The Fine Print That Decides Everything

Key questions

At the end of every international contract there is a short clause on governing law and the competent court. It looks like a formality, until a dispute appears and you realise you must conduct it in a foreign country, in a foreign language, under foreign rules.

So before signing, it is worth asking four questions about that clause.

1. Where would a dispute be held?

If the court in the supplier's country has been agreed, conducting a dispute means foreign representatives, travel and costs that may exceed the value of the dispute itself.

Questions before signing: do you know in which country and in which language a dispute would be held, and who would represent you there?

2. Under which law would a dispute be decided?

Even if you win a dispute, enforcing a judgment under a foreign law can bring surprises that are hard to see in advance.

Questions before signing: do you know the agreed law? Would enforcing a judgment under that law be possible, and how long would it take?

3. Is there a neutral option?

Instead of the court in the stronger side's country, a contract may provide for a neutral third country or arbitration.

Questions before signing: does the contract mention a neutral option? Have you considered proposing one? What would the supplier answer?

A neutral option can mean a third country or arbitration. Arbitration is a private procedure in which arbitrators chosen by the parties resolve the dispute under rules agreed in advance, and the outcome is generally harder to challenge than a court judgment. It has its own cost too, so before you propose it check who picks the arbitrators, where the proceedings take place, in what language and who bears the costs.

4. How much would a dispute cost?

Questions before signing: have you estimated in advance what conducting a dispute under the proposed clause would realistically cost? How does that figure change your negotiating position?

An imagined example: the contract is worth EUR 40,000 and the supplier fails to deliver goods worth EUR 20,000. To claim that amount before a foreign court you need a foreign representative, translated documents, travel and time. If those costs alone reach EUR 12,000 and the outcome is uncertain, the gap between what you could recover and what you would spend is small. The supplier knows this, which is why your negotiating position is weaker than it looks on paper.

The figures are made up and only show the arithmetic. For your own case, use real quotes from a representative.

5. How to answer these questions

For each question write down what the contract says, what you assume and what still needs checking. If most answers are assumptions, the signature can wait until you have checked them.

If the supplier will not accept a neutral option

A common outcome is that the supplier insists on its own court. It then makes sense to ask about middle-ground options instead of walking away from the negotiation at once:

1. Court or arbitration in the defendant's country, so each side defends a dispute at home.

2. Arbitration in a third country under well-known rules, with the costs shared.

3. Mediation as a mandatory first step before any dispute.

4. A cap on costs, or a deadline within which a dispute must be started.

What you ask for depends on the value of the contract and how much you need the supplier.

Warning

This article is a business analysis, not legal, tax or financial advice. The decision is always yours.

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