Applicable Law Is Still a Risk

I have written about this before, but it is worth repeating.

Contracts which involve providing services to the affiliates of the main customer can pose additional risks if your contract has an obligation to comply with applicable law.

Imagine this scenario. You are contracting with a main customer which is based in the UK (as are you), but the main customer has a number of affiliates scattered around the world.

Under the contract, you provide services to the main customer and to its affiliates, and the services have to comply with applicable law. What does “applicable law” mean in this context? Presumably it doesn’t mean the law that governs the contract (let’s assume that’s the law of England and Wales), it means the public law that applies to the delivery of services to the affiliates.

If the affiliate is in Brazil, that means the public law of Brazil. If the affiliate is in Korea, that means the public law of Korea. And so on. If there are ten different affiliates, that means ten different legal systems that you have to comply with (actually eleven, if you count the home jurisdiction).

So, what do you do?

You have 2 main options.

Option 1

You adjust your price upfront to allow for the additional obligations. That is easier said than done, and expensive, because you will need advice from ten different lawyers to work out the additional obligations (if any), and then you have to figure out the costs of implementation.

Option 2

You put the obligation back on the buyer, and price through change control.

You amend the contract so that the applicable law, as well as the governing law, is the law of your home jurisdiction, and then put an obligation on the buyer to tell you of any (different) local obligations you have to comply with.

The Brazilian affiliate has to tell you what additional obligations you have to adopt to be compliant in Brazil, the Korean affiliate has to tell you what additional obligations you have to adopt to be compliant in Korea, and so on. Basically, you are saying to your customer: “you are the person with expertise in those countries, you tell us what we need to do”.

And once they have told you what you need to do, you put it through change control.  “Yes, we can do that, and it will cost you X”.

27 May 2025