Arbitrability and Enforceability of Offshore Share Agreements
Offshore shareholder agreements must separate arbitrable contractual disputes from non-arbitrable statutory remedies while backstopping awards with share pledges.
Governing Law Split
Meaning
Contractual allocation where different clauses of a transaction or different agreements in a corporate suite are governed by the laws of different jurisdictions is a deliberate tool in cross-border structuring. Parties execute a governing law split when they want the corporate governance of the company to be ruled by offshore statutory law while the operational commercial contracts are ruled by local trade laws. This split is limited by the public policy exceptions of the courts where enforcement is sought, as some jurisdictions refuse to apply foreign law to local real estate or employment matters.
Contractual Separation
Shareholder agreements often have their internal relations governed by the law of the incorporation state, such as Cayman Islands law, while the loan agreements are governed by English law. This allows the parties to use specialized financial laws for their debt while maintaining local corporate compliance. It ensures each document is interpreted by the most appropriate legal standard.
Operational Benefit
Using different laws allows the business to run smoothly across borders. Operating units in each country can sign contracts under local law to reassure regional customers and suppliers. Meanwhile, the parent company maintains central control using a well-known international legal framework for its investor relations.
Enforcement Complication
Resolving a dispute that involves multiple agreements governed by different laws can be difficult. A court in one country may need to interpret the laws of another country, which requires expert witness testimony and increases legal costs. This can lead to conflicting interpretations if different tribunals handle different parts of the overall dispute.