What law and forum to select?

KK Sarachandra Bose a partner/corporate, commercial and contract lawyer at Dar Al Adalah Advocates & Legal Consultants

By KK Sarachandra Bose

Organisation of business is a matter of municipal laws. As such, the organisational form that a business can assume depends on its place of creation. While entering into contracts, it is important for the contracting parties to understand the legal system in the country. The legal system in one country can vary greatly from that in another.

Business forms in Civil Law States are different than those in Common Law States.

The principles of contracts – the contract is the law of the parties and agreements are to be observed, have always constituted an integral part of most legal systems, including the Anglo-American Common Law System and the Romano-Germanic Civil Law System. Another System that has become important internationally, in recent years, is the Islamic Jurisprudence System.

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The Law and Forum selection clause, in a contract that names the laws and the court or arbitration tribunal where the parties want to resolve disputes, is to be done carefully. Consent will be implied if there are enough ‘contacts’ between the juridical person and the foreign state.

In the US there must be a set of minimum contacts that allow a court to extend its jurisdiction over a foreign corporation.

It is true that the contract is the law of the parties and the terms of the contract are to be observed. But this right is not without restrictions. The parties are free to select the law and dispute settlement forum to their convenience, but as in every right there are restrictions, so the right to select the law and forum is also restricted. These rights should not be applied vaguely and it is not based on customary practice.

In Common Law countries, by the ‘choice of law,’ if parties to a dispute have agreed to the application of the law of a particular country, even if they have no factual connection with that country, their choice may be enforced. The Common Law system is based primarily on court-made rules or precedent, the doctrine that all persons, including the sovereign, are subordinate to the rule of law.

Supremacy of the law means that the king, the government and acts of the ordinary government agencies can also be reviewed in the courts.

But in a Civil Law system, it is different. There are no court-made rules or precedent and the sovereign is not subordinate to the rule of law and the law courts seldom criticise or review the laws.

In deciding the convenient forum, the courts will also consider the ‘most significant relationship’ doctrine and apply the law of the state that has the most ‘contacts’ with the parties and their transaction. In contract cases, the place of contracting, the place of negotiation, the place of performance, the location of the subject matter, and the nationality, domicile and resid-
ence of incorporation of the parties will determine the relationship.

A court may refuse to exercise its power to hear a case on the ground that it is either inconvenient or unfair. In order to determine an inconvenient forum, the court will consider the private interests of the parties, including the cost of access
to documents and witnesses, and the public interest factors including the interests of the forum state and the burden on the court.

Judgments awarded by a municipal court are generally enforced with little difficulty in the forum state. When requested to convert a foreign judgment into an enforceable judgment, a court will hold a hearing and, if it believes the request is justified, it will issue an appropriate order.

When a litigant brings a suit to a foreign court, it sometimes dismisses it as inconvenient, but if it does not, a court in the litigant’s home country can intervene to prevent the proceeding. The home country court may use an ‘anti-suit injunction’ device, directing the litigant not to proceed ,either to protect its own jurisdiction, or to prevent evasion of its public policies.

Curriculum Vitae
KK Sarachandra Bose is a partner/corporate, commercial and contract lawyer at Dar Al Adalah Advocates & Legal Consultants, Dubai. He has been in practice for over 30 years and advises several banks and corporate bodies. He is also a member of the International Bar Association and a visiting professor in International Business Law. He obtained his law degree from RL Law College, Belgaun, Karnataka, India.