Thursday, September 1, 2011

Using Common Sense

In a post in one of the Linkedin groups about contracts an individual wanted to collect all the differences in laws between various countries. He was working in a foreign country only to find out that in that country his fixed price or lump sum agreement might not be really fixed under the laws of that country.

The problem is that no two legal systems in the 196 countries and their millions of geographic subdivisions that make up this world have exact that same laws. That may impact whether a specific clause or template will work within a country. More important it may impact whether specific points within that contract will be enforced. There are a number of differences between locations and I don’t think anyone knows them all simply because the laws in all the locations keep changing.

I’ve written about a number of topics about contracting and contract negotiation and have given examples of what might be included in a specific type of clause. On the Internet you will find a number of people offering to share clauses or standard templates. A common example of problems caused by the difference in laws is the issue of penalties. When I talk about penalties I mean an amount that is over and above your actual damages or agreed liquidated damages. Some jurisdictions allow penalties to be included in a contract. Those are mostly from countries that didn’t follow or evolve from British common law. Other jurisdictions clearly don’t allow the collection of penalties because of the inequity it creates. Under equity the concept is to make the other party whole for the damage caused, not to make a profit that the penalty would provide.

Where common sense comes in two-fold.

First, if you are going to be working in a different country or forced to agree that the laws of another country or location will apply to your contract, you need to take the time to understand what the differences will be so you manage those differences.Understand the rules of the game before you start playing, not after.

Second is when you see and want to potentially use something that you find here on my blog or anyplace else on the internet that wasn’t drafted specifically for your location, you should always run it by someone in your location that will know whether or not it will work, and be enforceable in your location, or what might need to tailored for it to work locally. It doesn't provide any value to put something into a contract that won't be enforced by the laws of that jurisdiction

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