Let's Not Fight Over It.

You signed the deal. The other party is in default. You cannot agree to a remedy, so the dispute will be litigated in court. Based on what is written in the contract, the judge will agree that you are in the right - right?

Not necessarily: there is a misconception that, in case of commercial litigation, the court (judge) will apply the contract terms and conditions (T&Cs) agreed by the parties to reach its decision. The companies have negotiated the T&Cs, so the judge will apply them - correct?

Not quite. In practice, the court will interpret the T&Cs in light of the applicable law, thus the validity of those T&Cs will be a deciding factor in the court’s decision.

A not insignifiant amount of international litigation we deal with derives from Italian companies or their subsidiaries taking a ‘one size fits all’ approach and:

i) ‘recycling’ English language contracts created for other projects. However, the clauses of the English language contract will have been originally conceived to comply with a specific law (often a common law-based system such as England and Wales, a US State, Australia, Singapore);

ii) using an inappropriate English version contract for the international deal.

The commercial lawyer creates a contract that sets out the intentions and wishes of the corporate parties within a framework of T&Cs that are valid under the law that is applicable to the contract.

In the case of common law, this entails a thorough knowledge of common law and of equity (equity does not mean ‘fairness’; put very simply, in common law systems, equity is a set of rules and doctrines that may supplement or override statute law). Likewise, in the case of Italian specific deals, this entails a thorough knowledge of domestic law.

Problem Scenarios:

- You like the English language contract that was used for a previous international project for UK, so you change the names of the parties, insert Italian law as applicable law and use that same model for a new project in China.

- Or, for a US project, you translate into English your Italian corporate model supply contract (drafted in compliance with Italian law) and insert New York as applicable law.

In either case, the consequences can be disastrous and costly if a disagreement arises between the contract parties.

Examples of problems that could arise:

· an LOI or MOU you considered ‘informal’ could actually be deemed as a binding agreement;

· legal concepts stated in the original contract may be meaningless in the new one;

· the limitation and/or exclusions of contract liability may not be valid leaving a party with a black hole of potential liability;

· the penalty clauses may be unenforceable;

· the presence of certain unlawful T&Cs could invalidate the entire contract;

· an incorrect formality of the document could invalidate the transaction;

· the law may imply product or service warranties that you had not planned for;

· the dispute resolution venue may be unworkable.

These are critical issues which will be expensive and time consuming in case of litigation.

Whilst corporations quite understandably want to contain their legal costs in the contract negotiation phase, it is undoubtedly more cost effective to avoid sticky legal problems now rather than to litigate further down the line.

[email protected] Legal expert in international commercial transactions.