In international negotiations, often the parties focus their mind on the economic terms of contract and on certain clauses (specially, regarding mutual liability, time for performing, quality of goods or services, etc.) while little space is given to other clauses, even if such clauses are very important in case of a dispute.
One of them is the choice of the law applicable to the contract.
We need care in such a choice, because the relevant material law fills all the gaps in the contract (i.e. the law provides for any case non contemplated in the text of the contract), but also the material law may overrule the parties’ agreement, if it is mandatory in certain issues.
Which law is the best to apply? There is no right answer, it depends on the circumstances.
Often, the stronger party demands the law of its own country, but this can be unwise under certain circumstances.
In a recent case, in a contract between an Italian company and a Polish company, the stronger party imposed Italian law as the material law of contract.
But the parties forgot to agree on the “choice of forum” clause (another typical “midnight clause”).
So, Brusselles I Regulation applies.
When the Italian company brought its claim before an Italian Court, the Polish company objected the lack of jurisdiction of Italian Courts, because – according to art. 2 and 5 n. 1 lett. b) Brusselles I Regulation – only a Polish Court has the jurisdiction on this case.
But Polish judges will be obliged to apply the material Italian law, according to art. 3 Rome I Regulation. Is this wise?
When parties are drafting a contract, they have to be careful that clauses should be consistent and they should avoid any unnecessary complication.
Parties can choose a “transnational” law as the UNIDROIT Principles, but they have to remember that the UNIDROIT Principles do not cover every possible issue, so they also have to choose a statutory law that could fill any eventual gap.
Also the choice of forum is relevant and not easy.
Is it better to go before “my” Court or is it better to go before the other party’s Court, where the assets are located?
There is not “the” right answer, it depends on many factors as length of proceedings, costs, possibility of enforcement of a foreign decision and so on.
It is worth remembering that many international commercial disputes are solved by arbitration.
But, even in this case, it is wise to decide carefully what kind of arbitration is preferable.
It is difficult to do so before a dispute arises, but a well-drafted arbitration clause is timesaving and cost-saving.
First of all, we have to decide if an institutional arbitration or an ad hoc arbitration is more desirable. The latter can be more tailored on the circumstances of the case, the former offers a tested set of rules and a predetermined scale of fees.
But there are many differences among the institutional arbitrations, so we need to choose the one that is the closest to our expectations.
For instance, only recently the institute of Emergency Arbitrator has taking place in various sets of rules (e.g. ICC, Swiss Chamber, LCIA and now CIETAC).
It is worth checking if the arbitral tribunal has the power to grant interim measures or order securities for costs.
For these reasons, while drafting an international contract, a legal piece of advice is very important also on these issues, provided by lawyers skilled in international trade and in arbitration.
We can conclude that it is better if you lose a couple of hours of sleep but your contract is well drafted: it is cost saving behaviour and you will avoid troubles in the future or you will minimize them.
Avv. Bernardo Cartoni – Kancelaria Prawnicza Bernardo Cartoni i Wspólnicy
Key words: midnight clauses, choice of law, arbitration.