Law and Jurisdiction – considerations for South African Companies contracting with an international company

As the world grows smaller and international contracting opportunities rise, South African companies are increasingly doing business with overseas companies. When contracting with an organisation based outside South Africa it is important to address the issues below.

Which law applies?

The law applicable to the contract will be the law chosen and nominated by the parties to that contract.   It is usual for the contract to state what applicable law governs it.

If the international company insists that the contract is governed by the law of their country, this is not necessarily a bad option and must not be rejected if that would lead to a breakdown of what would be a profitable deal.  Much of South African law is based on laws from other countries.  For example, our Companies Act No. 71 of 2008 embodies principles adopted in multiple other jurisdictions including the United Kingdom (“UK”) and the United States (“US”).  There is nothing patently “wrong” with the laws in the UK and US.  By and large, they are sound.

Which Jurisdiction?

However, South African corporates must be aware that agreeing to be bound by, for example, UK law will result in not only the conflict being resolved according to UK law but also the actual deliberations will have to take place in the UK legal system of courts, unless expressly stated otherwise.  The cost implications of this for a South African company are significant.

In order to clinch the deal, it may be wise for a South African company to consider agreeing to be bound by whatever international legislation is being proposed but to insist by way of compromise that an arbitration (or even mediation) clause nominating that the rules and procedures of an international arbitration body based in South Africa be followed and inserted into the contract.  The result of this will be that all conflicts be resolved by arbitration in South Africa (which is internationally recognised) subject to the overseas law stated in the contract.  Holding the conflict proceedings outside the realms of the courts and in South Africa will mitigate the potential cost concerns significantly.

Do local laws apply anyway?

Even if the applicable overseas law is chosen in the contract, this is still subject to the overriding mandatory provisions of the law of the country where the contract is being performed.  This means that, no matter what is agreed in the contract, local statutory rights and obligations may be applicable as you cannot contract out of the law of that country.