Welcome to Part 2 on the differences between US and Australian Contracts Law.
When Contracts Law ain’t Contracts Law
Pure contracts law issues are the second category of challenges when entering into a contract with a US based party. Here are some examples of the differences that can arise:
- Good faith in commercial contracting (at least in performance of the contract) is a part of the landscape in US law. Our courts’ sometimes lukewarm attitude to implying a duty to act in good faith to negotiations, performance and exercise of rights in contracts means we Australians often want an express clause in the contract providing that parties will both act in good faith in these matters – a US party may not see the need for such clauses.
- “Evergreening” clauses, which have the effect of automatically renewing contracts for successive terms unless notice is given beforehand, are prohibited in the US and yet are very common here in standard form supplier contracts.
- Another example is that “best endeavours” and “reasonable endeavours” in our law mean pretty much the same thing. Not so in the US. If the contract is to be governed by US law, you need to know what the difference is.
- Unlike Australia, there is no general concept of “costs in the cause” in US litigation, unless expressly agreed. In other words, the party that wins will not be awarded costs to be paid by the losing party. The substantial costs of litigation in the US also mean that the US party will often be seeking various indemnity provisions providing expressly for entitlement to costs, and will place alternative dispute resolution procedure or procedures high on its list of priorities for the contract.
- Indemnities sought are often broad based and in addition to the usual intellectual property indemnities and the like. Remember, unless they are carefully drafted and the liability arising under them is limited, indemnities can head a party into unexpected areas of exposure, even where they have not breached the contract and the loss or damage caused is not reasonably foreseeable. Good alternative dispute resolution arrangements, on the other hand, can be very useful. Some types of arbitral awards may even be able to be enforced here, unlike US court decisions.
Choice of law for your contract – choose wisely
As parties to a formal contract, you get to expressly agree what law will govern the contract and what courts you will go to in the event of a dispute arising. It is important to try to get this right – by this, I mean choose the proper law of the contract – that is, the law (and corresponding jurisdiction) that has the closest connection with the contract and its performance, not just the law that the party that drafted the contract has suggested, or the law that the party with the strongest bargaining position says it should be. This is not going to work in the interests of either party if a dispute arises.
In case that a dispute does arise, the final part of this series will look at the different style and approach of judges in the US and Australia, particularly in the context of whether the differences described above are ever likely to disappear.
The jurisprudence difference
It is likely that the differences pointed out in the earlier parts of this series between the contract law of the US and Australia will persist, not least because contracts is judge made law in both countries, and the prevailing judicial reasoning style of the two countries has always been fundamentally different.
The reasoning of the UK, New Zealand and Australian courts is thought to be more formal (that is, promoting the law in books) whereas the style in the US (and Japan for that matter) is thought to be more substantive, in other words more open to moral, economic, political and other considerations (that is, promoting the law in action).
Many of the statutory regimes that are relevant to a contractual arrangement are also substantially different (for example copyright and trade practices laws) for historical and other reasons, and ultimately we all need to work with the differences, rather than expect uniformity or convergence to occur.
For those of us who get the opportunity to practice law in matters involving more than one jurisdiction, these differences are usually what makes the work interesting and keep us engaged in our transborder matters, despite the sometimes unusual phone conference hours. Vive la différence!
Make sure that if you are confronted with a US document or partner, you get in touch with the contract lawyers here at LegalVision early in the piece to guide you through the potential minefield.
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