Speaker 1: Welcome to this episode of Talking Legal with Templers. I am Chidibere Jofo, a senior associate at the Disputes Team of Templers. With me here today is Oji Oka, also a senior associate at the Disputes Team of Templers. Oji, you are welcome. Thank you very much, Chidi. Thank you for having me on. The topic today is private international law considerations in cross-border contracts. As we all know, in the business world, several contracts are entered into every day by counterparties from different parts of the world from different countries and each of these countries has their respective judicial and legal systems and they are all independent. When disputes arise in these contracts, what courts will have jurisdiction to entertain these disputes and the very applicable law to these contracts still need to be determined. What law will apply to these contracts that cut across different borders? This will be the focal point of our discussion today on this topic. Let us now go into the specifics. What do we mean by cross-border contracts and private international law?

Speaker 2: Thank you once again, Chidi. When we say cross-border contracts, we are talking about contracts involving people from other world countries. People enter into contracts every day as you rightly pointed out, but there are some that are domestic contracts. All the parties to that contract are all located in one place, so that one does not involve private national law because it is one legal system, it is one national law that governs. But when you have contracts involving people from other world countries, there are some contracts that have people from two or more countries. That is what we mean by cross-border contracts. And when we say private international law, we are trying to distinguish it from public international law, which is a branch of a law that deals with agreements or contracts entered into by countries or states at the international level. But here we are dealing with private entities or individuals. That's what we mean

Speaker 1: by cross-border contracts. For parties who go into cross-border contracts, what are

Speaker 2: the key considerations? Yes, so when parties enter into cross-border contracts, there are three basic questions that they should ask themselves. One is which law would govern the contracts? So that's the question of the governing law. The reason for this is, as I said earlier, you have people from different countries and there is no special law anywhere that governs international contracts or private international law contracts. It's a question of the various governing laws that would apply. So there are three parties, parties A, B, C, from three different countries. Each party wants its own country's law to govern the contract. And these countries are all independent in their autonomous national system. But for that contract, you have three international laws potentially applicable. So the question of public international law answers is which of the three, in this case, governing laws would apply to that contract. So that's question one. Question two, if this arises between the parties, in terms of interpreting the contract, or if it is a breach of contract that's taking place, which of the national courts would have jurisdiction? Once again, as I mentioned earlier, you have three parties from three different countries in a contract. Each of them have their countries with their national legal systems, one of which will be competing to have jurisdiction. So of the three of them, which of them would have jurisdiction? So it's not automatic that the country that has the governing law also has jurisdiction? Absolutely. There are two different things. It's not automatic. And the third question is, after one of those courts has assumed jurisdiction and heard the case, would the government of that cause be enforced by all other countries in the world? So there's

Speaker 1: the three questions of the public international law. So as I hear you well, the considerations are the governing law, courts with jurisdiction and enforcement. Absolutely. Now, let us take the first one, which is governing law. How is it determined? Governing law is one of the most

Speaker 2: important questions that public international law seeks to answer. And as I said earlier, when parties enter into a contract, they have to determine for themselves what the governing law is. So there's a concept known as party autonomy. Party autonomy basically is an effect that the parties to a contract are at liberty to select for themselves the law that will govern their contracts. And one of the things that normally happens is that you see that parties agree. Typically during negotiations, the parties will have a clause in the agreement that says governing law. And then you will typically see, again, in cases involving more than one country, which is corporate contract, you see them fighting or there's a dispute among them at the stage of drafting the contract or negotiating the contract of what the governing law is. So the major issue there is for them to choose what the governing law is. But sometimes they don't choose, and the court can imply and see it from the facts. So before we get to that,

Speaker 1: it's part of the questions we'll consider separately. So I hear when you say parties have the right to choose their governing law, and typically with the principle of sacrosanctity of a contract, it means that whatever term they agree to, we bind them, including the governing law, absolutely, to the contract. So this party autonomy that we speak of, does it have any

Speaker 2: limitations or is it absolute? Oh, no, it's not absolute. There are at least three limitations to party autonomy. So one is what we call mandatory rules. So some countries have rules that are mandatory. So the parties cannot contract out of it. The parties cannot say this is what to govern and when that mandatory operation is there. For example, if you're entering to a contract that has to do with sale of land or any property in any part of the world, more often than not, the governing law of that contract will be the law of the place where that land is situated. But since we're discussing contracts, commercial contracts, Australia, let me use other examples. If you are, for example, contracting in the oil and gas sector in Nigeria, typically you cannot decide for yourself that that contract will be governed by the law of Brazil, for example. Although you have autonomy to choose your governing law, but the mandatory rules of a particular country can say, in special contracts, it is only the laws of a country that govern it. And you are bound by it as long as you're contracting in that country. And that example is what we call public policy. For public policy reasons, countries can say this aspect of contract, for example, employment contract, will only be governed by the law of the place where the employee typically works. Again, I'm just giving an example. So public policy is a limitation. And for me, what is even the most important limitation, because I don't agree with this, is what I have referred to as Joys of Love Limitation. Nigerian courts, for example, have held that although parties are able to choose their governing law, that choice should not be capricious. So in other words, you cannot just decide to choose any governing law that has no bearing or business whatsoever with the contract. An example, in Nigeria and Ghanaia, there is a contract for the supply of grains, wheat, whatever it is. And if parties don't agree because they have party autonomy, then the contract will be governed by the laws of Brazil. Nigerian courts have held, in a particular case, that that choice was not an effective choice because Brazil had no business with the contract between the parties.

Speaker 1: So in other words, there should be some form of connection to that. Absolutely. That's the exact way, the connection. Wouldn't you consider that the courts in Nigeria are trying to protect perhaps the less advantaged parties who may not have that power to contract and who the bigger party may want to act with by probably choosing a law that may be out of its reach? Because if you were to choose a law from Brazil or any far country, it would mean retaining a lawyer, seeking legal advice, and paying legal fees that may be out of reach, and effectively shutting the person out of the adjudicatory process. So haven't you considered that that may be the reason, the basis for the court's decision in that case?

Speaker 2: I don't want to be too critical, but my point is that there is a concept of party autonomy. And as you mentioned earlier, parties are bound by their contracts. It is international law, in international law, the courts of Pacta Sunsevanda. Parties are bound by their contracts. And so when they get into those contracts, they are bound by it, including the choice of governing law. But that's what Nigerian courts have said. Who am I to question them?

Speaker 1: Absolutely. Now, what are the benefits that come to parties when they choose governing laws like

Speaker 2: themselves? That's a valid question to ask, Zechidi. Parties, most people don't know this, but the choice of governing law in a contract can, to a large extent, reduce your transactional costs. Because when a dispute arises, because most of the times, if parties enter into a contract and there are no issues, there are no disputes, we won't even know about them. Now, we know about these contracts when a dispute has arisen, right? Now, when a dispute has arisen and the party's contract is signed on the governing law, you discover that the first leg of that dispute will be to determine the governing law. And cases have lasted in court for several years, all on the question of a governing law. So what parties should know is that by choosing governing law expertly, they are choosing for themselves a transaction that would not cost a lot of money because you will not have to spend money choosing, determining your governing law. And then there's also the certainty part of it. It is certain we've agreed on the governing law. And then number three, again, is when a dispute arises, it's very simple for you to know this is a law that will govern the contracts. You don't have to spend time, energy, or resources litigating the question about the governing law. And including the validity of the contract itself. Of course, the governing law answers a number of questions. It determines whether the contract is valid in the first place. It determines the right and obligation of the parties. And if this argument has been terminated, the governing law also helps you to answer that question.

Speaker 1: Thank you. So you've said that even in instances where parties choose a governing law, which the Nigerian courts have considered unreasonable and do not have any connection to the contract, they've been strumped out. How about in instances where parties feel, whether deliberately or by omission, to choose a governing law? How do the courts arrive at

Speaker 2: the applicable law? Okay, so there are at least three instances that normally happens. One, where the parties have explicitly chosen a governing law. So you have an express choice. There's also instances where the parties' choice can be implied. And then the third option, which is what you've asked about, where the contract is completely silent. Where the contract is silent, it becomes the duty of the courts to determine what the governing law is. And the court does that using what we call the crisis connection test. That test looks at the entire circumstances of the contract and chooses the governing law with which the contract has its closest and most real connection. And there are a number of factors that the courts will concern in doing that. For example, what is the language of the contract? What is the place of performance of the contract? What is the currency of the contract? All of these factors, what is the nationality of the parties to the contract? By the time the courts are out, they consider all of these factors. The courts will then arrive at a conclusion as to which of the governing law has the closest and most real connection with that contract. And I should mention this, that when we say the court does a balancing act, it's not a mechanical exercise. The question of which of them, maybe if there are seven factors, four in favor of one country and three for another country. It doesn't work that way. There are some factors that are more important. For example, the place of performance of the contract is the most important factor for the court to consider. So once the parties have a place of performance of the contract, more often than not, that place will be the loss of that place will be the governing law.

Speaker 1: And you agree with me that that is reasonable because if you were to call witnesses, where would they be ready? Most likely where the contract would come out of is a fund. So the cost of litigation will be reduced for both parties. Yes. Okay. Let's now go to jurisdiction. Of course, when these contracts go well, they end in handshakes and everyone is happy. Of course, unfortunately it doesn't happen like that all the time. Disputes always arise. And when this happened, how do we determine the courts that will have jurisdiction to entertain

Speaker 2: these disputes? Okay. So when it comes to courts with jurisdiction, there are three instances where a court can assume jurisdiction to entertain a case. One is under private international law. One is where the parties have chosen that courts as the court with jurisdiction. So just like party autonomy I mentioned earlier, when it comes to governing law, parties can also say to themselves, this is the court that will have jurisdiction over our dispute. So you have your governing law clause. This contract is governed by the laws of England and Wales. Then you have the judge of court agreement that says any dispute arising under this contract shall be exclusively resolved by the Nigerian courts. So parties have chosen that courts to have their dispute resolved. Could also be the same country with governing law? It could also be the same, but not necessarily the same. As a matter of fact, it's a negotiating strategy I've seen in these days where parties enter into a contract from different countries, but the world will say, okay, governing law will be your own country's governing law, while choice of courts will be my own choice of courts. And I presume each of these will have its own advantages. They all have their own advantages, but it's not something to do just for the sake of it. It's not a negotiating strategy. You should do it when you know what you're doing. Because as a matter of fact, the courts of a country can interpret any law. The only thing is that they will apply it as a question of fact. So you have to call foreign parties and give evidence. So you can have that. You can also have submission whereby a court has assumed jurisdiction and the party, the other party does not object to jurisdiction and indeed either enters appearance and unconditionally or defends the case on the merits. In that way, the court will have jurisdiction. And then there's also the instance where the parties, the court in question would assume jurisdiction over someone that's outside of the country. In England, again, I'm using it because you know Burundi are not from England. They have instances where they call service out, which means the focus of that case or the contracts suggest that English law is the appropriate forum for the case. What the English courts would do would then be to give you leave or permission to 70% out of jurisdiction. Under that circumstance, the court will have jurisdiction. But what I want to mention is that Nigerian courts also have this general rule that parties cannot confer jurisdiction on courts that don't have it or take away jurisdiction that courts have. So Nigerian courts have had to answer the question a number of times whether by parties choosing governing the choice of courts agreement, they have outside the court's jurisdiction. It's a controversial area which Nigerian courts

Speaker 1: have unified their petitions to. So what would you consider to be, you know, takeaways for the business world in considering cross-border contamination? Absolutely. So you know,

Speaker 2: when you enter into a contract, you want it to be enforced. And when you have a dispute and you go to court, you want the judgment of the court to be enforced. So parties should be careful when entering into contracts. Parties should, well, basically, you know, you have to enter into these contracts with your lawyers. So just make sure that you have lawyers who know what these issues are and who can negotiate on your behalf. And of course, not all lawyers are experienced in cross-border disputes. Court trials give you a right to dispute. Not at all. But it's something that people should bear in mind when entering into a contract. Thank you, Oji. So we've dealt

Speaker 1: with two of the three elements we mentioned earlier. We dealt with governing law and jurisdiction. The third aspect, which is enforcement, has already been dealt with in an earlier episode of Talking Legal with Templars. So we encourage you to also watch it and we're sure you're going to enjoy it. This has been Talking Legal with Templars. Thank you for watching.