International commercial agreements: Don’t overlook these clauses
With the US being the UK’s largest single trading partner, Birketts LLP Associate Tania Saigol – dual qualified in English law and US law (New York) – outlines the key clauses to include in commercial agreements with US companies.
The US is the UK’s largest single trading partner, with total trade reaching £215 billion in 2021. For the East of England, the US was the top export market for goods in 2021 with goods worth £4.5 billion being exported to the US.
In terms of services, £5.1 billion worth of services were exported to the US in 2019 from the East of England.
The UK and the US recently agreed to develop a roadmap to further strengthen UK-US trade. The UK is also unlocking trade opportunities at the state level. It signed its first Memorandum of Understanding with Indiana in May this year, opening doors to UK businesses looking to export or invest in Indiana and increase collaboration in life sciences, academia, advanced manufacturing, and clean technology.
Given the level of trade between the UK and the US, it is worth remembering some of the key clauses that need to be included in commercial agreements with companies in the US.
Governing law and Jurisdiction
It is best practice to expressly state the governing law that will apply to the parties’ rights and obligations under the contract. It is also best practice to expressly designate the country whose courts will have jurisdiction to decide any dispute under the contract.
Making express choices on governing law and jurisdiction provides certainty to the parties as well as to the legal representatives and adjudicators involved in resolution of a contractual dispute.
A failure to do so for either clause may result in an interpretation of the contract under a governing law not in line with the parties’ intentions, or the court hearing the dispute following its own rules to determine whether it has jurisdiction to hear the dispute.
It is important to note that the selected governing law will also have a ripple effect on how a party’s rights and obligations are determined. There are differences on certain contractual principles under English law and US contract law which may positively or negatively impact a party.
It is possible for the applicable governing law to differ from the country whose courts will have jurisdiction to decide a dispute. UK and US national courts have experience in handling disputes with the help of an expert witness on foreign law.
However, choosing a governing law that is different to the selected jurisdiction can give rise to problems such as uncertainty or confusion in the application of foreign law and conflicting expert evidence on the foreign law, leading to an increase in time and costs of cross-border litigation.
Limitation of liability and Indemnities
In the UK, the parties’ ability to limit liability in a business-to-business contract is governed by statutory and common law controls. US contract law varies from state to state, which may mean there is no similar type of protection for a party in terms of the limitation of liability clause.
Indemnities usually protect the receiving party against third party claims, such as for intellectual property infringement, defective products, and breach of data protection obligations.
It is common practice in the UK to carve out these specific areas that may warrant an indemnity, whereas US contracts often contain more wide-ranging indemnities, the implication being that it may be a route to uncapped liability under the contract.
Given the differing approaches to liabilities and indemnities, a business should obtain legal advice to assist with these clauses, the purpose being to ensure that it is not unreasonably exposed to any risks and that its interests are sufficiently protected under the contract.
The UK has not made a decision regarding the US that would enable the free flow of personal data between the two countries, so at present UK companies are required by applicable data protection legislation to ensure adequate and additional safeguards (such as standard contractual clauses) are in place before the transfer of any personal data from the UK to the US.
Given the varying degrees of data protection legislation in the US, a commercial agreement based on US law will likely not sufficiently address the data protection requirements of UK data protection legislation. Therefore, a review of the data protection provisions in any such agreement is almost always warranted to ensure compliance with UK data protection law.
These key clauses can have a significant impact on a business’ position in a commercial agreement, and they take on increased importance in a cross-border transaction.
A business interested in protecting its interests while limiting its exposure to risk should carefully consider these clauses before negotiating any commercial agreement with a US company, and seek out specialist legal advice for further assistance on tailoring them to best reflect its interests.
Further trade deals with the US will no doubt bring about more contracts between US and UK companies but the wording in those contracts still needs to be carefully considered.
In the words of Oscar Wilde: “We have really everything in common with America nowadays, except, of course, language.”