7/10/2016

Jurisdiction and Choice of Law Issues in Agency Agreements

In the drafting and negotiation of a commercial agency agreement between a principal located in one country and an agent located in another country, proper consideration needs to be given to governing law and jurisdiction.

Jurisdiction determines which country’s courts will hear any proceedings that may be brought in relation to the agreement, whilst governing law is the law that will be applied by the courts hearing any such proceedings that may arise under the agreement.

Ideally, the parties to the agreement should expressly agree as to choice of jurisdiction and governing law. A governing law clause will set out the parties’ choice of the law that will apply to the parties’ agreement, and a jurisdiction clause will set out the parties’ choice as to jurisdiction.

If the parties’ agreement is silent as to jurisdiction and governing law then there is a risk, in the event of dispute or other proceedings later arising between the parties, of wasteful, costly and time-consuming preliminary battle over which country’s courts ought to handle the matter and which set of laws ought to be used to interpret the parties’ obligations. Further, absence of a jurisdiction clause gives rise to risk of multiple claims proceeding in parallel in more than one jurisdiction simultaneously.

In the case that the principal is located in a country other than Korea and the agent is in Korea, then the principal might seek agreement that, in the case of dispute or other proceedings which may arise between the parties, the law, and courts, of the country in which the principal resides, shall apply.

It can be expected, that, conversely, the Korean agent will likely wish to seek agreement that choice of governing law, and jurisdiction, shall be Korea. Good legal counsel will seek to negotiate agreement that is most favorable to his or her own client. In some cases neither the law of the country in which the principal is located nor the law of the Korea may in fact be the best choice, and in such cases the parties may agree for their agreement to be governed by laws of a third country, specifying, for example, for English or New York law to apply.

It ought to be borne in mind, however, that although the parties may expressly agree that their agency agreement shall be construed in accordance with the laws of a country other than Korea, if a dispute or other proceeding in respect of the agreement were in fact brought before a Korean court then certain “mandatory” provisions of Korean law, such as those, for example, of the Standard Contract Regulation Act, and fair trade provisions, may nonetheless be applied by the court regardless of choice of governing law specified in the contract. Of these mandatory provisions, some will be for the protection of commercial agents. Such provisions cannot be contracted out of.

Generally, if governing law has not been expressly agreed to by the parties, then the applicable law will be the law of the country with the closest connection to the agency agreement. In the case that a principal is located in a country other than Korea and the agent is in Korea, the country with closest connection to the agreement would most likely be Korea. If jurisdiction has not been expressly agreed to by the parties then, ordinarily, proceedings against an agent located in Korea would be brought in the agent’s local court – provided that Korea were the country in which the agency agreement was being performed or ought to have been performed.

Alternatively, the parties may prefer to agree to resolve disputes by arbitration, in which case an arbitration clause will be included in the agreement.

Carelessness as to governing law and jurisdiction in the drafting and negotiation of a commercial agency agreement between a principal located in a country other than Korea and an agent located in Korea can lead to unintended or undesirable consequences.