International Contracts and Why What "Can’t Hurt" Usually Does Hurt

1. Typical Boilerplate Provisions

The Western world — particularly the Anglo-Saxon/common law world — is used to ultra-long contracts for everything. A contract to buy $6,000 worth of rubber duckies will include all sorts of boilerplate provisions, such as one making clear that buying rubber duckies does not make the buyer and seller parties a partnership or a joint venture. The below is fairly typical for this sort of provision:

No Partnership. No Joint Venture. No Agency. Nothing contained in this contract nor anything involving the relationship between the two parties shall constitute a partnership between or joint venture by the parties or make any party the agent of the other. No party shall hold itself out contrary to the terms of this provision and no party shall become liable by any representation, act or omission of the other that is contrary to this provision. This Agreement is not for the benefit of any third party and shall not be deemed to give any right or remedy to any such party whether referred to in this contract or not.

The below are just some of the boilerplate provisions you typically see in Western contracts, no matter how little is at stake:

Representations and Warranties. Each of the Parties to this Agreement represents, warrants, and agrees as follows:

Each Party has been given the opportunity to seek legal advice from an attorney regarding the rights, obligations, and advisability of entering into this Agreement and regarding the rights, obligations, and advisability of executing the same. Each Party declares that it fully reviewed and understood this Agreement prior to signing it, knew and understood the contents of the same, and executed the same voluntarily.

Each Party to this Agreement has made such investigation of the facts pertaining to this Agreement and of all the matters pertaining thereto as it deems necessary.

Each Party acknowledges that no other person, and no attorney of any other person, has made any promise, representation or warranty whatsoever, expressed or implied, not contained herein, concerning the subject matter hereof, to induce the Parties to execute or authorize the execution of this Agreement, and acknowledges that it has not executed or authorized the execution of this Agreement in reliance upon any such promise, representation or warranty not contained herein. No Party relies on any statement of any other Party in executing this Agreement, except as expressly stated herein.

If either Party is a corporation, trust, partnership, or other entity, each individual executing this Agreement on behalf of such Party hereby represents and warrants that such Party has full right and authority to execute and deliver this Agreement and that each person signing on behalf of such Party is authorized to do so.

Then there is the provision to make sure the agreement applies to pretty much everyone possible:

This Agreement is binding on the Parties hereto and on their respective agents, attorneys, insurers, heirs, executors, administrators, affiliates, employees, members, shareholders, principals, officers, directors, predecessors, successors, and assigns.

And then there is the true boilerplate — that which goes into just about every contract:

Effective Date. This Agreement, once fully executed by all Parties, will be deemed effective as of the Effective Date, December 31, 2018.

Counterparts. This Agreement may be executed in counterparts. When each Party has signed and delivered at least one such counterpart, each counterpart shall be deemed an original, and when taken together with other signed counterparts, shall constitute one Agreement, which shall be binding upon and effective as to all Parties. Non-original signatures will have the same force and effect as an original.

Complete Agreement. This Agreement is the complete and entire agreement by and among the Parties with respect to the subject matter hereof and supersedes all prior and contemporaneous oral and written agreement(s), representation(s), negotiation(s), and/or discussion(s).

No Oral Modifications. This Agreement shall not be modified by any Party by any oral representation(s) made before or after the effective date of this Agreement. This Agreement may be amended or modified only by an agreement in writing signed by the affected Parties. Any amendment(s) or modification(s) must be in writing and signed by the Party or a duly authorized representative of the Party against whom such amendment(s) or modification(s) is/are sought to be enforced.

Good Faith Cooperation. The Parties agree, for their respective selves, agents, attorneys, members, shareholders, principals, officers, directors, insurers, heirs, relatives, representatives, affiliates, employees, attorneys, successors and assigns, that they will abide by the terms of this Agreement, which terms are meant to be contractual, and further agree that they will do such acts and prepare, execute, file, and/or deliver such documents as may be required to carry out the purposes and intent of this Agreement. Each Party hereto agrees to cooperate in good faith and to do all things necessary to effectuate this Agreement.

Headings and Titles. The headings or titles of the Sections contained herein are for guidance purposes only and have no force or effect, and they do not in any way alter the terms or meaning of this Agreement.

No Third Party Beneficiaries. This agreement does not create and shall not be construed as creating any rights enforceable by any person who is not a Party to this Agreement.

Severability. Should any provision in this Agreement be declared or determined to be illegal or invalid, the validity of the remaining parts, terms, or provisions shall not be affected thereby, and the illegal or invalid part, term, or provision shall be deemed not to be part of this Agreement, and all remaining provisions shall remain valid and enforceable.

Some or all of the above are not generally used outside common law countries like the United States (on a state level excluding Louisiana), Ireland, Northern Ireland, Australia, New Zealand, Bangladesh, India (excluding Goa), Pakistan, South Africa, Canada (excluding Quebec), and Hong Kong.

And yet, my law firm’s clients from common law countries often try to push our international contract lawyers to include these boilerplate provisions in countries where they make no sense. These clients (it’s usually their in-house lawyers) are just not comfortable with contracts that do not include such terms. When we tell them that such provisions are not needed, their response is often, “well, it can’t hurt.”


2. How Boilerplate Provisions Can Increase Costs

Including terms in a contract that are strange and unfamiliar and unnecessary in a particular country can hurt in many ways. First off, it can increase the legal costs in drafting the contract. If we were to include all of the above terms in a contract we draft for, let’s say Vietnam, we would likely increase our billable hours on that contract by 1-10 hours.

First, we would need to figure out exactly what to say in each boilerplate provision in English. Sure it is boilerplate but even boilerplate often needs to be adjusted for the particular situation. Also, some boilerplate makes sense in some contracts and not others. I pulled the above boilerplate from a U.S. settlement agreement my law firm drafted between a Spanish company and an American company. That agreement contained boilerplate involving a foreign company and two ultra-long boilerplate provisions regarding the settlement of claims, neither of which would make sense in most contracts that did not involve a settlement and release.

Second, once we draft the boilerplate in English we would need to translate it into Vietnamese. That would add more time and fees for the client.

Third, and usually most importantly, if this contract gets sent to a Vietnamese company it likely will respond with all sorts of questions about and changes to the boilerplate provisions. Our lawyers would then need to draft responses to the Vietnamese company’s concerns, while at the same time explaining to our client why the proposed changes from the other side do or do not make sense or should or should not be accepted.

Fourth, once the new boilerplate terms have been agreed upon, we would need to re-draft them in both English and in Vietnamese, generating more time and more fees.

Finally, suppose there is a contract dispute three years down the road and litigation ensues in Vietnam. The lawyers on that case will probably need to spend substantial time figuring out the meaning of the boilerplate provisions and then explaining them to the tribunal. I can remember well a case in Korea where I was called in as an expert to help Korean counsel understand a whole host of U.S. style contract provisions. I believe I billed about 20 hours as an expert on these things alone and I’m guessing Korean counsel for our mutual client spent roughly the same amount of time.

3. How Boilerplate Provisions Can Really Hurt

But boilerplate provisions can hurt you — and deeply — in other ways too. Our international manufacturing lawyers are often given really long English language contracts by small companies that include a provision providing that the small company will conduct quarterly inspections of its overseas manufacturer and another provision calling for penalties to be paid for things like the overseas manufacturer failing to provide quarterly reports on x, y or z.

When our client then admits to never having once conducted a factory inspection or ever having received a quarterly report on x, y, or z and never once raising this failure as an issue with its foreign manufacturer, we recommend removing these provisions from their future contracts. Our client will often then say something to the effect of how these provisions come from the supply agreements used by the massive company at which they used to work and then they will mention their desire to keep these provisions in their contract because doing so “can’t hurt.” But it can.

If your contract requires your foreign counter-party to do six things and you completely let two of those things slide by without being done by your foreign counter-party you are sending a message that you do not really care about what is in your contract, including the other four things that you do actually care about. A court is likely to believe the same thing about you. Not to mention all of the added legal fees and potential for confusion mentioned above.

Bottom Line: Deciding what should not go into your international contract can be as important as deciding what should go into your international contract. See Will You Translate My English Language Contract Into Chinese to Make it Legal in China?

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