concept is replaced by a notion of serious error or conduct falling significantly short of expectations. As a result, if, a company located in California entered into a contract with an English based company, and then later found itself in a disputing that contract in an English court, any provision containing the standard of gross negligence would be struck, leaving the CA company exposed to serious risk.

The online world expands across borders, and with that, companies must consider the laws of the states and countries they perform business with.

Thus, it is essential for businesses engaging in cross-border transactions to carefully draft provisions keeping in mind a foreign court may be interpreting the terms should a dispute arise.

For information on how we can help your organization, visit our website at dpoadviser.com. And as always, if you found this video helpful please give it a like or share. If you have any questions or suggestions, throw them in the comments below.

For help with Privacy Law compliance, you can reach out to me at [email protected]

Or visit our website at DPOadviser.com

www.linkedin.com/in/mike-harrigan-632aa413b