Do you have business partners in other countries, particularly the US? Legal academics like to talk about “global convergence” in contracts law. There are certainly many codes, international treaties, and glossaries like the International Chamber of Commerce’s Incoterms in existence that attempt to bring harmony by globalising contractual terms and contract law fundamentals, at least with respect to shipping trade terms and sale of goods.
However, at the coal face of US/Australia commercial contract negotiations, from intellectual property licensing to service agreements and everything in between, misunderstandings and different priorities are still faced every day in drafting and negotiating contract terms with parties in these jurisdictions.
Considering the US is a common law jurisdiction, and English is the native language, it is interesting to note how different US law and practice, including contracts law, can be from ours. Young players in this area are often lulled into a false sense of cultural security until they learn (the hard way) that the law, and indeed the languages of these two jurisdictions, are still very different, and likely to remain so. There are also differences in business culture that need to be respected as well, but that is a discussion for another day.
This two-part series of articles will provide you with a heads up to some of the issues that may arise in the average contract negotiation between US and Australian parties.
On a day-to-day level the starkest differences are not so much in the law of contract, but in terminology and English language usage.
Keep in mind that American English is genuinely different in many ways to Australian English, which is more like English English!
Then there are the differences in legal terminology. The following are some of the more common examples of these:
- The fact that a joint venture has a different legal definition in the US to Australia, means that the US party may be uncomfortable with the characterisation of the document – a fairly fundamental objection.
- On the other hand, there is a fondness in the US for the use of the term “partner” in all sorts of commercial relationships that are nothing like the specific legal relationship that the use of that term signifies in this country. Australian parties are often equally uncomfortable with this.
- The US liking for the concept of “affiliate”, which has no precise meaning in our law, means a definition is often called for, and it can be hard to reconcile with the definitions of “related body corporate”, “related entity” and “associate” that are so precisely defined in our statute law, particularly when the choice of law for the contract is the law of the US.
- The US law speaks of course of “stock”, as opposed to “shares” in corporations. This is a word that is used heavily in law and commerce in Australia as well, but we in Australia hardly ever use it to refer to shares. Rather, it is used to refer to trading stock of a business – rather than an equity share in a company – a different asset entirely.
Even the US predilection for putting the month first in the dating format is well known to cause serious confusion in other jurisdictions, including Australia.
I won’t even mention the spelling differences, as they are simply too numerous, (and in any event are less likely to lead to serious misunderstandings). The next section in Part 1 on US and Australian contractual relations addresses what we lawyers politely like to call the “format challenge”.
The format challenge
Did I mention format? Australian lawyers and business people with little or no US experience are often surprised by the appearance, layout and language of US contracts. The “plain English” movement in legal drafting which swept Australia in the 1980s and 90s appears to have skipped both the west and east coasts of the north American continent, leaving no trace of its passing.
Most commercial documents originating in the US could, as far as their appearance, style and the type of legal jargon that is used, have come from a 1950s Australian legal precedents text. There are no contents or index to assist the reader, not even any headings to clauses. Indeed, there is often very little punctuation, the sentences running for whole clauses, which themselves tend to be very long.
It must be said that, like our legal documents of old, the excessively long and prolix prose does almost inevitably cover every conceivable circumstance and nuance of the relationship or transaction, but the legal jargon it is couched in, as well as the old fashioned format, means that this usually takes a lot longer to work out than it should.
Another issue is that plain English drafting has been around in Australia for so long now that our young lawyers have often been brought up on modern formats and drafting, and find this more of a challenge than those of us who have been around for decades. Sometimes it is necessary to live with the past though, and suppress the urge to modernise the document, to get the matter across the line.
The next article will point out some of the very real differences between current contracts law in the US as compared to Australia.
If you need assistance in understanding contract terms, or wish to speak with a contract lawyer about a contractual dispute that has arisen between you and another party, get in touch with LegalVision on 1300 544 755.