This article is written by Kabhilakshya D V of Government Law College, Madurai , an intern under Legal Vidhiya
INTRODUCTION
The global economy today is alive with billions of foreign business transactions, all of which require binding legal commitments. The legally binding agreements outline the rights, responsibilities, and expectations for everyone involved. International contracts are the infrastructure for enabling the conduct of trade, investment, and partnerships globally. International contracts can be on any subject matter, including but not limited to trade, service, technology, partnerships, and transportation agreements. In today’s global economy, companies must engage in foreign contracts, which involve parties from different legal systems. These contracts rely on principles such as offer, acceptance, consideration, and mutual intention. Issues like choice of law, jurisdiction, dispute resolution, and international conventions are crucial when interpreting and enforcing these contracts.
WHAT IS FOREIGN CONTRACT
An international contract is essentially an agreement between parties from different countries. It provides the legally binding rights and liabilities for the parties. Typically, these contracts involve the exchange of goods or services, and they might also include financial transactions or commitments for future actions. The legality of international dealings hinges on these contracts, which are used across various sectors like transportation and sales. These agreements are crucial as they cover a broad spectrum of commercial activities, including the sale of goods, services, intellectual property, technology transfers, and more. With the variety of international contracts out there—think sales contracts, commercial agency agreements, distribution deals, licensing agreements, and franchise contracts—there’s no one-size-fits-all approach. Each international business contract presents its own set of unique challenges[1]
LEGAL FRAMEWORK GOVERNING FOREIGN CONTRACTS
’Indian Contract Act, 1872
The foundation of contract law in India is laid out in the Indian Contract Act of 1872. This Act outlines how contracts are formed, performed, and enforced. While it covers the general principles of contract law, it doesn’t specifically tackle jurisdictional issues in foreign contexts. That said, the sections concerning choice of law and dispute resolution methods in contracts are crucial when it comes to handling international disputes.
Civil Procedure Code, 1908
The Civil Procedure Code (CPC) of 1908 plays a vital role in defining how Indian courts handle foreign disputes. Specifically, Sections 20 and 21 outline the jurisdiction of civil courts, detailing the circumstances under which these courts can take on cases involving foreign parties. In simple terms, a foreign defendant can be brought to court in India if they have a physical presence or business ties in the country, or if the issue at hand originated in India’[2].
INTERNATIONAL INSTRUMENTS AND AGREEMENTS GOVERNING JURISDICTION
“Several international treaties and agreements address jurisdictional matters in foreign commercial transactions. These instruments seek to create a more uniform legal framework to minimise the risks of conflicting laws and inconsistent judicial decisions. Some of the key international instruments include:
- The Brussels I Regulation (Recast): The Brussels I Regulation (Recast) is an important piece of EU legislation that outlines how jurisdiction works and how civil and commercial judgments are recognized and enforced across the EU.
- The Hague Convention on Choice of Court Agreements: This treaty seeks to provide greater legal certainty by requiring courts in contracting states to uphold exclusive choice of court agreements and to enforce foreign judgements arising from such agreements.
- The New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards: As mentioned earlier, this convention facilitates the recognition and enforcement of arbitral awards across more than 160 countries. It has been instrumental in promoting the use of arbitration for foreign disputes”[3].
JURISDICTIONAL CHALLENGES IN ENFORCING FOREIGN CONTRACTS
One of the greatest problems in international contractual disputes is the problem of jurisdiction. Jurisdictional clauses are often included in contracts with a specification of the court or legal system that will have exclusive jurisdiction over any disputes that may arise from the contract. Depending on the jurisdiction, the jurisdictional clause may not be enforceable or legal systems may conflict. Conflicts of law, alternatively called private international law, further complicate this determination of jurisdiction. Conflicts of law occur when the laws of two or more jurisdictions conflict, hence making it difficult to understand which legal system should apply.
DIFFERENT APPROACHES AND PRINCIPLES OF JURISDICTION
1. Exclusive Jurisdiction:
Exclusive jurisdiction is when only one specific court or jurisdiction has the power to handle a certain case. In this scenario, no other court or jurisdiction can step in to take charge of the issue. In cases involving intellectual property disputes, the World Intellectual Property Organization (WIPO) holds the exclusive authority to handle matters related to international trademarks and patents.
2. Concurrent Jurisdiction:
Concurrent jurisdiction comes into play when multiple courts or jurisdictions have the power to oversee a particular case. In that case the plaintiff could choose which court to commence the lawsuit. For example, in the U.S., both federal and state courts have concurrent jurisdiction over certain cases, therefore the plaintiff gets to choose whether to pursue the case in courts.
3. Territorial Jurisdiction:
Territorial jurisdiction is based on the geographical location where the incident or dispute arose. It defines the court and jurisdiction that has authority to hear the case based on where the incident occurred. For example, if there was a contract dispute between two parties in France, then French courts would have territorial jurisdiction.
4. Subject-Matter Jurisdiction:
Subject-matter jurisdiction is all about which court has the power to hear cases related to specific types of issues or subjects. This type of jurisdiction is based on the kind of legal issue involved in the dispute. For example, family courts may have subject-matter jurisdiction over divorce and child custody cases; criminal courts may have jurisdiction over criminal acts.[4]
THE IMPORTANCE OF CHOICE OF LAW AND JURISDICTION CLAUSES
‘In foreign commercial transactions, businesses can navigate uncertainty and manage risks more effectively by incorporating choice of law and jurisdiction clauses into their contracts. These clauses clearly outline which legal system will govern the contract and which court will have the authority to resolve any disputes that may arise.
1. Choice of Law Clause: This clause specifies which country’s legal system will apply to the contract. For example, if a British company is entering into an agreement with a German firm, the choice of law clause might state that English law will govern any contractual disputes.
2. Jurisdiction Clause: This clause identifies which court or tribunal will have the power to hear any disputes stemming from the contract. These clauses can be exclusive or non-exclusive. An exclusive jurisdiction clause mandates that disputes must be resolved only in the designated court, while a non-exclusive jurisdiction clause permits parties to bring disputes in multiple jurisdictions.
By including these clauses in international contracts, businesses can gain predictability and certainty regarding the legal framework that will oversee their transactions. Without such provisions, parties might find themselves embroiled in lengthy and expensive jurisdictional disputes over where and how to resolve legal matters’[5].
CHOICE OF LAW
When figuring out which court has the authority to handle a dispute, it’s equally important for the parties involved to agree on which laws will govern the resolution. This is a crucial factor, and it’s wise to seek advice on whether the laws from another country or state might be more advantageous. If the court with jurisdiction is using the laws from a different country, they’ll need expert testimony to clarify what the relevant law entails. This can lead to complications if there’s conflicting expert evidence regarding the applicable law, adding extra costs to the litigation process. Consequently, most jurisdiction and choice of law clauses will clearly state that the governing law is that of the court with jurisdiction over the matter. Additionally, it’s essential for the parties to think about the law that applies to any arbitration agreement that might be included in an arbitration clause. Arbitration agreements can stand apart from the main contracts, and different jurisdictions have come to various conclusions about which law should apply to the arbitration clause. The choice of law for the arbitration agreement can significantly influence the outcome of the dispute.
The Doctrine of Lex Fori, The lex fori doctrine, meaning the law of the forum, holds that procedural matters are governed by the law of the country where the court is located. Indian courts apply this doctrine, meaning that while the substantive law governing the contract may be foreign, procedural aspects will be governed by Indian law.
Renvoi and Anti-Suit Injunctions, Renvoi is a conflict of laws principle where the court refers to the law of another country, including its conflict of laws rules. Indian courts occasionally engage in renvoi to avoid unjust outcomes. Additionally, anti-suit injunctions are used by Indian courts to restrain parties from initiating parallel proceedings in foreign jurisdictions, as evidenced in the case of Moser Baer India Ltd. v. Koninklijke Philips Electronics NV[6]
OVERCOMING CHALLENGES IN FOREIGNJURISDICTIONAL DISPUTES
“Navigating the enforcement of judgments in foreign jurisdictional disputes can be quite a tricky endeavor. When individuals or businesses from different countries find themselves in a contractual disagreement, figuring out which country’s laws should apply and where the dispute should be settled can create a maze of legal challenges. In this section, we’ll dive into some of the hurdles that pop up when enforcing judgments across borders and share some helpful tips and real-life examples to help tackle these issues.
1. Recognition and Enforcement of Foreign Judgments: A major hurdle in foreign disputes is getting foreign judgments recognized and enforced. Just because a judgment is issued in one country doesn’t mean it will automatically be accepted in another. Parties often have to wade through intricate legal systems and meet specific criteria to have their judgment acknowledged and enforced abroad. Take the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, for instance; it lays out a framework for enforcing arbitral awards in over 160 countries, making the process smoother for those involved in international arbitration.
2. Forum Non Convenient: Another obstacle in foreign jurisdictional disputes is the doctrine of forum non convenient. This principle allows a court to refuse jurisdiction if it finds that another jurisdiction would be a better fit for resolving the issue at hand. The court will weigh factors like the convenience for the parties and witnesses, the location of key evidence, and the relevant laws. A notable example is the case of British American Tobacco v. Kazemier[7], where the English Court of Appeal decided that England wasn’t the right place to handle the dispute since the crucial evidence and witnesses were based in the Netherlands.
3. Choice of Law: Determining the applicable law in cross-border jurisdictional disputes can also be challenging. Parties may have different opinions on which law should govern the contract, leading to conflicts and disputes. It is crucial for parties to clearly specify the choice of law in their contracts to avoid ambiguity and potential conflicts. Additionally, parties can also consider alternative dispute resolution mechanisms such as arbitration, where they have more control over the choice of law.
4. Extraterritorial Jurisdiction: In some cases, a court may assert extraterritorial jurisdiction, which allows it to exercise authority over parties or events outside its territory. This can create challenges when enforcing judgments, as parties may contest the court’s jurisdiction. For example, the United States has asserted extraterritorial jurisdiction in cases involving antitrust violations, allowing it to enforce judgments against foreign companies. Parties involved in foreign disputes should be aware of the potential for extraterritorial jurisdiction and seek legal advice to navigate through such challenges.[8]”
CONCLUSION
Navigating jurisdictional issues in foreign commercial transactions can be quite tricky, presenting a unique set of challenges that might affect the outcome of disputes and the enforceability of judgments. By grasping the essential legal concepts and hurdles tied to jurisdiction, businesses can take proactive measures to manage these risks and reduce the chances of expensive litigation. It’s crucial to draft contracts carefully, select the right dispute resolution methods, and ensure compliance with international agreements to effectively tackle the complexities of foreign transactions. In the end, the secret to successful foreign transactions is all about thorough preparation and a solid understanding of the legal frameworks in the countries involved.
[1] Ahlam Mekkaoui, International trade, https://academy.iccwbo.org/international-trade/article/understanding-and-negotiating-key-clauses-in-international-contracts/
[2]Jurisdictional Issues in Cross-Border Contracts: Navigating International Disputes with a Focus on India, 20th July, 2024, https://thelegalquorum.com/jurisdictional-issues-in-cross-border-contracts-navigating-international-disputes-with-a-focus-on-india/.
[3] Understanding Jurisdictional Issues in Cross Border Commercial Transactions, https://michaeledwards.uk/understanding-jurisdictional-issues-in-cross-border-commercial-transactions/#The_Importance_of_Choice_of_Law_and_Jurisdiction_Clauses
[4] Jurisdiction: Jurisdictional Challenges in International Contractual Disputes,31 Mar 2025, https://fastercapital.com/content/Jurisdiction–Jurisdictional-Challenges-in-International-Contractual-Disputes.html#Understanding-the-Concept-of-Jurisdiction-in-International-Contractual-Disputes
[5] Supra note 3
[6] Moser Baer India Ltd. v Koninklijke Philips Electronics NV (2008) 2 SCC 322.
[7] British American Tobacco v. Kazemier ,[2015] UKSC 65
[8] Supra note 4
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