1. When Common Law Isn’t So Common Drafting Enforceable Agreements in Other Jurisdictions Speakers: Sara A. Biro, Former Senior European Counsel, Fitch Ratings Sabine Brumme, Chief Counsel IP/Alliances, BearingPoint Service GmbH David Felicissimo, General Counsel, Valnet Inc. Dorothee Schramm, Partner, Sidley Austin LLP

2. Overview 1.How Common Is Common Law? 2.Differences in Legal Systems – We may all be speaking English, but are we speaking the same language? 3.Top Tips for Common Law Lawyers Who Are Negotiating Contracts Governed by a Different Legal System’s Laws 2

3. 1. How Common Is Common Law? 3 Source: https://commons.wikimedia.org/wiki/File:LegalSystemsOfTheWorldMap.pnghttps://commons.wikimedia.org/wiki/File:LegalSystemsOfTheWorldMap.png

4. How Common Is Common Law… 4 Civil Law: 60.06% (Including mixed systems of Civil Law, Islamic law and/or customary law) Common Law: 35.17% (Including mixed systems of Common Law, Islamic law and/or customary law) Source: University of Ottawa, http://www.juriglobe.ca/eng/syst-demo/tableau-dcivil-claw.php

5. Differences in Legal Systems: Introduction Civil Law is codified through comprehensive legal codes which define specific categories of laws (e.g. procedure, civil obligations, contracts, delict, penal) and are periodically updated. Both judges and lawyers work within the framework established by their country’s codified set of laws. 5

6. Differences in Legal Systems: Introduction Common Law is for the most part uncodified and largely based on judicial decisions from similar cases -- precedents. Judges apply the relevant precedents when deciding the cases before them. 6

7. Lawyers have been known to ignore the fact that the legal system in another country is different to their own. – Seadrill v Gazprom – dangers of exporting contract forms, even between common law countries. There is no such thing as “the civil law” or “the common law” – each jurisdiction is different. Approach to drafting a contract may be different: – Civil law contracts are often shorter because many material contract terms and remedies are defined in statutory law. – Express “opt-out” might be necessary to exclude or limit such statutory law provisions (to the extent permitted by law). 7

8. 2. Differences in Legal Systems – Are We Speaking the Same Language? Identical terms may have different meanings in different legal systems (e.g. guarantee; indirect damages). Translation of legal terms may add to uncertainty. Approach to interpreting a contract may be different: – Parol evidence rule does not apply in many civil law jurisdictions. – Many civil law courts focus on identifying the parties’ common intent and actual understanding -- evidence taking by the judge. – Civil courts consider how a reasonable person acting in good faith would understand a disputed clause only after attempting to identify the parties’ common intent -- different rules of interpretation apply. 8

9. Comparative Analysis of Sample Clauses 1)Best endeavours / best efforts and good faith 2)Warranties 3)Indemnity 4)Limitations of liability 5)Penalties/liquidated damages Important “Health Warning”: The following sample clauses are not recommended model clauses. They are taken from, or inspired by, actual contracts and are used to exemplify differences between legal systems and/or problematic issues of contract drafting. 9

10. Best endeavours / best efforts and good faith Example: The Distributor agrees to purchase minimum quantities of Products in each Year as set out in Schedule A. Both Parties will use their best endeavours [i.e. best efforts] to agree minimum quantities for subsequent Years in writing not later than 20 Business Days before the last day of the preceding Year. 10

11. Best endeavours / best efforts and good faith (continued) Can a party seek performance or the full benefit of the envisaged bargain? Is there a difference between “best efforts” and “reasonable efforts”? Is there a difference between: – “Both Parties will use their best efforts to agree minimum quantities” and – “Both Parties will negotiate in good faith to agree minimum quantities”? 11

12. Warranties Example: Party A represents and warrants that any Deliverables it provides under this Contract shall not infringe any patent, copyright, or trade secret of any third party. Except as expressly stated above, Party A makes no other warranties, express or implied, related to Deliverables provided by Party A under this Contract. 12

13. Warranties (continued) What are the remedies for breach of the affirmative warranty in the example? What are the legal consequences of the statement that Party A makes no other warranties? – What does the term “warranty” / “warranties” mean? – Does this exclude all remedies relating to “Deliverables” other than those available for breach of the affirmative warranty? 13

14. Indemnity Example: Provider shall indemnify, hold harmless and defend Client from and against any and all claims, liabilities, losses, expenses (including reasonable attorneys' fees), fines, penalties, taxes or damages (collectively "Liabilities") incurred by or asserted against Client, to the extent such Liabilities (i)arise directly out of Provider's gross negligence or wilful misconduct, or (ii)result from a third party claim that Deliverables infringe upon that third party's trade secret, trademarks, copyrights, or patents, unless the infringement is caused by Client’s Misuse or Alteration of the Deliverables. 14

15. Indemnity (continued) What does the term “indemnity” mean in general? To what extent is Provider obliged to actively participate in a lawsuit brought by a third party? Can Client claim from Provider compensation for a settlement amount which Client agreed with a third party who asserts an IP infringement claim against Client? 15

16. Limitations of liability Example: In no event will either party or its employees, officers and directors be liable for consequential, special, indirect, incidental, punitive or exemplary damages, costs, expenses, or losses, regardless of the form of action, damage, claim, liability, cost, expense, or loss, whether in contract, statute, tort (including negligence), or otherwise. 16

17. Limitations of liability (continued) Is this clause enforceable, in full or in part? For what types of losses does the clause exclude liability? – Lost profits? – Damage to the other party’s own assets? Is a party liable for indirect damage intentionally caused by a subcontractor or service provider that the party uses to fulfill its contract obligations? 17

18. Penalties / liquidated damages Example: If Party A fails to provide Deliverables until [date] for reasons attributable to Party A, Party A shall pay liquidated damages to Party B in the amount equivalent to zero point five percent (0,5%) of the Contract Price for each full week of delay. The total sum of the liquidated damages may in no case exceed six percent (6%) of the Contract Price. Party B shall be entitled to demand payment of liquidated damages even if he sustains no damages, however he shall not be entitled to demand payment for damages beyond the liquidated damages as specified above. 18

19. Penalties / liquidated damages (continued) Does this clause provide for liquidated damages or for a penalty? Does this distinction make a difference for the enforceability of the clause? Assume Party A is late in delivering and Party B accepts delivery without making any reservation. Does Party B lose the right to claim the agreed liquidated damages? 19

20. 3. Top Tips for Common Law Lawyers Who Are Negotiating Contracts Governed by a Different Legal System’s Laws 1)Do not assume that the laws in one country are the same as the laws in another country -- even if both countries are common law countries or both are civil law countries. 2)Spell out obligations and remedies in simple, concise language in order to avoid misunderstandings and clearly indicate whether remedies are exhaustive. 20

21. 3)If you use terms that have a specialised meaning under common law (e.g. "consequential damages"), include definitions of those terms in the contract. 4)Consult with local counsel about the material clauses and about local negotiating approaches and market practice on the points you will be negotiating. 5) Choose a dispute resolution mechanism which takes national and cultural differences into account. 21