ACC ISRAEL ANNUAL CONFERENCE

1. ACC ISRAEL ANNUAL CONFERENCE International Contracts – Common Law and Civil Law Juliet ReingoldSascha KuhnAriel Nachman Simmons & Simmons Tel Aviv, Israel 16 June 2010

2. International contracts – common law and civil law • Comparison – common law - v - civil law systems • Drafting styles • Concept of good faith • Differences at the pre-contract stage • Substantive differences in contractual terms in common law and civil law contracts

3. Comparison: common law versus civil law systems

4. Drafting styles and techniques • The style of negotiating and drafting documents varies from legal system to legal system • Rules of interpretation mean that parties to common law contracts are encouraged to specifically cover every detail, whereas a more all-encompassing ‘spirit of the agreement’ approach is taken in civil jurisdictions • As business becomes increasingly international, there is a trend towards a standardisation of contract terms • BUT… • it is important to understand the different approaches taken, so as to ensure clarity and avoid ambiguity

5. Role of good faith in the two legal systems • One of the fundamental differences between common and civil law contracts • Good faith ‘not recognised’ in English law • Freedom of contract • But • Misrepresentation, Mistake, Duress, Illegality, Frustration • Statute • Civil law jurisdictions often actively impose ‘good faith’ type duties • Italy: duty to negotiate in good faith • Germany: contracts interpreted with ‘trust and good faith’ (‘Treu und Glauben’)

6. Role of good faith in the two legal systems (continued) • If a Party is required to act in good faith under civil law, there could be increased obligation to: • inform the other side of all relevant points that it could not discover otherwise during negotiation • observe reasonable diligence in the performance of pre-contractual and contractual obligations • exercise caution when varying terms in pre-contractual letters of intent or withdrawing from negotiations without reasonable justification • May need to manage the role of good faith: • Negotiating specific circumstances in which party will be liable for damages if negotiations breakdown • Try to avoid references to negotiating or acting in good faith

7. Differences at the early stages Pre-contractual obligations Common Law • No liability if negotiations break down • ‘Agreements to agree’ are not legally enforceable Civil Law • Some jurisdictions allow liability for unfairly breaking off negotiations (for example France or Germany) • Commencement of negotiations can itself lead to contractual relationship between parties (i.e. Germany’s vorvertragliches Schuldverhältnis) NB: Common and Civil jurisdictions both have remedies for mistake and misrepresentation

8. Common Law Detail needs to be spelled out – hard to get wording changed or rectified at a later stage by the English courts Entire agreement clauses mean that English courts will not ‘look behind’ contract to negotiations to aid interpretation Differences at the early stagesNegotiations • Civil Law • Emphasis on the common intention of the parties – even provisions that are clear can be modified if they do not properly reflect the intentions • Discussions and pre-contractual negotiations are used to assist interpretation

9. Differences in the substance of a contract drafted under common law as opposed to civil lawDescription of Parties/Recitals English Law • It is usual to provide a brief description of the Parties, including the full legal name of the contracting entity, its address and place of incorporation • Recitals are considered subordinate to the main body of the contract, and so less emphasis is put on them when a dispute arises German / Italian Law • More elaborate descriptions of the Parties are often given, including details from the Company register, tax identification codes, and power of attorney information • Recitals are seen as the basis of the contract and are absolutely crucial in any interpretation following a dispute

10. Signatories • Both common and civil jurisdictions have individual quirks • Often need to check specific jurisdiction/seek the advice of local counsel • EU legislation provides that an EU Company’s directors have authority to sign, so there is some reassurance • In Germany, need to ensure the Company’s constitutional documents grant those who are acting on behalf of the organisation the power to bind it • Power of Attorneys and signing authorities need to be scrutinised

11. Consideration

12. Price and other terms

13. Gap-filling • Most legal systems will void a contract if not sufficiently certain, but there are usually legal provisions for ‘filling in the gaps’

14. Penalty Clauses/Liquidated Damages

15. Exclusion of liability

16. Force majeure

17. Unilateral changes to the contract

18. Third party rights

19. Special contract counterparties – i.e. government

20. Avoiding the pitfalls • ‘False Friends’ – words look the same but have different meanings (i.e. execution of a contract – signature or performance?) • Even similar legal concepts may differ a lot in detail – quote the exact term; provide a good translation of the legal concept • Be aware of ‘Euro English’ • Keep things short and simple • In negotiations, be sure to explain exactly what you mean if wording is in two different languages

21. Conclusion • As transactions become increasingly complex, we are more likely to operate in unfamiliar jurisdictions • It is crucial to be aware of the areas where there may be significant differences between the law we are used to and the law we are working with • We have examined a few areas today, but there are others so vigilance is needed • It is necessary to inform our commercial colleagues of areas where their normal expectations may not apply and to alert them to areas where extra care is needed • It is also important to understand how factors inherent in different legal systems influence the way contracts get negotiated and drafted so as to make the contracting process as effective as possible

22. Any questions please contact:juliet.reingold@simmons-simmons.comsascha.kuhn@simmons-simmons.comariel.nachman@simmons-simmons.com