According to F. Daniel Knight a Shareholder at lawyers Chamberlain, Hrdlicka, White, Williams, & Aughtry, P.C. in Houston, Texas, European companies doing business in the US make three common contract mistakes.
-1- The contract doesn’t specify the applicable law
Most maritime matters in the US are governed by the General Maritime Law of the United States (“GML”) and a number of federal statutes. If the US Supreme Court hasn’t issued a decision on a matter, 13 Federal Courts of Appeal can make rules that apply in their jurisdictions. When these courts disagree, a circuit split exists, with rules varying from state to state. If the GML is silent, State law can fill in the gaps. And sometimes a federal statute can over-ride the GML and impose state law, depending on the circumstances.
A thoughtfully considered and well-drafted choice of law clause can solve most of these issues.
-2- The contract doesn’t specify how disputes are resolved
Two ways to fix this problem are with a forum selection clause and/or an arbitration clause. The former only permits litigation (or arbitration) to take place in certain areas, with particular conditions (i.e. limited discovery). The latter allows the parties to avoid court altogether and instead mediate or arbitrate their disputes. Arbitration can be advantageous in an international agreement because it makes judgment/award enforcement easier.
The problems Mr Knight sees aren’t with the lack of inclusion of these clauses, but in how they are phrased; i.e., use of permissive language makes the clause is optional, and essentially useless.
-3- The contract fails to adequately address indemnity
Often parties agree to reciprocally defend and indemnify each other for certain types of claims. Two common mistakes here are failing to understand the relationship between the place of performance of the contract and potential obstacles to indemnity, and failing to make the indemnity language specific and conspicuous. While parties might not always be able to contract around state laws with a choice of law clause, creative language can reduce chances of state law invalidating an acceptable indemnity agreement.
Most U.S. jurisdictions, as well as the GML, require that defence and indemnity clauses are “specific and conspicuous.”
The easiest way to fix this is to use a completely different font, and font size.
Mr. Knight is a Shareholder at Chamberlain, Hrdlicka, White, Williams, & Aughtry, P.C. in Houston, Texas. He practices in the area of Admiralty, Maritime, and Energy law, and also is a commercial and civil litigator.
This article is for informational purposes only and does not constitute legal advice.
