[author: Scott Chalmers]
Introduction
With the increasing globalization of business, companies are regularly faced with choosing governing law for cross-border construction contracts. Invariably, for private international law, English law is a contender.[1] This article outlines some of the key features and considerations regarding the laws of England and Wales, and compares certain features with US laws.
English law as a choice for international private law
English law historically has had a wide geographic reach, a feature that emanates from the days of the British Empire, which stretched from the Antipodes (Australia, New Zealand, Oceania) through the Far East (Singapore, Malaysia, Hong Kong), to India, Pakistan, British colonies in South and East Africa, the Caribbean, and Canada. Many former English colonies maintain a strong legal link to English law [2], and English decisions retain strong persuasive authority in many of those jurisdictions. US law is, of course, grounded on English common law principles.
Freedom to contract
From a private civil law perspective, English and common law is based on the fundamental principle of freedom of contract, which is more flexible than many civil law systems, applying a more prescriptive civil code. Parties to an English law contract generally are bound to their agreement, and terms are upheld unless they are for an illegal purpose or contrary to public policy.
In the context of international construction contracts, this means that the English courts are typically amenable to permitting and enforcing limitation of liability clauses, liquidation of anticipated damages, waivers of consequential loss, ‘knock for knock’ indemnities, time and procedural bars on claims, and ‘pay when paid’ clauses [3], while generally declining to interfere in the bargain between equal parties. US companies may find that some such provisions, such as ‘knock for knock’ indemnities, or ‘pay when paid/pay if paid’ clauses run afoul of US state legislation.
Good faith
English courts historically have taken a narrower view of the concept of good faith than many jurisdictions. English law “cannot police the fairness of every commercial contract by reference to moral principles.” [4]
For example, English courts differ from their US counterparts on the duty to negotiate in good faith. For Texas or New York lawyers accustomed to implied or contractual duties to negotiate in good faith equating to an enforceable ‘agreement to use best endeavors,’ the English position may come as a surprise. However, English courts have opined that “the concept of a duty to carry on negotiations in good faith is inherently repugnant to the adversarial position of the parties when involved in negotiations… Each party to the negotiations is entitled to pursue his (or her) own interest, so long as he avoids making misrepresentations.” [5]
That is not to say, however, that the concept of good faith is entirely absent in English law. Courts might strike down agreements on grounds of illegality, unconscionability, mistake, duress, misrepresentation, implied terms, or frustration; and some English statutes have been enacted to protect certain parties from unfair contracts. [6]
Deeds, limitation of actions, and consideration
For an ordinary English law contract, no person may bring an action more than six years after the cause of action arises. Under Texas law, the limitation period for civil actions varies, but broadly for most breaches of a construction contract the period is four years after the cause of action arises [7], while under New York law, the limitation period is six years. However, under English law, for contracts executed as a deed, the limitation period extends to 12 years.
Execution of a contract as a deed (which for foreign companies typically involves little or no additional practical difficulties) also allows for the creation of binding obligations without the need for consideration to pass between the parties. Avoiding the need for consideration in a deed can be particularly attractive when making unilateral promises unequivocally enforceable and when there may be a lack of consideration moving between the parties.
Disputes: loser pays
In English civil proceedings, the losing party generally pays the prevailing party’s reasonable costs, in contrast to US and other systems where each party generally bears its own. In cross border construction contracts, the ‘loser pays’ regime, combined with the ‘pay as you go’ [8] approach on interim matters brought before a court, can be a powerful disincentive to weak or speculative claims. Conversely, a prevailing claimant can recover far more of its costs than under a ‘pay-your-own’ regime. [9]
Rights of third parties
Under common law, persons not a party to a contract typically cannot enforce a term of that contract, even if that contract purported to confer a benefit on that third party. This hurdle was overcome under English law with the Contracts (Rights of Third Parties Act) 1999, under which such third party can in specified circumstances enforce the contract in its own right, without being a party, and recover its own losses. Equally attractive, the parties can, by express language, contract out of the Act, or limit those to whom a benefit is extended.
Drafting points: No shouting, no conflicts
For contract drafters, unlike the requirements under certain US law [10], English law does not require that certain statements, like limitations of liability, be ‘conspicuous’ - which to many US lawyers means all capital letters, and to many non-US lawyers means those large blocks of near-unreadable text in uppercase.
Finally, for drafters, there is no need for the phrase ‘without reference to its conflicts of law rules.’ English courts, unlike US courts, do not apply the doctrine of renvoi.
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