14/6/18 Top Ten Tips in Drafting and Negotiating Contract (Part 3)
4. Jurisdictional Issues
When a company does business in an overseas jurisdiction, it’s routine for the parties to negotiate whether the law and courts of one or other party govern any dispute. Depending on what’s at stake, they might opt for a compromise—for example, making English law the governing law, or providing for arbitration in Switzerland.
It’s a good idea to discuss with clients beforehand any fallback positions to adopt if their preferred governing law or jurisdiction isn’t accepted. Parties from the Americas should be relatively amenable to having New York law govern. European, Middle Eastern, or African parties might be fine with English law. Singapore and perhaps Australian law and arbitration should be acceptable to Asian parties.
If a contract will result in your client doing business in a jurisdiction where it’s not currently active, consider whether that would create a “permanent establishment” leading to an obligation to pay taxes.
5. Terms of Art
A term of art such as warranty might mean one thing under U.S. law and something different under, say, Czech law. The governing law would presumably determine which meaning applies, but it would be understandable if nevertheless some confusion resulted. For purposes of an English-language contract governed by the law of a jurisdiction where the courts use a language other than English, it might be prudent to state any critical terms of art in that other language, and in parentheses, directly after the English version, although too much of this can clog up a contract.
A more comprehensive fix would be to replace terms of art with something simpler. For example, instead of having a party hypothecate a security interest, have it simply grant that security interest.
Particularly problematic are terms of art used in provisions that seek to limit liability. The term of art consequential damages is widely misunderstood by American and English lawyers; adding to the mix notions of what that term might mean in other jurisdictions would likely increase the confusion. You might want to consider simpler alternatives, for example an absolute cap on damages.