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In the case of international commercial contracts, there is usually an agreement on the place of jurisdiction and a clause on the applicable law. Both clauses are of great importance. At first glance, it seems easy to choose the applicable law and a competent court. But the devil is often in the details. Therefore, we will also highlight some traps that companies often overlook in the following.

The clauses on the applicable law

Every international trade agreement must be subject to a legal system. Different countries have different laws and their content and application by the courts can vary greatly in individual cases.

It is therefore an absolute must to state in the contract which laws should be applicable. Otherwise, there is a danger later on that a long legal dispute will only have to be fought over which law is applicable. Such battles are costly and highly unnecessary.

Especially in an international context and when one or more countries are involved, this choice of law is even more important. For example, the parties to the contract may be located in different countries. The place of performance may be another country. In these cases, therefore, there are even several legal systems which may be relevant to the Treaty. This makes it all the more important to regulate the applicable law in advance.

Agreement on jurisdiction should not be missing

Sooner or later, every company will also be confronted with disputes in the settlement of international trade contracts. That is why it is also necessary to reach an agreement as to which court is competent to decide the dispute.

In some cases, the parties have agreed on an arbitration court and included an arbitration clause in the contract. But this is not always the case. If no arbitration agreement has been reached, it depends on which courts decide the disputes.

Here too, as with the question of the applicable law, there is a risk that costly, time-consuming and superfluous negotiations will be conducted as to whether the case should be heard before the courts of country A or country B. The Court of Justice of country A or country B is in danger of being heard. There is also always the risk that several claims will be heard in parallel in several different courts and that conflicting decisions will be reached.

The parties are therefore well advised to include a clause in their contract on the international jurisdiction of the courts. This stipulates that the courts of a particular country are competent for all disputes.

As a rule, such a jurisdiction agreement is formulated in such a way that the courts “exclusively” or one “not exclusively” have jurisdiction. The interpretation of these terms in legal systems may vary, but in principle the agreement of exclusive jurisdiction means that only the agreed courts have to decide on the legal dispute. If, however, no exclusive jurisdiction of the courts is agreed, the parties may, but do not have to, bring their legal dispute before the agreed courts.

Formulation suggestions

They should not attempt to treat the applicable law and the jurisdiction of the courts in the same wording. The terms are different and so are the conditions for an effective agreement. Both aspects should therefore be agreed separately in the contract. However, both aspects can be dealt with under a common heading, e.g. “Applicable law and dispute resolution” in the contract.

Choice of applicable law

A typical agreement on the applicable law is:

“This contract is subject to German / English / French law.”

While this formulation sounds quite simple, there are some aspects to consider:

International jurisdiction of the courts

For the international jurisdiction of the courts there is also a frequently chosen jurisdiction agreement, which reads:

“The parties agree that all disputes arising from or in connection with this contract shall fall exclusively within the jurisdiction of the courts in Hamburg/Germany.”

Here, too, there are a number of aspects to consider when drafting a jurisdiction agreement:

Please note that the above clauses are only very general clauses and typical errors. We have only given these clauses as examples. Each type of contract is different in its details and therefore it is usually necessary to find individual formulations and regulations that do justice to the contract. For example, certain countries may have enacted laws prohibiting a free choice of place of jurisdiction.

Companies should best seek professional advice on the form and content of a jurisdiction agreement.

 

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