The Forgotten Clause

Who shall I listen to? Whose laws at least?

If you are working with foreign clients or suppliers, this article is for you. It might be that one of you are providing services remotely, such as digital services. It might be that you are exporting and importing products between yourselves and are concerned with shipping actual goods – either way it is a business relationship and requires an appropriate contract between yourselves.

One of the most important clauses between foreign parties which is often overlooked in contracts where both businesses are based in the UK - is the Law and Jurisdiction clause. This details what the parties’ have agreed to be the law that applies to the contract. It sounds such a simple thing, and not important, but it really can make the world of difference. It might not even be given a second glance and assumed that it says your law, but what if it doesn’t?

Even where both businesses are in the UK it is crucial you remember that we live in a state with devolved governments and that laws may vary. Contract law itself may not vary too much, however other laws surrounding your particular contract may change lots, for example house buying in Scotland is very different to England and Wales and you may be an estate agent who is near a border and works with clients from both jurisdictions.

The first important thing to think about with your foreign client is what is in their law. You won’t know any of their laws or how they affect you, and you likely don’t know a local lawyer who can help you navigate this. You might look to Google – as everyone does – but might end up paying over the odds. You might find the contract unfeasible once the contract has been fully reviewed having wasted time and money looking at it. Even if you found a local lawyer to their country it is still helpful that they know your law as well and how business works in this country – what seems like common sense to them might be an entirely foreign concept (pun intended) to them!

The second thing to note is not just what their laws say and how they affect you, it also is important to think about what happens if things go wrong? Either party may need to pursue the other for damages for breach of contract – where can they do that? It will be dealt with by the courts based in the country the Law and Jurisdiction clause states. If you need to start proceedings, do you know how to, is there barriers to this if you are not a company incorporated in that country, do you need to try to find that foreign lawyer again?! It might be that it is reasonably simple, but pursuing claims from overseas can be a pain, if you, the other side or the courts themselves don’t want to communicate electronically then you are restricted to postal service effectiveness and timescales: correspondence may be lost or delayed dramatically, and deadlines even missed. Depending on the country it may even be required that you hop on a plane and need to be present for hearings or similar! This will dramatically rack up any costs you have already incurred throughout the legal process.

If there is a dispute, could there be other ways of resolving such? In the UK we have pre court protocols that suggest you should try all other means of resolving the conflict before resorting to applying to the courts. What alternative dispute resolution (ADR) do they have? Might you need to still be present for this, or do the postal service present the same restrictions that make it more of a hindrance than the courts themselves? Is this even going to be fair to you? Is there such thing as a law that benefits the company resident in that state in some way?

Is there different regulation that may affect the works required under the contract directly? There may be different tolerances and safety measures that are required in one country and not in another meaning you inadvertently don’t comply with the law, or you receive items that are not legal here. A great example is the CE marks that must be affixed to products before they may be sold on European markets and indicates that they fulfil the requirements of relevant European product directives. If you received inferior goods, you may not be able to sell these within your country. The opposite may happen, you may produce ineffective goods and be responsible for reproducing these at your own expense in accordance with their laws. You may find yourself being charged where they take on a third party to undertake your obligations since you were unable to.

Data protection can also get tricky, the EU have implemented GDPR and similar legislation which is said to be one of the strictest privacy rules in the world. Right now, the UK’s privacy law is in line with this, but it may not always be the case. If you are working with countries without GDPR level data security, how are you safeguarding the data you pass? Personal data can be anything from a name of a customer, an email address even an IP address which may be likely to be shared with your suppliers. You need to ensure that they are sticking to their responsibilities under our law, as well as vice versa!

The UK has relatively stringent regulation on consumer rights, are they likely to be working with your clients directly? What requirements should be put in your contract to ensure that you can comply with your responsibilities with regards to your customers? You may need a right to return goods without restocking charges, a product guarantee or repairers able to help with any issues.

Different law might also affect the agreement itself; you might be concerned about IR35 or similar considerations here that don’t apply there. It may also be the case that the opposite happens – what if you end up being liable for extra costs because of the relationship between you? Different countries may have other rules around determining your status as an employee or subcontracted entity - you don’t want to be liable for income tax or other penalties due to the nature of your working relationship. It may be that you change your working practices to fit into a certain mould that the country has for different types of business transactions. You might find that by using overseas persons you have skirted the issue altogether.

On that same vein, what does happen regarding tax? Is VAT, National insurance, income tax, any other fees still payable, and at what rates? This may even determine where you wish to find your suppliers, if you can find a country where you can avoid taxes altogether or get a lower rate, it may make the product cheaper to procure overall than using domestic businesses. Exporting duties and fees might also play a part, if the goods transported are lower value due to the tax saving this may benefit you when exporting and importing. Conversely, if you are benefitting from one tax saving, they may look to recoup this in their exporting/importing fees.

Not so relevant to law and jurisdiction but still crucial is exchange rates. They may be as changeable as the wind, or a static solid investment. You may want to consider purchasing products and services in your own currency and the other party having to deal with exchanging, or you may want to exchange at the best rates possible despite the bank fees to get the lowest price for the goods. If this may be an ongoing relationship it may be that you want to make it clear how much you will pay, and an agreed exchange rate rather than having such varying fees which you can’t budget for. If it is a large one-off purchase, you might prefer that you arrange the payment terms around the best exchange rates in order to get a bit of discount.

In conclusion, if you’re working with your agreements, ensure your law and jurisdiction clause states that you want the agreement under English and Welsh law. If you’re working under theirs then ask to change it; it may not be something they want to concede but there is never any harm in asking – they say if you don’t ask you don’t get! You may end up agreeing to their law but cede this to get them to agree better terms of the agreement. It may be that you are working with a much bigger company which happens to have a UK presence and they are happy with working to English law.?