In case of dispute involving a verbal contract, either side can use circumstantial evidence to prove

the agreed verbal agreement. Arabic is the language used for written contracts. A contract
translated into another language may be attached but when resolving disputes, the Arabic version
will be considered in a court of law.

As part of the consideration, given by the

Employer for the services to be rendered under this

agreement, the Employee agrees not to divulge,

publish or otherwise reveal either directly or

indirectly to any person, firm or corporation, any

knowledge or information or any facts concerning

any of the business of the Employer.

Determination kuwait

In civil law jurisdictions, the most common remedy for default is specific performance. The seller in
default is required to perform specifically in terms of the contract, for example, by delivering the
goods as promised. Both civil and common law jurisdiction, however, recognize a range of remedies,
varying from compensatory to punitive damages, and from specific to modified performance.

Good faith in negotiating

Is there an obligation to use good faith when negotiating a contract?

USAGreenberg Traurig LLP

In the United States, the Uniform Commercial Code (UCC) generally governs commercial agreements
(such as supply contracts for the sale of goods and services), and has been codified by each state,
with some states making modifications to certain UCC requirements. Thus, both state statutes and
common law concerning commercial contracts vary among states, so a careful analysis of the state
law governing the contract is recommended.

Generally, absent an agreement to negotiate in good faith, there is no such obligation for parties to
negotiate a contract in good faith. Some parties may execute a preliminary agreement - such as a
term sheet or letter of intent - as part of their negotiations before entering into a formal written
contract, especially for more complex transactions. Often, such preliminary agreements include a
provision that expressly states that the parties agree to negotiate the deal points within the term
sheet or letter of intent in good faith. Some states will enforce these agreements to negotiate in
good faith, while other states have held such provisions to be unenforceable. Some courts that have
enforced such an obligation in a preliminary agreement do not necessarily find that the duty
assumes exclusive negotiations, and other courts have further stated that the term sheet or letter of
intent should be detailed and include a ‘framework’ for the court to determine whether the duty has
been breached.

‘Battle of the forms’ disputes

How are ‘battle of the forms’ disputes resolved in your jurisdiction?

USAGreenberg Traurig LLP

A ‘battle of the forms’ arises in the United States when, rather than preparing a single contract for
the sale of goods, the offeree and offeror each send the other party what they consider to be their
respective standard terms and conditions. Of course, such terms tend to be inconsistent - and more
favourable to each respective party - resulting in a conflict over which party’s terms will govern the
contractual relationship. When such a conflict occurs, as a general rule, no contract is formed
because each communication is considered a counter-offer, not an acceptance of the other party’s
terms. A ‘conditional acceptance’ is a type of counter-offer that purports to ‘accept’ the other
party’s offer, but only with additional or different terms. Most states require express language for a
conditional acceptance. In this situation, approval by the other party remains necessary to form a
contract.

The UCC has a ‘merchant rule’ for commercial contracts between merchants. Under the UCC, the
additional terms will automatically become part of the contract unless the offer expressly limits
acceptance to the terms of the offer; the additional terms materially alter the agreement; or one of
the parties has notified the other party that it objects to the additional terms (or notified the other
party within a reasonable time). Most state courts have held that this merchant rule applies just to
additional terms and does not include different or inconsistent terms; instead, the different or
inconsistent terms are cancelled out and replaced by the ‘gap-filling’ provisions under the UCC (such
as provisions for the course of performance and the time and place of delivery). Other states will
treat the additional terms and inconsistent terms in the same way; thus, the different terms become
a part of the contract between merchants unless one of the exceptions listed above applies. A
review of state-specific laws and court interpretations is recommended to determine how the state
has adopted the UCC’s rule.

Language requirements

Is there a legal requirement to draft the contract in the local language?

USAGreenberg Traurig LLP

There is no obligation in the United States to draft commercial contracts in English; however, the
vast majority of both domestic and international contracts are prepared in English. A review of state-
specific laws is recommended if entering into a consumer contract. Some states, like California, can
require certain consumer contracts to be translated into another language.

Online contracts
Is it possible to agree a B2B contract online?

USAGreenberg Traurig LLP

Yes. In the United States, a legally binding contract generally does not need to be in any particular
form. With some exceptions, commercial contracts may be formed electronically and are subject to
the Electronic Signatures in Global and National Commerce Act at a federal level, and the Uniform
Electronic Transactions Act as adopted by all states except for Illinois, New York and Washington.
These laws authorise electronic signatures in most commercial and business transactions, subject to
certain exceptions. The terms of the contract must be accessible for review, and it is recommended
that the full text be provided (such as via a click-to-accept scroll box).

Statutory controls and implied terms

Controls on freedom to agree terms

Are there any statutory or other controls on parties’ freedom to agree terms in contracts between
commercial parties in your jurisdiction?

USAGreenberg Traurig LLP

In the United States, parties are generally free to draft commercial contracts with terms of their
choosing without any statutory or other controls. Yet, there are statutes that regulate certain
aspects of contracts, including the Federal Arbitration Act (which governs contract arbitration
clauses) and the Magnuson-Moss Warranty Act (which governs written warranties and some aspects
of implied warranties on consumer products). As a general matter, commercial parties cannot enter
into contracts that are contrary to public policy of the state in which the contract is made or to be
enforced (eg, requiring indemnification for intentional tortious conduct or an overly broad non-
competition covenant). Commercial parties also cannot enter into contracts that would violate the
law if enforced as written.

Standard form contracts

Are standard form contracts treated differently?

USAGreenberg Traurig LLP

For commercial contracts between two businesses, standard form contracts are treated the same as
negotiated commercial contracts. The general rules regarding contract construction and
enforceability are the same.

Implied terms

What terms are implied by law into the contract? Is it possible to exclude these in a commercial
relationship?

USAGreenberg Traurig LLP

The UCC creates implied warranties in contracts for the sale of goods. The two implied warranties
are the warranty of ‘merchantability’ of the goods being sold, and the warranty that the goods are
‘fit for a particular purpose’.

For goods to meet the definition of merchantability, goods must be at least of average quality,
properly packaged and labelled, conform to their labels and fit for the ordinary purposes they are
intended to serve. The implied warranty of fitness for a particular purpose applies when the seller of
the goods is aware that the buyer plans to use the purchased goods for a particular purpose. If the
seller knows that the goods will not be suitable for the buyer’s specific purpose, the seller will
breach the implied warranty if it continues to sell the buyer goods for that specific purpose.

Implied warranties can be disclaimed with express language in the contract. A common method for
disclaiming implied warranties is an ‘as is’ clause, which provides that the buyer is purchasing the
product with no implied warranty. Disclaiming implied warranties must be done with conspicuous
contract language (eg, in bold, all caps font) and cannot be concealed in the fine print.

Vienna Convention

Is your jurisdiction a signatory to the United Nations Convention on Contracts for the International
Sale of Goods (the Vienna Convention)?

USAGreenberg Traurig LLP

Yes, the United States became a signatory to the Vienna Convention in 1981.

Good faith in entering and peforming

Is there an obligation to use good faith when entering and performing a contract?

USAGreenberg Traurig LLP

Yes, each contract may contain an implied covenant of good faith and fair dealing. The implied
covenant requires each party not to do anything that will deprive the other party of the benefits of
the contract, and a breach of this covenant by failure to deal fairly in good faith gives rise to a
potential action for damages.

There are a myriad of potential problems that can arise between contracting parties during a
contractual relationship. The implied covenant of good faith and fair dealing was established by
courts to address these issues. States generally imply this duty into most consumer contracts, and
the UCC has also adopted it for contracts it governs. The UCC defines good faith as ‘honesty in fact
and the observance of reasonable commercial standards of fair dealing in the trade’.

The determination of whether a party failed to act in good faith does not depend on societal
standards of fairness or reasonableness, but instead emphasises the adherence to the contractual
agreement and the reasonable expectations of the other party. The failure of one party to act in
good faith does not necessarily discharge the other party’s obligation to perform. While parties may
have an obligation to act in good faith, the implied covenant of good faith and fair dealing generally
cannot be used by a party to override express language in the contract or improve its position. Thus,
breach of the implied covenant of good faith will not be found where the other party merely
enforces rights it bargained for under the contract, regardless of its motive for enforcing those rights
as written.

Limiting liability

Prohibition on exclusions and limitations

What liabilities cannot be excluded or limited by a supplier in a contract?

USAGreenberg Traurig LLP

There is a trend in favour of limitation of liability clauses in contracts subject to certain exceptions.
For example, a contract governed by the UCC may include terms that limit or exclude consequential
damages ‘unless the limitation or exclusion is unconscionable’. Under the UCC, the limitation of
consequential damages for injury to the person in the case of consumer goods is prima facie
unconscionable, but the limitation of damages where the loss is commercial is not.

The ability to limit liability in a contract may also vary depending upon the state law that governs
that contract. Most courts disfavour contract provisions that limit a party’s liability for gross
negligence, fraud or intentional torts. Some states also refuse to enforce these clauses if the party
seeking protection acted in bad faith.

Financial caps

Are there any statutory controls on using financial caps to limit liability for breach of contract?

USAGreenberg Traurig LLP

No, there are no statutes that enforce financial caps on contracts to limit liabilities, but contracting
parties are free to include financial caps within their contract. Also, most jurisdictions in the United
States adhere to the traditional common law rule against punitive damages for breach of contract, if
there is no tortious conduct. In the consumer setting, financial caps can be set aside if found to be
unconscionable. While commercial parties are generally free to contract as they see fit, parties
seeking to take advantage of such provisions would be wise to include such financial caps in clear,
conspicuous language and also include representation and warranties about the provision, providing
further additional evidence as to their reasonableness for the situation at hand.

Indemnities

Are there any statutory controls on indemnities used to cover liability risks in contracts?

USAGreenberg Traurig LLP

Indemnification provisions are interpreted under the same rules that govern other provisions in
contracts, including the general rule that contracts are interpreted to give effect to the intent of the
parties. Most states do not permit indemnification clauses for intentional wrongful acts or punitive
damages, as they are deemed against public policy. Also, many states restrict businesses that
provide essential services to the public from being indemnified for their own negligence, due to
public policy considerations.

Liquidated damages

Are liquidated damages clauses enforceable and commonly used in your jurisdiction?

USAGreenberg Traurig LLP

Liquidated damages clauses are generally enforceable in the United States and commonly used,
especially in the commercial setting. Courts have upheld such damages where ‘they are a fair and
reasonable attempt to provide just compensation for an anticipated loss resulting from a breach of
contract.’ Under the UCC, liquidated damage provisions will be enforced unless they are considered
‘excessive’ and, if deemed to be so, are ‘considered unenforceable as a penalty on the grounds of
public policy’. Disproportionate liquidated damages may be declared a penalty, which will void the
clause and limit recovery to the actual damages resulting from the breach.

As a general matter, courts consider two things in determining whether a liquidated damages clause
is enforceable: whether the injury caused by the breach is difficult to calculate, and whether the
amount of the liquidated damages is reasonable in proportion to the anticipated injury.

Payment terms

Statutory time limits on payments

Are there statutory time limits for paying invoices? Is it possible to agree a different payment
period?

USAGreenberg Traurig LLP

While there are no statutes in the United States specifically addressing the timing of payment of
invoices, the UCC provides a time frame as one of its ‘gap-filling’ provisions to be implied when a
contract for the sale of goods is silent on this issue. Under the UCC, if the contract is silent with
respect to the time for payment, the time will be when the purchaser is to receive the goods.

Further, the payment obligation under the contract would be subject to the statute of limitations
under the UCC and applicable state law. The statute of limitations for breach of contract under the
UCC (ie, non-payment of an invoice) is four years from the cause of action; however, this can vary by
each state’s commercial code (for example, the statute of limitations for breach of contract claims in
New Jersey is six years). Generally, parties do agree to a payment schedule, either within the
contract itself or within the terms of the invoice, such as ‘net thirty (30) days’ from the date of the
invoice.
We note that while there are no statutes addressing time limits for paying invoices with respect to
general commercial contracts, there are such statutes in some states for other types of contracts,
such as construction or government contracts.

Late payment interest

Is statutory interest charged on late payments? Is it possible to agree a different rate of interest?

USAGreenberg Traurig LLP

Yes, subject to state law. In most states, statutory interest may be charged on late payments under a
commercial contract; however, state law varies on the rate of interest and when interest begins to
accrue (usually the due date). When a commercial contract does not include an interest rate, the
pre-judgment interest laws of many states may impose a statutory interest rate on late payments,
which can vary widely. For example, under Illinois law, the legal interest rate is 5 per cent (or as
agreed to by contract), while in Nebraska, the legal interest rate is 12 per cent (or as agreed to by
contract). Some states do not impose an interest obligation on late payments under a commercial
contract that does not expressly include such a provision. Typically, the law that governs the amount
of the interest rate and when it accrues is where the money owed is payable. The interest is
generally simple interest, and may be different from the maximum interest rate for loans under
state law.

Although commercial contracts are not generally considered to be loans, courts will examine a
transaction to determine whether a contract for the sale of goods is actually a loan - in which case
usury laws will apply. Usury laws apply to loans and set limits on the maximum interest rate that can
be charged to avoid excessively high rates.

Civil penalties

What are the civil penalties for failing to comply with statutory interest rate or late payment of
invoices?

USAGreenberg Traurig LLP

The civil penalties for failing to comply with a statutory interest rate vary by state. For example, in
Illinois, if a party knowingly contracts for or receives unlawful interest, the obligor may recover twice
the total of all interest, discount and charges determined by the loan contract or paid by the obligor,
whichever is greater, plus such reasonable attorneys’ fees and court costs as may be assessed by a
court.

For late payment of invoices, some states have what are known as ‘prompt payment laws’ for
certain kinds of contracts that include civil penalties; however, these laws tend to focus on contracts
where the government or a government agency is a party.
Termination

Implied terms

Do special rules apply to termination of a supply contract that will be implied by law into a contract?
Can these terms be excluded or limited by including appropriate language in the contract?

USAGreenberg Traurig LLP

Under the UCC, if a contract is indefinite as to duration, it will be valid for a reasonable time. Unless
the parties agree otherwise, either party may terminate the contract at any time (though many
courts have held that reasonable notification to the other party is required).

Parties to a long-term contract for the sale of goods may expressly agree to certain termination
provisions. Some provisions may permit one or both parties to terminate for convenience, meaning
a party can simply terminate at will, without the other party being in breach. These ‘at will’
provisions may be subject to other applicable laws or notice requirements.

A contract may also include the right to terminate for cause. Termination for cause typically occurs
when one party is either in general breach of the agreement or one or more enumerated ‘events of
default’ have occurred (for example, non-payment, failure to deliver, or breach of warranty). Again,
reasonable notification is typically required to terminate, unless the parties agree otherwise.

Notice period

If a contract does not include a notice period to terminate a contract, how is it calculated?

USAGreenberg Traurig LLP

Under the UCC, reasonable notification is that which will give the non-terminating party reasonable
time to seek out an alternative arrangement. What is reasonable will depend on the particular facts
and circumstances applicable to the case.

Automatic termination on insolvency

Will a commercial contract terminate automatically on insolvency of the other party?

USAGreenberg Traurig LLP

Although it is common for commercial contracts to provide for immediate termination upon the
insolvency or bankruptcy of a party (an ipso facto provision), these clauses are subject to US
business bankruptcy laws and are therefore not always enforceable if the insolvent party has filed
for bankruptcy. If the insolvent party has not filed for bankruptcy, however, the other party may be
able to rely on the ipso facto provision to terminate the contract. Although the insolvency of a party
does not automatically terminate a commercial contract, it is generally considered to be sufficient
grounds to terminate a contract in connection with other factors that constitute a default.
Termination for financial distress

Are there restrictions on terminating a contract if the other party is in financial distress?

USAGreenberg Traurig LLP

Yes, if the distressed party has filed for bankruptcy, the other party may not be able to terminate the
contract, as mentioned above. US bankruptcy laws generally protect the distressed business’s
property, assets and contract interests during the proceedings and give the distressed party
additional time and rights to determine what to do with the contract (cure and perform, reject, etc).
If bankruptcy has not been filed and the distressed party has defaulted under the contract, the other
party may issue a notice of default (as specified in the contract) or terminate under an ipso facto
provision.

Force majeure

Is force majeure recognised in your jurisdiction? What are the consequences of a force majeure
event?

USAGreenberg Traurig LLP

Yes. In commercial contracts, force majeure events typically include acts of God, war, acts of
terrorism or similar events, fires, strikes, embargoes or other government actions, natural disasters,
riots, shortages of power or transportation, or other events beyond the control of either party.

The parties may include a force majeure clause in the contract, which serves to excuse non-
performance due to a force majeure event, or allocate the risk if certain events were foreseeable
(for example, a severe hurricane in the south-eastern region of the United States) by negotiating the
monetary terms of the contract. If a contract is silent as to a force majeure event, the court will look
to its foreseeability to determine whether to excuse non-performance under the contract. If a force
majeure event was foreseeable, the court will generally hold that the non-performing party bore the
risk of the event and is therefore not excused from performance. If the force majeure event was not
foreseeable, the non-performing party is generally excused.

Subcontracting, assignment and third-party rights

Subcontracting without consent

May a supplier subcontract its obligations under the contract without seeking consent from the
other party?

USAGreenberg Traurig LLP

Generally, it is assumed that both parties are permitted to subcontract a commercial contract
without the other party’s consent, unless the contract states otherwise. Most commercial contracts
between businesses typically address subcontracting rights within their boilerplate provisions. There
are exceptions to this general rule for personal service and other types of contracts.
Statutory rules

Are there any statutory rules that apply to subcontracting in your jurisdiction?

USAGreenberg Traurig LLP

No, not with respect to subcontracting general commercial contracts for the supply of goods and
services between two businesses; however, states may regulate subcontracts within certain
industries (such as construction).

Assignment of rights and obligations

May a party assign its rights and obligations under the contract without seeking the other party’s
consent?

USAGreenberg Traurig LLP

Contracts are typically freely assignable absent an anti-assignment provision to the contrary unless
an assignment would violate public policy or materially alter the circumstances of the contract (the
duty of the obligor would be materially changed, the burden or risk on the obligor would increase
materially, or the assignment would materially reduce the value of the contract to the obligor).
Some examples of assignments that would violate public policy include assignments of claims for
personal injuries, or rights that are personal, such as those under a non-compete. Federal law also
limits the assignment of rights under certain government contracts.

Further, with respect to the delegation of obligations under a commercial contract, a party may
delegate its duty to perform under the contract unless otherwise agreed or unless the other party
has a substantial interest in having the original promisor perform or control the acts required by the
contract. The delegation of performance does not relieve the party delegating of any duty to
perform or any liability for breach. If the delegating party wishes to relieve itself from liability for
non-performance under the contract, it must obtain the non-delegating party’s consent, which is
referred to as a novation. Generally, in a novation, the delegating party, the non-delegating party,
and the delegatee agree that the delegatee is substituted for the delegating party; the delegating
party is no longer liable for performance; and the delegatee is liable for performance.

What statutory controls apply to the assignment of rights or obligations under a supply contract?

USAGreenberg Traurig LLP

In general, contracts for the sale of goods are also assignable and the rights thereunder are generally
delegable, although there are exceptions for a contract for exclusive requirements, or for a unique
product. Under the UCC, if performance is delegated, the delegation may be treated as a reasonable
ground for insecurity, and the non-delegating party may request assurances of performance from
the delegating party. If the delegating party does not oblige, it can be treated as a repudiation of the
contract.
The UCC also permits a party to assign its right to sue for breach of contract, notwithstanding any
anti-assignment and anti-delegation provisions. Further, the UCC invalidates assignment restrictions
on accounts, including the right to receive payment under the contract, so that a party cannot be
restricted from using receivables as collateral to borrow money from a lender or selling its
receivables to a third party.

Enforcement by third party

How may a third party enforce a term of the contract?

USAGreenberg Traurig LLP

Generally, a person or entity that is not a party to a contract only has enforcement rights if the
contract expressly states an intent to grant them to the third party. An ‘intended beneficiary’ under
a contract is one who acquires a right to enforce the contract by virtue of the promise made under
the contract, while an ‘incidental beneficiary’ is one who benefits by the performance of a promise,
but is not a party to the contract or an intended beneficiary and cannot enforce the contract. Courts
have consistently held that the language of the contract must clearly state an intent to grant the
third party the right to enforce the contract.

Disputes

Limitation periods

What are the limitation periods for breach of contract claims? Is it possible to agree a shorter
limitation period?

USAGreenberg Traurig LLP

Statutes of limitations vary among the states and also vary in relation to the type of contractual
claim. For example, New York allows a party six years from the date of execution of a written or oral
contract to bring a claim for breach of contract, but only three years after the alleged injury
occurred. California allows a party to bring a claim within four years of the date of execution of a
written contract (and two years for an oral contact), and the claim must be brought within two years
of the alleged injury. Under the UCC, a breach of any contract for sale must be commenced within
four years after the cause of action has accrued. If claims are not brought within these times, they
will generally be barred.

Most states do allow parties to agree to a shorter period in which claims must be brought. Service-
based contracts often include clauses that shorten the statute of limitations. Most states have
statutes setting a minimum period for shortening the time to bring an action. The UCC also allows
parties to reduce the period of limitation in a commercial contract for the sale of goods to a
minimum of one year.

Choice-of-law clauses

Do your courts recognise and respect choice-of-law clauses stipulating a foreign law?
USAGreenberg Traurig LLP

In the United States, contracting parties are generally free to choose the law that governs the
contract. Yet, some states require there be a reasonable relationship between the jurisdiction of the
chosen law and the transaction. Certain states, such as New York, will allow parties to apply New
York law to commercial contracts if the underlying transaction is valued at or more than
US$250,000, even if the parties have no relationship to New York.

Do your courts recognise and respect choice-of-jurisdiction clauses stipulating a foreign jurisdiction?

USAGreenberg Traurig LLP

US courts typically enforce forum selection clauses in an international context based upon
international comity and public policy. Jurisdictions within the United States have differing case law
related to forum selection clauses, but they are generally enforced unless the challenging party can
identify drastic and unexpected changes in the forum’s legal process since the contract was
executed, and show that these changes deprive the challenging party of its day in court.

Efficiency of local legal system

How efficient and cost-effective is the local legal system in dealing with commercial disputes?

USAGreenberg Traurig LLP

The US legal system is not commonly characterised as efficient or cost-effective. First, litigants are
generally responsible for their own legal fees (the ‘American rule’), though at times the prevailing
party may be able to recover its attorneys’ fees in certain contractual causes of action or based on
certain statutes. For commercial contract claims, most attorneys will work for an hourly fee, though
there is a recent trend towards ‘alternative billing arrangements’. Under these arrangements, some
attorneys are willing to handle a party’s litigation for a flat fee, capped fee, or some other
arrangement, but this is still a minority trend.

Attorney cost structures are generally the same when arbitrating, but most parties find that
arbitration costs are cheaper than normal litigation because a binding decision is reached more
efficiently and quickly. Arbitration usually does not involve the costly discovery obligations that are
imposed in judicial proceedings; and this is becoming more significant in recent years owing to the
high costs of producing vast quantities of electronically stored information. If the contracting parties
desire to narrow the type of discovery or the time periods over which claims are arbitrated, it is best
to include such terms in the arbitration agreement. Among other things, it is also important to
include language in the arbitration agreement describing the types of claims to be arbitrated. The
parties can agree to arbitrate some claims but not others. It is important to consider state and US
law when drafting the arbitration agreement.

New York Convention

Is your jurisdiction a signatory to the New York Convention on the Recognition and Enforcement of
Foreign Arbitral Awards? Which arbitration rules are commonly used in your jurisdiction?

USAGreenberg Traurig LLP

Yes, the United States is a signatory to the New York Convention. Arbitrations in the United States
are commonly governed by the set of rules explicitly named in the contract. The Federal Arbitration
Act will apply if the case could be filed in federal court. State law will normally govern the contract
unless foreign law is chosen. Parties tend to use different arbitration rules and fora to decide their
disputes, including the American Arbitration Association, CPR International Institute for Conflict
Prevention and Resolution, or JAMS. The rules for the particular organisation chosen to administer
the dispute must be considered, as each differs.

Remedies

Available remedies

What remedies may a court or other adjudicator grant? Are punitive damages awarded for a breach
of contract claim in your jurisdiction?

USAGreenberg Traurig LLP

A court or other adjudicator generally can grant all remedies available under the law, unless the
parties’ contract or the applicable rules provide otherwise. The main categories of remedies
available in a cause of action arising from contract law are:

monetary damages (the most common remedy), which provides compensation to put the non-
breaching party in the same position that it would have been in but for the breach of contract;

declaratory judgment, which declares the rights of the parties;

injunctive relief, which prohibits the defeated party from performing an act or requiring the party to
perform an act; and

specific performance, which requires the defeated party to perform its obligations under the
contract.

Monetary damages primarily fit into one of three categories:

expectation damages, which are not based on a sustained injury but rather on a loss of some future
or speculative income;

reliance damages, which are sustained when a party acts in reliance on a party who failed to fulfil
their obligation; and

restitution damages (or unjust enrichment), which occur where one party has conferred a benefit on
another party but cannot collect the full payment for that benefit.

Punitive damages are rarely awarded for a breach of contract claim, but have been awarded where a
party has engaged in tortious conduct.
Governing Law for Contracts

Practical Considerations and a Checklist

English law? New York law? French law? German law? Swiss law? Many lawyers systematically
attempt to impose their home law as the governing law for contracts. This can lead to lengthy and
dogmatic negotiations on the subject. However, the choice of law should only rarely be a “deal-
breaker”. We address some key considerations below.

One legal system is generally not better than another.

The main differences between the Common Law and Civil Law systems are well known. Each has
advantages and disadvantages, including:

Discovery/Disclosure. Discovery/Disclosure may be quite a time-consuming and expensive exercise,

but on the other hand, it may make subsequent litigation less likely, once both sides have the same
facts. On the other hand, Civil Law proceedings tend to be much faster, which allows both parties to
reach closure and move on with their business.

Certainty vs. Fairness. Common Law systems pride themselves on near-total freedom of contract
and respect for the written word of the contract, whereas many Civil Law systems allow the judge to
take into account all the circumstances and reach a conclusion which may be quite different from
the expressed intention of the parties in the contract.

Each system, taken as a whole, delivers coherent and commercially acceptable outcomes for the
parties. This is reflected in the fact that Swiss and English law are the two most commonly chosen
laws to govern international commercial contracts, even though they come from entirely different
legal traditions.

Home law advantage? Be careful what you wish for.

Generally speaking there should be no home advantage per se, because the law itself is neutral
(though some legal systems are more developed than others and some jurisdictions strike a different
balance than others, e.g. regarding protection of agents).

Insisting on your home law can turn out to be a bad idea. For example, you enter into a contract
with a customer which is subject to Swiss law, and you enter into a subcontract with a critical
supplier which is subject to English law (your home country). You have reflected the relevant terms
and terminology from the contract in the subcontract. You are later held liable towards the
customer due to a delay or performance issue caused by the supplier. The court, applying your
home country’s law to the same facts and contract language, arrives at a different legal conclusion,
and exonerates the supplier.

On the other hand, in the case of a parent company guarantee, if you are the issuer, you may be
concerned that in case of attempted enforcement by the beneficiary, it should be subject to a
governing law that you know and trust. If you are the beneficiary, it may also be in your interests for
the governing law to be the law of the place where the parent company is located, to make
enforcement easier and cheaper.
With some customers it is clear from the outset that they will never agree to a different applicable
law, e.g. some state-owned companies, banks and insurance companies. In such cases, it is useful to
take a step back and assess the practical risks. For example, many state-owned customers have no
history of making aggressive claims against suppliers. On the other hand, faced with a difficult
economic environment, some customers may not be reliable payers, but the best way to address
payment may be by insisting on delivery terms which avoid a negative cashflow or obtaining
payment security, rather than trying to enforce a foreign court judgement or arbitration Award.

If you have specific concerns, you can obtain some comfort by obtaining a local legal opinion, e.g.
regarding enforceability of liability limitations. However, for smaller contracts, the costs which
would be incurred in obtaining legal advice in the foreign jurisdiction would be disproportionate.
For product supply contracts, the United Nations Convention on Contracts for the International Sale
of Goods (CISG) may be a mitigating factor. The CISG applies to contracts for sales of goods between
parties who are located in different ratifying states. Some lawyers reflexively exclude the CISG
because it is different from their local law or because they are simply unfamiliar with its provisions.
However, the CISG does provide a coherent set of rules which may be preferable to the local law.
Many Civil Law countries are parties, as is the US (but not the UK).

The dispute resolution mechanism is more important than the governing law.

In commercial transactions, it is generally good practice for the parties to regulate any matters of
importance to them in the contract, rather than relying on the general law to fill in the gaps. This
means that there is normally no need to look beyond the contract to the chosen system of law
(though it will still govern matters such as the rules of interpretation). This means that the choice of
dispute resolution mechanism is in practice much more important than the governing law. For
international transactions, if there is a concern regarding the impartiality of local judges or that they
would not have the specific expertise necessary to decide complex commercial disputes, then
arbitration in accordance with the rules of a reputable institution can be a better option (in addition
to offering privacy and a certain degree of procedural flexibility).

Beware situations in which the governing law and the competent court are different.

If the parties choose courts over arbitration, they may anticipate non-exclusive jurisdiction, i.e. that
a local court would have to apply a foreign governing law. Local courts will respect the contracting
parties’ free choice of foreign governing law in most circumstances (e.g. excluding areas of
mandatory law and public policy). However, taking the example of Switzerland, a judge may insist
that all documents be translated by a court-certified translator, which can have a huge additional
cost. The judge will then try to establish what are the relevant requirements of the foreign law or
may require the parties to do so (and if the judge does not reach a conclusion, then Swiss law will
apply). It is obviously going to be more efficient to have the judge decide cases based on the local
law with which he/she is familiar.
If you take account of the considerations outlined above, you are likely to find that your Company is
able to significantly reduce contract negotiation time (e.g. by giving the flexibility to your commercial
teams to accept the customer’s local law when you are a supplier) without harming your own
Company’s position (because you still have an acceptable dispute resolution mechanism in case of a
serious dispute).