In the dynamic global business landscape of consumer goods, it is not unusual for goods to be designed in one legal jurisdiction, manufactured in a second and for the relevant IP portfolio to be held in a third. As goods and their component parts are shipped across borders with parties to the contract sitting in different countries, multi-jurisdictional contracting is inevitable. This blog post explores the key pitfalls and emerging trends in international contracting in consumer goods, considering factors such as the global recession, supply chain disruptions caused by COVID-19, geopolitical tensions, and the implications of the UK's exit from the European Union, focusing on the upstream B2B relationship rather than B2C and consumer law, which we will cover in a further blog post.

Navigating Legal Differences 

When it comes to international contracts, the absence of a "one size fits all" approach is evident from the lack of a single European contract law framework. This becomes problematic, as while Anglo-American style contracts may not always align with the preferences of a continental EU audience, differences in the interpretation of concepts such as "direct and indirect damage" can lead to contractual uncertainties. This is something the EU is very alive to and has been for decades, as illustrated by its common rights and obligations acquis initiative that attempted to codify B2C online contract law. Supply chain disruption has a significant impact on consumer goods companies’ revenue and revenue growth. Producing robust multijurisdictional contracts is a must to mitigate such risks; but first, it is helpful to understand the context in more detail, as discussed below.

Post-Brexit Dynamics

Since the UK's departure from the European Union, putting in place cross-border arrangements requires the nuances of the laws of different EU countries to be considered, with such laws varying across each of the twenty-seven EU Member States. Differences between civil and common law regimes, as well as legal concepts like "force majeure", which has a legal definition in French but not English law, also require careful consideration.

Similarly, when engaging in transatlantic contracts, the particularities of common law systems, especially regarding damages, must be addressed.

Risks Posed by Multi-jurisdictional Contracts in APAC

Using a global template as the starting point for contracts without considering jurisdiction-specific nuances also poses significant risks in the Asia-Pacific region (APAC). With a mix of civil and common law systems and varying relevant laws and regulations across APAC jurisdictions, treating the entire region as one and not as a collection of separate legal jurisdictions can lead to severe legal complications.

Importance of Governing Law and Dispute Resolution

Selecting appropriate governing law and dispute resolution mechanisms is crucial in contracts. Defaulting to familiar jurisdictions such as English or Singaporean law may seem convenient, but it is essential to assess how these choices interact with the rest of a contract's provisions and their enforceability. Reciprocal enforcement arrangements between jurisdictions should be identified, as exemplified by the nexus between Hong Kong and China.

Contractual Balance and Force Majeure

Recent events, including the COVID-19 pandemic, the semi-conductor shortage, the ‘great resignation’ making it difficult to get employees, the conflict in Ukraine, and hyperinflation, have highlighted the importance of maintaining a balanced contractual approach. Force majeure provisions have gained renewed attention, particularly due to the lack of harmonised EU contract law. Enforcing force majeure clauses across the EU necessitates meeting high thresholds of enforceability.

Corporate Governance Mechanisms and Risk Allocation

In the wake of COVID-19 and supply chain disruptions, contractual parties must engage in upfront discussions regarding risk allocation and management, including regarding corporate governance mechanisms. The current economic crisis has accentuated the need for transparency and clarity, particularly in contracts involving multiple parties.

Changing Trends: Insourcing and Outsourcing

In the EU and the US, insourcing has become a prevailing trend, while APAC has witnessed a shift towards cost-saving outsourcing strategies. In addition to China, cost-efficient jurisdictions such as Malaysia, Vietnam and Cambodia have emerged as preferred locations for outsourced production driven by lower labour and production costs.

Conclusion

For consumer goods companies at all points in the supply chain, be it component suppliers, original equipment manufacturers/OEMs, or retail outlets, multi-jurisdictional contracting presents complex challenges amidst a changing global landscape. Selecting appropriate governing laws and considering jurisdiction-specific nuances are crucial for successful international contracts. As businesses adapt to emerging trends and navigate the pitfalls, careful planning, due diligence, and proactive risk management are pivotal to ensure effective multi-jurisdictional contracting.

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