What in house counsel should consider in international contract developments

The EY Global Legal Commercial Terms Handbook covers key commercial provisions in more than 25 jurisdictions.

Three questions to ask

• What should in-house counsel keep in mind about clauses and obligations in cross-jurisdiction contracts?
• What temporary measures are adopted in contracts during the COVID-19 pandemic?
• What are the latest trends in commercial contracts?

Multinational organizations are focusing on strategies to boost commercial operations following the COVID-19 pandemic. While the majority of 2020 has been dominated by news from the health and life sciences sectors, consumer products and retail organizations have been facing important questions regarding their supply chain, cash flow and strategy.

As many such organizations re-examine their contract portfolio and move to accelerate new deals and partnerships, it’s important to remember key principles of contracting may not be same across borders. In-house counsel needs to be aware of key clauses and obligations in business-to-business contracts and how their applicability changes in different jurisdictions.

Also integral is the understanding of the possible risks associated with a deviation from their national law when negotiating with a contracting party. By providing this knowledge early in the negotiation timeline, in-house counsel will be more likely to secure their organization’s position, with minimum concessions to the other party from a legal perspective.

In researching the latest developments, EY Law teams have found several trends are continuing from years past.  These include:

• Generally, prices must be determined or determinable, if necessary, through the subsequent intervention of a third party.
• The recognition of non-compete or exclusivity undertakings, subject to limitations resulting from local competition/anti-trust laws.
• The criterion of “reasonableness” is one of the key recognized legal principles, applicable to a number of key clauses, such as limitation of liability and prior notice
• The rise and/or the confirmation of alternative dispute resolutions methods, especially in civil law jurisdictions, where they were generally less advanced than in common law jurisdictions.
• In general, force majeure is similarly perceived across common law and civil jurisdictions, although its definition may have different sources (statute or case law). Some common law jurisdictions make force majeure claims an option only if the contract expressly provides for it.

At the same time, new trends have appeared across jurisdictions.  They include:

• Increasingly, the “good faith” concept is characteristic of civil law jurisdictions, and the “consideration” concept is given greater importance in common law jurisdictions
• Recent trends in civil law jurisdictions focusing on pre-contractual obligations are not shared by common law jurisdictions.
• The “battle of forms” outcome has different resolutions (such as “knock-out” or “last shot”), although these differences also exist in civil law jurisdictions.
• The judicial powers related to contract compliance are generally greater in common law jurisdictions, where judges may award punitive damages.
• Not surprisingly, an important level of harmonization is noticeable in EU jurisdictions as a result of EU directives and regulations (such as recognition of foreign judgments).

The EY Global Legal Commercial Terms Handbook 2020 summarizes terms and conditions in commercial contracts in six sections:

• Formation of the agreement
• Content
• Duration and termination
• Performance and non-performance
• Dispute
• Recent legislation and trends, including highlights on the temporary measures adopted in relation to the COVID-19 pandemic (in addition the EY Force Majeure Tracker)

This Handbook is the collective work of more than 25 EY law teams throughout the global EY network and has been prepared based on the legislation and case law current at the time of drafting.

We have developed additional trackers on key topics to help you monitor the global situation. You can find them on our EY Law home page. EY Law professionals are updating the trackers regularly as the situation continues to develop.

Download our Global Legal Commercial Terms Handbook to understand the key commercial provisions in more than 25 jurisdictions.

(While this document is updated on an annual basis, it has been prepared for general informational purposes only and is not intended to be relied upon as, accounting, tax, legal or other professional advice.)