International construction projects are complex endeavours that often involve parties based in different jurisdictions. Establishing clear terms for the applicable law and jurisdiction is a crucial aspect of these contracts, from an enforceability as well as an insurance perspective.
In this article, we will delve into some of the key considerations when determining the governing law and jurisdiction for international construction contracts and their impact on the insurance contracts typically required in international construction projects.
1. The Importance of precision
In the realm of international construction contracts, it is paramount to begin with a precise understanding of the applicable legal framework:
1.1. Choice of law: A choice of law clause serves as the foundational stone in conflict resolution. Factors such as the project's location, the nationalities of the parties, and the host country's legal requirements all come into play. It is common practice to opt for the law of a neutral jurisdiction or one of the contracting parties' home countries, carefully considering the potential impact on the contract's interpretation and enforcement.
1.2. Clear contractual language: The contract should unambiguously state the chosen governing law, and all project-related documentation, including communication and dispute resolution mechanisms, must be conducted in the same language. This precautionary measure minimizes misinterpretations and mitigates disputes arising from language barriers.
Once the governing law is agreed, parties must decide on the jurisdiction where disputes will be adjudicated:
2.1. Choice of jurisdiction: When choosing a jurisdiction for dispute resolution, parties should undertake a comprehensive evaluation. Considerations include the accessibility (including cost) and impartiality of the legal system, the enforceability of judgments, and the availability of specialised construction dispute resolution forums. Parties can also decide whether they wish the choice of jurisdiction to be exclusive or non-exclusive, depending on whether they choose to prioritise flexibility over certainty.
2.2. Arbitration vs Litigation: Another critical determination is whether to favour arbitration or litigation as the method for dispute resolution. Arbitration is often the preferred choice due to its neutrality, adaptability, and the global enforceability of arbitral awards. However, the decision between arbitration and litigation must be explicitly stipulated in the contract.
3. Bridging international and local legal frameworks
International construction contracts necessitate a delicate equilibrium between global standards and local laws:
3.1. Compliance with local regulations: Parties must rigorously ensure their contract aligns with local regulations and standards in the host country. Neglecting this aspect can lead to project delays, regulatory disputes, and financial repercussions. It is prudent to engage legal experts acquainted with both international and local laws to reconcile these dimensions effectively, bearing in mind the intricacies of the parties’ chosen jurisdiction and noting that in some cases, the number of suitable local experts may be very limited.
3.2. Dispute resolution mechanisms: The chosen dispute resolution mechanisms must harmonise international practices with local legal requirements. This may involve tailoring arbitration procedures or litigation strategies to encompass the nuances of the host country's legal system, ensuring enforceability and fairness.
3.3. Proper law of the contract: An express agreement as to choice of law and jurisdiction will not necessarily be upheld if proceedings are commenced in a forum other than that agreed between the parties. Local law may require an initial assessment of the “proper law” of the contract which, in conjunction with forum non conveniens principles and particular statutory remedies not available in the agreed jurisdiction, can sometimes supersede the parties’ agreement.
4. Key considerations/ takeaways
4.1. Beware the ‘midnight’ clause. Choice of law clauses and jurisdiction are commonly referred to as ‘midnight’ clauses as they are they are looked at right at the end of the contractual discussions, without being given full consideration by the parties.
4.2. Do not make any assumptions. Parties should not assume that international forms of contract will be given effect in or will be considered consistent with local laws of individual countries. Careful consideration must be given to whether local laws are compatible with the form of contract adopted by the parties, as this will impact on the local courts’ ability to interpret and apply the contract (e.g. common law concepts may not easily translate/ apply in civil law jurisdictions).
In the intricate realm of international construction contracts, the choices made regarding governing law and jurisdiction are pivotal for the project's success. Clarity, careful jurisdictional considerations, and the harmonisation of international and local laws are the cornerstone of effective conflict resolution. Forum selection and choice of law are fundamental to the allocation of risk in any complex construction contract, and will affect matters of both procedural and substantive law. By proactively addressing these factors, construction professionals can proactively manage risks, pre-empt disputes, and better guarantee the seamless execution of international construction ventures and the effective implementation of the parties’ bargain.