Business Law & Compliance
Legal issues for UK businesses collaborating with the US
5 min read
10 March 2016
For English businesses working alongside US companies, whether it be in the form of an acquisition or perhaps a partnership, collaboration can often be made difficult by cultural differences that exist at the heart of contract law.
At a time when companies are increasingly partaking in cross-border work, businesses in the UK would be well-advised to bear in mind a handful of key differences as outlined below.
Since contract law is based mostly on case law rather than statute, courts in the US often rely on prominent historical cases from England from pre-19th century since America does not have its own precedents to pull from prior to this time period. Despite this, common law principles (which the US and UK both abide by) have generally gone in diverse directions which has created issues for parties from different jurisdictions entering into agreement with one another.
Whilst the common law system allows for more flexibility for quick adaption to circumstance without Parliament having to enact legislation, it also gives room for more ambiguity which can complicate matters further where contracts are concerned.
The main differences between US and English contract law include implied duty of good faith; English law does not have a general implied duty of good faith for the most part, although employment law is an exception as well as insurance law in the case of pre-contractual disclosure by a party seeking cover. The US on the other hand does have a general duty of good faith in the performance and enforcement of contracts.
Interpretation is another key difference; where a clause may be ambiguous, a US court cannot draw any conclusions by taking into account and interpreting a clause based on any discussions that have occurred prior to the drawing up of the contract, whereas depending upon the terms of the entire agreement language contained in the agreement, an English court may take these into consideration.
Read more about cultural barriers in business:
- International business: How to overcome barriers
- They may be anchored in cliches, but cultural differences should not be ignored
- Cultural faux pas that can sour your business relationship
Language issues are at the very core of contract law differences. Terminology and style can present issues in contracts addressing both English and American parties, where different terminology is used to describe the same outcome. A court that is not familiar with a different terminology can misunderstand the intended meaning, leading to more complex issues down the line if these are not picked up on or taken into consideration beforehand.
Contractual differences also lie in the potential remedies avoidable to parties in the US and England and the ability to recover legal costs. Where a clause is inserted into a contract to limit or exclude the liability for breach of contract or negligence, under English law liability can only be excluded by the use of very clear words in the contract, which differs from American contract law, where “indirect and consequential losses” covers the exclusion of losses that result from a breach of contract.
There are some key differences in market practice too. Warranties in M&A transactions are given on a normal damages basis in English law unless expressly stated otherwise. In the US, damages for warranty claims are on an indemnity basis where there is no obligation to prove loss, no duty to mitigate and costs are always recoverable.
Finally, where unilateral mistake is concerned – the most common form of mistakes, where only one party to a contract is mistaken as to the terms of subject-matter – in the UK this can render a contract void only if the party who was not mistaken knew of the mistake, which differs to US law.
Ultimately all those entering into agreement have the same aim, which is to satisfy the purpose of mitigating the requirement of consideration by trying to dissolve the cultural differences that exist. Bearing in mind the above points on the differences in contract law will provide a good stepping stone for businesses looking to collaborate with firms on the other side of the pond.
Collaboration while not doing your homework can also lead to some marketing disasters as is seen by these ten slogan translations that businesses would rather forget.
Daniel Bellau is corporate finance partner and head of corporate and commercial at Hamlins.