Cross-Border Contracts: What UK Companies Must Know
As UK businesses expand beyond domestic markets, cross-border contracts are becoming increasingly common. Whether importing goods from Asia, licensing intellectual property to Europe, or entering joint ventures in the Middle East, these agreements create commercial opportunities, but they also introduce complex legal risks.
Many disputes involving international transactions arise not from bad faith, but from poorly drafted agreements that fail to anticipate cross-jurisdictional complications. For UK companies, understanding how cross-border contracts operate under English law, and how they interact with foreign legal systems, is essential.
This article explores the key legal challenges in cross-border contracting, the consequences of overlooking them, and the practical solutions businesses should implement.
1. Uncertainty Over Which Law Governs the Contract
One of the most common issues in cross-border contracts is the failure to clearly define the governing law of the agreement.
When businesses from different countries contract with one another, multiple legal systems may potentially apply. Without a governing law clause, courts may need to determine which jurisdiction’s law governs the agreement. That is a process that is often complex and unpredictable.
For example, a UK company contracting with a German distributor may find that:
English law governs part of the agreement
German law governs performance obligations
EU consumer or competition rules still apply
This uncertainty can create significant legal exposure. In the worst cases, parties may end up litigating where the dispute should even be heard, before the actual dispute is addressed.
UK companies should always include a governing law clause. English law is widely recognised internationally for its clarity, commercial pragmatism, and strong judicial precedent, making it a preferred governing law for international contracts.
2. Jurisdiction and Enforcement Risks
Even when the governing law is agreed, businesses frequently overlook the jurisdiction clause. Governing law determines which legal rules apply, but jurisdiction determines which court will hear the dispute.
Without clarity, disputes may be brought in foreign courts where procedures, costs, and enforcement mechanisms differ significantly from those in England and Wales. This can result in:
Parallel proceedings in different countries
Substantial litigation costs
Delays in dispute resolution
Difficulty enforcing judgments abroad
For example, a UK company may obtain a judgment in England but struggle to enforce it in another country if reciprocal enforcement mechanisms are weak.
Contracts should include a clear jurisdiction clause. In some industries, particularly international trade, businesses may instead choose international arbitration, which can be easier to enforce globally under the New York Convention.
3. Payment Risk and Currency Exposure
Cross-border transactions often involve payments in foreign currencies and counterparties in unfamiliar markets. Without appropriate contractual protections, UK companies face risks including late or non-payment, currency volatility and banking delays.
Where contracts lack detailed payment provisions, recovering unpaid sums across borders can become extremely difficult. This, in turn, can lead to cashflow disruption, exposure to exchange rate losses, and costly debt recovery procedures in foreign jurisdictions.
Contracts should clearly address payment currency, payment timelines, interest on late payments, and security mechanisms such as guarantees or escrow arrangements
UK businesses should also consider incorporating provisions aligned with the Late Payment of Commercial Debts (Interest) Act 1998, where appropriate.
Why Legal Advice Matters in Cross-Border Transactions
International contracts introduce layers of legal complexity that are rarely present in domestic agreements. Issues involving governing law, jurisdiction, enforcement, regulation, and payment structures require careful consideration at the outset.
Seeking legal advice before entering into cross-border arrangements allows businesses to:
structure contracts properly
identify regulatory risks
protect commercial interests
reduce the likelihood of disputes
Well-drafted contracts not only mitigate legal risk but also provide the clarity and certainty necessary for successful international business relationships.
At Lyon Croft Law, we advise UK businesses on commercial agreements, dispute resolution, and risk management in both domestic and international transactions.
If your business is entering into a cross-border contract, taking the time to structure the agreement properly can save significant time, cost, and uncertainty in the future.
Speak to a Solicitor today
If you require any assistance, our expert Corporate Commercial Team can assist you. If you are thinking of bringing proceedings for a breach of contract, or you need help defending one, our expert Dispute Resolution Team can also be of assistance.
Please contact us by sending an email to info@lyoncroft.co.uk, calling us on 020 3576 7170, or complete a contact-us form. Our offices are in Park Royal, West London, and you can find our address at the bottom of the page.
This article has been authored by Abdullah Suker, Managing Director of Lyon Croft Law.
