Resolving a Dispute Over the Governing Law of an International Contract

Context: An International Agreement Involving Several Countries

Two companies entered into a long-term services agreement supporting operations across Europe, the Middle East, and North America.

The contract had been negotiated through teams located in different countries. One party provided specialized commercial services, while the other coordinated local implementation through several subsidiaries.

For several years, the relationship operated without a major dispute.

Difficulties began when one party terminated the agreement and the other claimed substantial compensation for wrongful termination.

The Issue: Both Parties Relied on Different National Laws

The contract contained provisions referring to more than one legal system.

One clause stated that the agreement was governed by the law of one country, while another referred disputes to the courts of a different country. Several local annexes also contained inconsistent wording.

Each party argued that the legal system most favorable to its position should apply.

The disagreement affected fundamental questions, including:

• Whether the termination was valid

• Whether advance notice was required

• Which damages could be claimed

• Whether liability limitations were enforceable

• Whether mandatory local rules applied

• Which court or tribunal had authority to decide the dispute

Before the commercial dispute could be resolved, the parties first needed to determine which law governed it.

Why the Situation Was Critical for the Client

The choice of law could materially alter the outcome.

Depending on the applicable legal system:

• The termination clause could be interpreted differently

• Certain damages might be recoverable or excluded

• Mandatory notice periods could apply

• Contractual liability caps might be upheld or rejected

• The limitation period could already have expired

• Proceedings might need to be brought in a different country

The client faced the risk of investing heavily in proceedings before the wrong court or under the wrong legal framework.

The uncertainty also weakened its negotiating position because neither party could reliably assess its exposure.

The Strategic Approach

The priority was to resolve the governing-law question before allowing the dispute to fragment across several jurisdictions.

1. Contract Structure Review

The entire contractual framework was reviewed, including:

• The main agreement

• Amendments

• Local annexes

• Purchase orders

• Termination notices

• Jurisdiction clauses

• Arbitration provisions

• Language-precedence clauses

The objective was to determine whether the apparent conflict resulted from inconsistent drafting, later amendments, or the interaction between the main agreement and local documents.

2. Connecting Factors Analysis

The commercial relationship was mapped across the relevant countries.

Factors considered included:

• Where the agreement was negotiated

• Where the parties were incorporated

• Where the main obligations were performed

• Where payments were made

• Where the alleged breach occurred

• Whether local mandatory laws applied

This analysis helped distinguish the chosen contractual law from rules that might apply regardless of the parties' choice.

3. Procedural Risk Assessment

The client evaluated what could happen if proceedings were started in each potential forum.

This included the risk of:

• Parallel proceedings

• A jurisdictional challenge

• Conflicting judgments

• Delayed enforcement

• Increased legal costs

• One court refusing to recognize another court's decision

The objective was not merely to identify the strongest legal argument, but to determine the most effective procedural strategy.

4. Negotiation Around a Defined Legal Framework

Once the principal legal uncertainties had been narrowed, the client entered negotiations using a more realistic assessment of exposure.

The discussions focused on resolving the commercial dispute without spending months litigating only the preliminary question of applicable law.

Outcome and Resolution

The parties reached an agreement on a framework for resolving the dispute.

This allowed them to:

• Avoid parallel proceedings

• Define the legal principles applicable to the termination

• Narrow the financial claims

• Agree on a settlement process

• Preserve confidentiality

• Reduce procedural cost and uncertainty

The resolution also led the client to review governing-law and jurisdiction provisions across its wider contract portfolio.

Key Lessons Learned

This scenario illustrates several recurring issues:

• Governing law and jurisdiction are related but separate questions

• Inconsistent clauses can create a dispute before the main dispute begins

• Local mandatory rules may apply despite a contractual choice of law

• Standard templates should not be combined without legal reconciliation

• Procedural strategy can be as important as the substantive claim

Final Note

An international contract should identify not only what the parties must do, but also which legal system will determine what happens when they disagree.

The central lesson is:

a governing-law clause must be clear, consistent, and aligned with the chosen dispute-resolution mechanism.

This article describes anonymized past situations for illustrative purposes only and does not constitute legal advice.