Today’s guest post is by Scott J. Arrington, a partner in the law firm McDermott Will & Emery in the United States. He represents clients in connection with infrastructure development, acquisitions, dispositions and financings, with a focus on international projects in the oil and gas, petrochemical, power and mining industries.
Scott has a particuarly linguistic bent, since he speaks Mandarin Chinese and Spanish as well as English.
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The choice of governing law for a contract between parties from different jurisdictions is a vital decision. This is particularly true where differences between the laws are subtle: the potential for dramatically different outcomes exists even between legal regimes as closely related as those of the various states of the United States and England and Wales. Parties should therefore undertake careful analysis to ensure their intentions are maintained.
One key difference between US and English law that can cause unintended results relates to word choice and stylistic requirements. For example, “best endeavours” should generally be used in English law contracts while “best efforts” is generally preferable for US law documents. Using terms that differ in any way from the specific wording that has been interpreted frequently by the courts increases the risk that they will deem the parties to have intended something different, when they have not. On the stylistic front, the laws of many US states require certain indemnity terms to be conspicuous for them to be enforceable, while English law generally does not.
Along similar lines, each set of laws requires express waiver of the application of different statutes and treaties if the parties do not wish them to apply. In the United States, for example, parties to a contract for the sale of goods between a US entity and an entity of another country that is party to the United Nations Convention on Contracts for the International Sale of Goods (CISG) must expressly state in the contract they do not want the convention to apply, if that is their intent. The United Kingdom, however, has not ratified the CISG, so it will not apply to an English law contract. Similarly, English law contracts must state expressly that the parties opt out of the Contracts (Rights of Third Parties) Act 1999 in order to prevent third parties from having certain rights. Under the laws of most US states, however, parties do not need to reference a particular statute and need only evidence an intent to limit third-party beneficiary rights.
US and English law also sometimes enforce the same contractual language, but with different results. One of the most commonly overlooked differences between US and English law in this respect deals with limitations of liability. When parties exclude “indirect and consequential losses” in a US law contract, they are expressly – and almost always intentionally – excluding the losses of revenue, production and profit that may stem from any breach of the contract, because “indirect and consequential losses” under the laws of most US states include such losses. English law, however, often considers such losses to be direct – not indirect – losses.
The difference in enforcement of the exact same language can have dramatic effects.
Perhaps the most dangerous differences, however, are those that arise regardless of the express language of the contract. For example, many US states impose an implied duty of good faith and fair dealing in performance of contractual obligations, while English law is not likely to. As a result, parties to a US law contract can sometimes recover contractual damages for certain actions – if deemed bad faith – that they would be unable to recover under English law.