Do you wish to engage in business with an overseas company? In any case, you should formalise the business deal through a contract. If you are a business owner, this might be as simple as providing business terms and conditions which your clients and suppliers must accept. Additionally, you may wish to exercise your rights under the contract when a dispute arises. Therefore, it is crucial to address dispute resolution methods and identify which country’s law will apply. This article will outline how you should approach a contract dispute where the other party is overseas.
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Identify the Governing Law
When the contract dispute arises, you will likely already be bound to the terms of the contract. In this case, you should refer back to the contract’s governing law as a starting point for resolving the dispute. If the other party is based overseas, there are two possibilities:
- the governing law could fall under the state or commonwealth of Australia; or
- the governing law falls under the state or national laws of an overseas country.
Most contracts will expressly state the relevant legal jurisdiction towards the end of the contract. Therefore, identifying the governing law should be pretty straightforward. Additionally, for countries that function as a federation of states (for example, the USA), the contract will likely specify further which State law will apply.
If you are an Australian business owner providing the other party with your business contract, the governing law will likely fall under the Commonwealth of Australia. However, if the overseas party provides you with their business terms and conditions, the laws of their country will likely govern the contract.
Consider the Degree of Inconvenience
If your contract states that a law other than Australia’s will apply, you must resolve the dispute with the other party under the relevant jurisdiction. However, you could argue that an Australian court hears the dispute if neither party physically operates in the country whose body of law applies to the contract. Courts will likely recognise that during a contract dispute, both parties will benefit from involving the fewest number of jurisdictions.
Continue reading this article below the formIs There a Legitimate Disadvantage?
When a contract forces you to bring an action in another country, you could argue that this creates a legitimate disadvantage for your company.
In some circumstances, resolving your dispute in an overseas jurisdiction may mean you cannot enforce certain rights that only exist under Australian law. However, you should know that uncertainty alone is not an adequate reason to change the contract’s jurisdiction.
Dealing With a Foreign Jurisdiction
To help you understand how international courts interact, we will use the example of US courts.
As of 2020, the US and Australia have no agreements that will enforce judgments under the Foreign Judgments Act 1991. However, there are some requirements parties will need to satisfy to enforce a judgement in an Australian Court, including demonstrating:
- that the US decision is final and conclusive;
- there are identical parties to the proceedings, and
- the claim is for a calculable sum or a fixed debt;
This example demonstrates that Australian courts will allow the law of a foreign court to apply. Similarly, parties to a dispute can also argue that an Australian court addresses a foreign judgement.
Key Takeaways
Before entering into a contract, you must understand the governing law that applies to your contract so that you know how to resolve potential disputes. Additionally, you should avoid overlooking the clause outlining the governing law. This is because in some cases, the laws of another country may not recognise the same rights as Australian law.
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Frequently Asked Questions
Once you identify the governing law, there is no simple way to change the governing law that applies to the contract. Generally, contracts do not allow one party to change the contract unless both parties agree unilaterally.
Australian law will likely govern the contract if you are an Australian business providing another party with your business contract. However, if an overseas business provides you with their business contract, the laws of their country will likely apply.
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