Throughout the world, there are several types of civil law used to govern the transactions occurring between buyers and sellers. Here in the USA, our laws are mainly derived from English Common Law. The French have their laws rooted in Napoleonic Law, while most Latin countries are steeped in both Roman Law and Spanish Civil Law. Many Islamic countries require commercial transactions to be governed by Islamic Law (as stated in the Koran and interpreted by religious “Judges”).

in this brief article, I will not enter into a discussion of the difference between each type of law. It’s sufficient to understand that just because “our law” operates in a particular fashion, things might not work the same way even in the next country to the North or South of our own borders.

Choice of Law

Many sellers incorporate a “Choice of Law” clause in their sales contracts. For example, “This contract shall be interpreted under the laws of the State of New York.”

A clause such as this usually sounds like a good idea. However, when it stands alone, without a venue (location) for the resolution of any disputes specified, it can generate difficult consequences, as explained below.

The “natural” venue for any lawsuit is typically the locale of the debtor. Therefore, a stand-alone choice of “the laws governing the State of New York” could actually end up directing a French judge holding a trial in a French court to utilize New York Law. For obvious reasons, that places the French judge in an impossible position. What would he know about New York law? And French attorneys for both the plaintiff and the defendant would be at a similar disadvantage.

Choice of Venue

In order for a Choice of Law clause to have any real effect, there must also be an accompanying “Choice of Venue” clause, where both parties agree to a particular place as the proper location to resolve any disputes. For example, “All disputes shall be resolved by a court of competent jurisdiction in the State of New York.”

The Ultimate Result

Even defining both a Choice of Law and Choice of Venue is not enough protection. Sellers must also ensure that any judgment they obtain in their home venue will be enforceable by the courts in the debtor’s country. Simply stated, if there is no reciprocal treaty between the seller’s and buyer’s countries to guarantee the enforceability of judgments, Choice of Law and Venue clauses have no advantage and should be excluded from the sales contract.

Otherwise, a seller in California, for example, could obtain a California judgment against, say, an Indian buyer, only to see the judgment regarded as useless by the Indian court. The California seller would then have to start with an entirely new lawsuit in India.

How can you determine if local judgments are enforceable in a foreign country? Excellent question! And one we'll deal with in the August 2006 issue of the Credit-to-Cash Advisor when we discuss international sales contracts and enforceability. In the meantime, if you have a question about a specific country, feel free to email your question via the Advisor Question link at the top of this article. We’ll do our best to get the answer for you.

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David Greenberg's collection industry experience spans three decades. Dave was instrumental in the expansion of ABC-Amega’s international collections department and their earning of “E” and “E-Star” honors from the U.S. President for excellence. He has served on the Panel of Commercial Arbitrators of the American Arbitration Association and is a current member of the Commercial Law League of America and the Association of Executives in Finance, Credit and International Business. Dave has traveled the world, giving educational presentations in the areas of international arbitration, foreign documentation, and credit reporting management.

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This information is provided by http://www.abc-amega.com" target="_blank">ABC-Amega Inc. -- providing 1st and 3rd party commercial collection services since 1929, and collecting in more than 200 countries worldwide. For further information, contact mailto:info@abc-amega.com">info@abc-amega.com.>