contract breaches and professional negligence

If 2 Companies In Different Countries Sign A Contract, Do Both Country’s Laws Apply?

December 19, 2020

If you’re at all familiar with the legal system in the UK, you’ll be well aware that it is made up of three separate legal systems: that of (1) England and Wales, (2) Scotland, and (3) Northern Ireland. Most laws made by the UK Parliament in London apply in Scotland and Northern Ireland, but not all (especially Scottish laws). These laws are also very similar in most respects, but again – not all.

That being said, companies from different countries both within and without the UK may sign a contract and can define which legal system will govern over it. This is defined in choice of law and jurisdiction clauses within a contract.

Simply put, every contract must include a clear, unambiguous clause stating which country’s laws apply.

One common issue that pops up, commonly when no parties from the UK are involved and no UK-based attorney has reviewed the contract, is the mention of a fictitious “court of Great Britain” or a “court of the United Kingdom” – neither of which exist. Acceptable terms include: “the courts of England and Wales”, “the High Court in London”, “English law”, “laws of England and Wales”, “Scottish law”, “Northern Irish law”, and the like.

This makes it all the more important to have a trusted lawyer within the UK which can look over your contracts, especially one specialising in contract breaches and professional negligence such as MJW Law.

However, if the contract clearly states which country’s law governs over it (e.g. English law), and which High Court the disputes will be heard at (e.g. the High Court of London), then the question of “applicable law” is resolved (i.e. which law is to be applied).

If such a clause is unclear, imprecise or does not exist (i.e. when a “conflict of laws” occurs), then a court has to define which jurisdiction’s law applies. This incurs costs, and wastes time. All of this applies only if the laws which are being disputed are in conflict i.e. if they would lead to different outcomes. Courts differentiate between “true conflicts” (the different laws actually differ and may cause different outcomes)and “false conflicts” (the results would generally be the same regardless of which laws govern over the contract).

When defining which law applies, courts now typically follow a “significant relationship rule” by which they aim to determine the jurisdiction with…well…the most significant relationship to the contract. Possible factors include:

  • The location where the contract was formed.
  • Where it was signed.
  • The location of contract negotiations.
  • The center of the parties’ relationship.
  • The party/parties location of performance.
  • The location where the contract was to be performed.
  • Where the parties are located, etc.

So, to answer the question stated in the title of this post – only one country’s law can apply. The question of which is answered in the choice of law/jurisdiction clause. If it isn’t, then it’s up to the attorneys and judges to decide which laws apply based on a whole host of different factors.

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