What law should you apply in your contract?

Simon Roth
Simon Roth

When a Swiss company goes international, it enters into contracts with foreign partners. At this point, you must decide which law is to be applicable to the contract. The so-called choice of law is often treated as an unimportant point in the "small print". However, in the event of a dispute, the chosen law can be decisive. Why this is the case, we explain in this post.

Contract law is not unified worldwide. For example, there are differences in the following areas:

Contract interpretation

A contract is rarely 100% complete in the sense that every word is precisely defined. Judges and arbitrators must then interpret the contract. The factors that are decisive in this context vary worldwide. In Anglo-Saxon countries, for example, the focus is much more on the wording. Continental European legal systems, such as Swiss contract law, leave more room for interpretation based on the overall circumstances that were present when the contract was made.

Liability

An important provision of a contract is the liability clause. Is liability for certain events excluded? Is there a limit on the amount? What about liability for employees' actions? Different legal systems allow different possibilities in designing these issues. The Swiss Code of Obligations, for example, does not permit a limitation of liability in cases of gross negligence.

Mandatory provisions

Each national contract law contains provisions which the parties cannot change in the contract. If you try to override such rules in the contract nevertheless, you can disappoint the expectation that the parties have agreed what is stated in the contract. For example, in Swiss law, consulting contracts can be terminated at any time, even if the contract provides for a period of notice of six months. The move to a different legal system could remedy this situation.

Summary

An international contract must be subject to a national law. The choice of the legal system can be decisive. As part of the contract management process, you should therefore carefully examine the question and choose the most appropriate law.

With this post, we start the series "International Contract Law". In this series, we will present the main differences between two legal systems, which are often chosen in international transactions: Swiss and English law.

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