Weagree Ebook, Miscellaneous 02, Incl Confi PDF

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PREFACE

Thank you for downloading Miscellaneous (boilerplate) clauses part 2! Like part 1, this e-book dis-
cusses contract clauses that are typically found in the final articles of an agreement. It contains many
sample model contract clauses that may be of help to you.

Contents eBook part 2. In this second part, we will address:

1. Miscellaneous (boilerplate) clauses Part 2
1.1 Time is of the essence
1.2 No general conditions to apply
1.3 Language (translations)
2. Force majeure and hardship
2.1 Force majeure
2.2 Change of circumstances (hardship)
3. Confidentiality clauses
4. Applicable law clauses

We hope that the suggestions and best practices in this e-book help you improve your contracts.

Previous eBooks. You probably noted already that Weagree publishes e-books every once in a
while. The currently available e-books are:
1. General contract drafting principles
2. Drafting numbers and dates in contracts
3. Definitions and defined terms
4. Contract interpretation guidelines
5. Internationale joint ventures (in Dutch)
6. Contract house style
7. Contract drafting conventions
8. Miscellaneous (boilerplate) clauses part 1

If you like it, e-mail this e-book to your colleagues!

Willem Wiggers
Amsterdam, 20 September 2012

1. MISCELLANEOUS (BOILERPLATE) CLAUSES PART 2
This chapter continues discussing the well-known boilerplate language at the end of an agreement.
Part 1 was published on 8 June 2012. You can download it on the Weagree website:

http://www.weagree.com/free-ebooks

Contents eBook Part 1. In view of its close link to hardship-clauses, the paragraph on force majeure
is repeated here. In Part 1 of this eBook, the following miscellaneous clauses were discussed:

1. Counterparts
2. Severability
3. Waivers
4. Entire agreement
5. Further assurance (duty to cooperate)
6. Notices clauses
7. Amendments
8. Assignment
9. No subcontracting
10. Force majeure
11. Announcements
12. No termination or dissolution
13. Independent contractors (no partnership established)
1.1 Time is of the essence
The qualification as breach of contract should be preceded by (or happen concurrently with) the de-
fault of a party. Whether a party is in default is not always clear. Obviously, if the party must deliver
work or a product that will be used during the Olympics, then a stipulated deadline unequivocally tri g-
gers the default where delivery does not take place by the specified date. Many contracts do not relate
to the Olympic Games.

A provision that time is of the essence is sometimes included to emphasise that the debtor is in de-
fault upon its failure to meet a certain deadline for delivery. A fairly imprecise clause is:

Time is of the essence. Supplier shall adhere to the time schedule in the Statement of Work.
Each date specified in the Statement of Work is of the essence, unless the context clearly and
unequivocally allows otherwise. The Parties will notify each other promptly of any circumstances
2
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that may adversely affect the time schedule in the Statement of Work, specifying the causes of
delay and expected duration of it, as well as all proposed measures to reduce the delay as
much as practicable.

Where all delivery dates are stated as being of the essence, such a statement is probably superflu-
ous because whether or not a timely delivery is indeed of the essence is a factual question based on
the circumstances and subject to qualification by the operation of law. Of course, in a commercial ser-
vices agreement agreed in the context of a larger project, meeting the contractual milestones may well
be essential. It is recommended that you ensure that this is understood from facts other than a boiler-
plate provision. In common law jurisdictions time is of the essence often means that delayed perfor-
mance permits the affected party to terminate the contract.

A useful element in the same provision is the agreed remedy in case a delivery date cannot be met. In
continuous relationships, the persons involved will contact each other and explain regardless. Without
a contractual remedy, however, it may well be more difficult to be notified promptly, let alone to require
a collaborative approach from the defaulting party.
1.2 No general conditions to apply
In some contracts, in particular operational contracts (e.g. sales, purchase, services), a drafter some-
times includes a miscellaneous provision explicitly excluding the applicability of general terms and
conditions. For example:

No General Conditions apply. The use of either Partys standard forms, including any purchase
order or order confirmation forms, shall not affect any rights or obligations under this Agree-
ment. Any general conditions appearing on or referred to in such forms shall not apply, except
to the extent that they specify information required to be furnished by either Party.

The background of this clause is the obvious practice deployed by many enterprise software applica-
tions to print such general terms and conditions by default on the back, or even in the body, of a pur-
chase order. It may be difficult to change those standard texts, given the approval procedures that
such enterprise software applications sometimes impose. Also, parties that (are presumed to) have
been doing business over a long period of time under general business conditions and convert their
business relationship into a custom contract, should apply the agreed terms.

It may well be academic to expect that in a worst case scenario a court would accept a partys claim
that its general conditions apply; but this provision makes sure the negotiated terms and not those
general terms and conditions, apply. However, I believe it is redundant if the purchase order relates to
an agreed agreement.
1.3 Language (translations)
If a contract is translated into another language (e.g. because the local law requires that contracts are
drawn up in an officially recognised language in order for the contract to be valid and enforceable), it is
3
important to recognise this and to determine which version will prevail in case of inconsistencies or
contradictions between the two. An example of a clause providing for the prevailing version in such
circumstances is as follows:

Language. This Agreement has been drawn up in the English language. In case of discrepan-
cies between the English text version of this Agreement and any translation, the English version
shall prevail.

The first sentence may sound superfluous, but a translator should not translate the word English into
(the characters saying) Chinese. In that case, the reader of the Chinese version must be alert that
another text version might be slightly different.
2. FORCE MAJEURE AND HARDSHIP
This chapter discusses two miscellaneous clauses of a closely related subject: force majeure (what
is a partys legal position if a reasonably unforeseeable event happens?) and hardship (what, if the
context of a contract changes such that the parties obligations become extraordinarily unbalanced?).
2.1 Force majeure
Considerations regarding the legal context. An area of the law that divides the legal traditions is
visible in the concept of force majeure
1
. During the late 19
th
century, the French Cour de cassation
(supreme court) established the overriding principle that contractual provisions are recognised as a
strong force of law. Unless the parties provided for exceptions in the case of hardship or force
majeure, the principle contract is contract (pacta sunt servanda) prevails. This principle of you have
to deliver what you promised is also essential in common law. It makes a hardship or force majeure
provision of great importance. In the Germanic legal tradition, such force majeure or hardship provi-
sion is not a must-have. This is because the court will take an objective (more reasonable) approach
as regards the question of whether a party is excused from performance given the occurrence of ex-
ceptional circumstances. Such latter approach is also reflected in the Unidroit Principles:

Article 7.1.7 (Force majeure)
(1) Non-performance by a party is excused if that party proves that the nonperformance was
due to an impediment beyond its control and that it could not reasonably be expected to have
taken the impediment into account at the time of the conclusion of the contract or to have
avoided or overcome it or its consequences.
(2) When the impediment is only temporary, the excuse shall have effect for such period as is
reasonable having regard to the effect of the impediment on the performance of the contract.

1
A wonderful, comprehensive study of the scope and effect of unforeseen circumstances (and hardship, mistake and force
majeure) in the European Union member states is: Ewoud Hondius & Hans Christoph Grigoleit (Eds.), Unexpected circum-
stances in European contract law, The common core of European private law, Cambridge University Press 2011, 692 p. (I
happily contributed the report on the Netherlands.)
4
(3) The party who fails to perform must give notice to the other party of the impediment and its
effect on its ability to perform. If the notice is not received by the other party within a reasonable
time after the party who fails to perform knew or ought to have known of the impediment, it is l i-
able for damages resulting from such non-receipt.
(4) Nothing in this Article prevents a party from exercising a right to terminate the contract or to
withhold performance or request interest on money due.

Considerations regarding the business position. Whether or not to include a force majeure clause,
its wording and the definition of what entails an event of force majeure largely depends on the position
of the contract drafting party. Force majeure clauses either favour the side where a force majeure
event will typically occur (e.g. manufacturer, service provider, seller) or the side of the customer. It is
typically the first group that wishes to provide for a force majeure clause. A manufacturer would ex-
pand the scope of force majeure and increase its flexibility to remedy a force majeure event, including
its consequences. The manufacturer, service provider or seller will tie in subjective elements, such as
a strike by its own employees, interruptions in its supply-chain (including delays in delivery of raw ma-
terials), transportation difficulties, industrial disputes and other developments influencing any part of
the supply chain, as well as circumstances that may be avoidable, such as the breakdown of equip-
ment or any machinery. On the other hand, the customer will go for highly exceptional examples,
which are objective, completely unforeseeable and generally out of the control or manageability of the
other party.

The above considerations imply that including a force majeure clause would be more appropriate in
contracts governed by French law and furthermore depends on the position of the contract drafting
party. A manufacturer, service provider or seller will likely include a provision as follows:

Notification of Force Majeure. A Party prevented from fulfilling its obligations duly and timely be-
cause of an event of Force Majeure shall inform the other Party without undue delay and make
reasonable efforts to terminate the Force Majeure as soon as practicable. The Parties shall
consult with each other in order to minimise all damages, costs and possible other negative ef-
fects.

For the purpose of this Section, Force Majeure means any and all circumstances beyond the
reasonable control of the Party concerned, including acts of God, earthquake, flood, storm,
lightning, fire, explosion, war, terrorism, riot, civil disturbance, sabotage, strike, lockout, slow-
down, labour disturbances, accident, epidemic, difficulties in obtaining required raw materials or
labour, lack of or failing transportation, breakdown of plant or essential machinery, emergency
repair or maintenance work, breakdown of public utilities, changes of law, statutes, regulations
or any other legislative measures, acts of governments, supranational organisations or other
administrative or public agencies, orders or decrees of any court, acts of third parties, delay in
delivery or defects in goods or materials supplied by suppliers or subcontractors or an inability
to obtain or retain necessary authorisations, permits, easements or rights of ways.

Effects. The Party prevented from fulfilling its obligations shall not be required to remove any
cause of Force Majeure or to replace or provide any alternative to the affected source of supply
or the affected facility if that would require additional expenses or a departure from its normal
practices, or to make up for any quantities not supplied. If an event of Force Majeure has oc-
curred, the Party prevented from fulfilling its obligations is entitled to allocate, in a manner it
considers reasonable, the available quantities of Products amongst its customers and its own
requirement.
5

Obviously, the customer will seek a different type of wording:

Notification of Force Majeure. A Party prevented from fulfilling its obligations duly and timely be-
cause of an event of Force Majeure shall promptly inform the other Party specifying the cause
of Force Majeure and how it may affect its performance, including a good faith best estimate of
the likely scope and duration of interference with its obligations, and shall make best efforts to
terminate or avoid the Force Majeure circumstances as soon as practicable. The Parties shall
consult with each other in order to minimise all damages, costs and possible other negative ef-
fects. For the purpose of this Section, Force Majeure means unforeseeable and unavoidable
circumstances entirely beyond the control of the Party concerned, such as acts of God and
wars.

Effects. The Party other than the Party prevented by a Force Majeure event shall be released
from performing any of its obligations for the duration of the Force Majeure event. Furthermore,
if an event of Force Majeure continues for more than 60 days, such latter Party shall be entitled
to terminate this Agreement or any purchase order or part of a purchase order, with immediate
effect and without liability to the Party prevented by the Force Majeure. Upon remediation of the
Force Majeure event, the Party prevented by the Force Majeure shall promptly resume perfor-
mance on all purchase orders of the other Party (which have not been terminated).

Aspects of force majeure clauses. The middle ground is somewhere in between. An event of force
majeure should be reasonably unforeseeable, out of the debtors control and reasonably unavoidable
2
.
Once an event of force majeure has occurred, whether contractually excusable or not, it is often pos-
sible to solve its consequences or at least to establish an appropriate way forward. In such circum-
stances, it may well be important for the customer to receive all relevant information promptly and
probably also to be involved in choosing the remedies. In view of the consequences and entitlement to
stay involved, even a buyer or contractor may prefer to widen the scope of the force majeure situa-
tions and get an informed, preferred customer position.
2.2 Change of circumstances (hardship)
Considerations regarding the legal context. An area of the law that divides the legal traditions is
visible in the concept of force majeure. During the late 19
th
century, the French Cour de cassation
(supreme court) established the overriding principle that contractual provisions are recognised as a
strong force of law. Unless the parties provided for exceptions in the case of hardship or force
majeure, the principle contract is contract (pacta sunt servanda) prevails. This principle of you have
to deliver what you promised is also essential in common law. Nevertheless, some circumstances
that go beyond the reasonable expectations of the parties may call the binding nature of a contract
into question. The occurrences of life are infinite and, accordingly, upon the occurrence of unforeseen
circumstances, a contract or a rule of law might provide an unjust result. It makes a hardship or force
majeure provision of great importance
3
.

2
See Common Frame of Reference (CFR) Art. III. 3:104.
3
A wonderful, comprehensive study of the scope and effect of unforeseen circumstances (and hardship, mistake and force
majeure) in the European Union countries is: Ewoud Hondius & Hans Christoph Grigoleit (Eds.), Unexpected circumstanc-
es in European contract law, The common core of European private law, Cambridge University Press 2011, 692 p.
6
Examples. A change of circumstances triggering a renegotiation or change of an agreement should
be highly exceptional. Cases in which such renegotiation or change would be appropriate could be:

inflation of over 100 percent per day or per week (e.g. as happened in Zimbabwe (2008), Ger-
many (1923), Greece (1944), Yugoslavia (1994)) whilst the contract was entered into during rel-
atively stable economic circumstances (of low inflation);
a collapse of the real estate market (price drops by over 95 percent in a few days), whilst the
affected contractual obligations were non-speculative nature, unrelated to real estate market
developments;
a pricing formula linked to an electricity price index, which price index increases significantly
(e.g. effectively turning the index from a ratio of less than 1 (one) into a factor in excess of 1
(one); in other words, changing a mathematical divider into a multiplier);
a purchase price expressed in a currency that has become subject to extreme fluctuations
whilst the contract was entered into during a period of relatively stable exchange rates;
delivery requirements for countries that have become inaccessible due to political reasons or
because of international trade embargo;
minimum purchase requirements or exclusivity arrangements in long-term agreements, where
the product (or a key component of it) has been abandoned due to technological developments.

The examples that might justify an amendment of the contract are highly exceptional. Courts are very
reluctant to step into such revision. Obviously, whilst a hardship clause as such can be desirable,
providing for changes of circumstances also lowers the threshold for a party to call upon it.

ITC Model contracts. The ITC Model Contracts provide for a contractual device applicable in excep-
tional cases of a change of circumstances. Those exceptional cases would typically include changes
of circumstances or cases of hardship that (a) the parties did not already (implicitly) incorporate in the
contract by way of risk allocation, (b) should not remain for the risk and account of the affected party
(e.g. because the occurred change of circumstance is part of its business), or (c) could not be influ-
enced by the affected party. For example the international long-term supply contract:

9. Change of circumstances (hardship)
9.1 Where the performance of this contract becomes more onerous for one of the Parties,
that party is nevertheless bound to perform its obligations subject to the following provisions on
change of circumstances (hardship).
9.2 If, however, after the time of conclusion of this contract, events occur which have not
been contemplated by the Parties and which fundamentally alter the equilibrium of the present
contract, thereby placing an excessive burden on one of the Parties in the performance of its
contractual obligations (hardship), that party shall be entitled to request revision of this contract
provided that:
9.2.1 the events could not reasonably have been taken into account by the affected party at the
time of conclusion of this contract;
9.2.2 the events are beyond the control of the affected party; and
9.2.3 the risk of the events is not one that, according to this contract, the Party affected should
be required to bear.
9.3 Each party shall in good faith consider any proposed revision seriously put forward by the
other party in the interests of the relationship between the Parties.

Interference by a third person. The idea behind the clause is that the parties should be free to con-
sult each other in the event of a major change in circumstances particularly one creating hardship for
7
a particular party. However, a company should only include the option at the end of Article 9.4 (right to
refer to the courts/arbitral tribunal to make a revision or to terminate the contract) if (a) the company
considers that it is not likely to be used against that partys interests by a party in a stronger tactical
position or (b) the right to refer to a court/tribunal is already an existing right under the applicable gov-
erning law in the event of hardship.

9.4 If the Parties fail to reach agreement on the requested revision within [specify time limit if
appropriate], a party may resort to the dispute resolution procedure provided in Article 18. The
[court/arbitral tribunal] shall have the power to make any revision to this contract that it finds just
and equitable in the circumstances, or to terminate this contract at a date and on Terms to be
fixed.

DCFR. The DCFR provides for a mechanism that is inspired by the approach of the Dutch Civil Code
(art. 6:258) and the Italian Civil Code (art. 1467 (eccessiva onerosit)):

III. 1:110: Variation or termination by court on a change of circumstances
(1) An obligation must be performed even if performance has become more onerous, whether
because the cost of performance has increased or because the value of what is to be received
in return has diminished.
(2) If, however, performance of a contractual obligation or of an obligation arising from a unilat-
eral juridical act becomes so onerous because of an exceptional change of circumstances that it
would be manifestly unjust to hold the debtor to the obligation a court may:
(a) vary the obligation in order to make it reasonable and equitable in the new circumstances; or
(b) terminate the obligation at a date and on terms to be determined by the court.
(3) Paragraph (2) applies only if:
(a) the change of circumstances occurred after the time when the obligation was incurred,
(b) the debtor did not at that time take into account, and could not reasonably be expected to
have taken into account, the possibility or scale of that change of circumstances;
(c) the debtor did not assume, and cannot reasonably be regarded as having assumed, the risk
of that change of circumstances; and
(d) the debtor has attempted, reasonably and in good faith, to achieve by negotiation a reason-
able and equitable adjustment of the terms regulating the obligation.

Unidroit Principles. The Unidroit Principles address the issues related to hardship and probably pro-
vide for a more sophisticated framework, consistent with the ITC Model Contracts solution, permitting
the parties to find a solution:

SECTION 2: HARDSHIP
Article 6.2.1 (Contract to be observed)
Where the performance of a contract becomes more onerous for one of the parties, that party is
nevertheless bound to perform its obligations subject to the following provisions on hardship.
Article 6.2.2 (Definition of hardship)
There is hardship where the occurrence of events fundamentally alters the equilibrium of the
contract either because the cost of a party's performance has increased or because the value of
the performance a party receives has diminished, and
8
(a) the events occur or become known to the disadvantaged party after the conclusion of the
contract;
(b) the events could not reasonably have been taken into account by the disadvantaged party
at the time of the conclusion of the contract;
(c) the events are beyond the control of the disadvantaged party; and
(d) the risk of the events was not assumed by the disadvantaged party.
Article 6.2.3 (Effects of hardship)
(1) In case of hardship the disadvantaged party is entitled to request renegotiations. The re-
quest shall be made without undue delay and shall indicate the grounds on which it is based.
(2) The request for renegotiation does not in itself entitle the disadvantaged party to withhold
performance.
(3) Upon failure to reach agreement within a reasonable time either party may resort to the
court.
(4) If the court finds hardship it may, if reasonable,
(a) terminate the contract at a date and on terms to be fixed, or
(b) adapt the contract with a view to restoring its equilibrium.

Because courts would be very reluctant to step into the position of a contracting party, the solution of a
case of hardship would apply only in highly exceptional, special circumstances. Especially in common
law and in French law, this principle is taken rather strictly. In the Germanic legal tradition, such force
majeure or hardship provision is not a must-have. This is because the court will take an objective
(more reasonable) approach as regards the question of whether a party is excused from performance
given the occurrence of exceptional circumstances.
3. CONFIDENTIALITY CLAUSES
Confidentiality clauses are commonly inserted in any contract. They are quasi-miscellaneous provi-
sions. Still, a draftsperson should establish whether a confidentiality clause is indeed desirable. In
contracts for the sale of bulk products a confidentiality provision may well be an overkill. Also, in prod-
uct development arrangements (sometimes as part of a sales contract), the developer may prefer to
remain free to operate making use of the information about the products or product applications of its
customer. A confidentiality clause in a patent licence may well obstruct the registration of such licence
in the national patent registers (which makes the licence potentially invalid in the event that the patent
is sold and transferred to another party or if the patent owner goes bankrupt).

Define the scope of information. The scope of a confidentiality clause requires some care. On the
one hand, it is essential to capture the right information. Some parties prefer to have a rather rigorous
way of working and require that information is only Confidential Information if it is marked as such (and
furthermore, in case of oral information, the confidential information must be put in writing and com-
municated within 30 days of the oral presentations being made in order to be covered by the confiden-
tiality provision). I believe that a court should be suspicious of whether such a strict approach was
indeed intended by the parties. Many companies are less formal. For them:
9

Confidential Information means any information of a non-public, confidential or proprietary na-
ture; whether of a commercial, financial or technical nature; customer, supplier, product or pro-
duction-related; and otherwise all information exchanged between the parties in the context of
[the Purpose][this Agreement][the Project] shall be deemed to be confidential.

Of course, the definition can be extended by appropriate examples of confidential information, which
would probably include samples, information relating to raw materials, formulae, recipes, specifica-
tions, software source code, patent applications, process designs, process models, catalysts and pro-
cessed materials. Such additions should be product, sector or industry specific.

Note that the definition of Confidential Information is generic. It does not state that it is owned by one
party. This means that the body text should clarify

Marking obligations. The relaxed approach to defining what is confidential information, is often
complemented by an undertaking to mark information as confidential:

Each Party shall use its best efforts to mark the Confidential Information which is disclosed in
writing as being confidential. Failure to do so, however, shall leave the other Party's obligations
set forth in this Agreement unaffected.

The final sentence is sometimes also replaced by the more burdensome statement that orally dis-
closed information is only deemed to be confidential if it has been identified as such or summarised in
a written document (typically stated to be sent to the Receiving Party within 30 days after the disclo-
sure).

Scope of use (the Purpose). On the other hand the scope of use of such confidential information
needs to be restricted properly. The two main provisions of a confidentiality agreement or clause ad-
dress the disclosing partys right to select or deny a disclosure to the receiving party, and the receiving
partys obligation to use disclosed information for a limited purpose only and furthermore to keep it
confidential.

No obligation to disclose. Each Party may furnish Confidential Information to the other Party as
it deems necessary or helpful for the Purpose. [to be used in mutual NDAs]

No obligation to disclose. Each Party may furnish Confidential Information to the other Party as
it deems necessary or helpful for [the completion of the Project][the performance of the Ser-
vices][that Partys performance]. [to be used in contracts]

No obligation to disclose. The Disclosing Party may furnish Confidential Information to the other
Receiving Party as it deems necessary or helpful for the Purpose. [to be used in one-sided
NDAs]

Restrictions on use. A Receiving Party shall not use Confidential Information of the Disclosing
Party for purposes other than in direct relation with the Purpose. The Receiving Party shall treat
the Disclosing Party's Confidential Information with at least the same degree of care as it would
use in respect of its own confidential information of like importance, but in any event a reasona-
ble level of care.

10
If a higher level of care would be more appropriate, it may be necessary to provide specific guidelines
for protecting know how. A disclosing party should anyhow be entitled to rely on the higher level of
care professed by the receiving party
4
. Please note the non-capitalisation of confidential information in
the penultimate line.

Use-restriction. The first sentence of the restrictions on use clause is very common, if not inevitable
for a confidentiality agreement. Only exceptionally, a party would ascertain that it is entitled to develop
the information independently. However, such independent development should in no case be under-
taken by reference to, or thanks to the disclosure made under the confidentiality agreement. If no use-
restrictions had been inserted, the Receiving Party that uses the disclosed information for purposes
other than the (implied) purpose for entering into the confidentiality agreement is quite probable in
breach of contract or committing a tort. A clause expressly permitting independent development work
without limiting the above restriction on use provision could be:

Concurrent development. Without prejudice to Section [restriction-on-use clause], nothing in this
Agreement shall restrict the Receiving Party to develop for itself or for third parties any infor-
mation, technology, services, materials or products similar or equal to the Disclosing Partys
Confidential Information, provided that such development has been and continues to be inde-
pendent from the Disclosing Partys Confidential Information.

Expanded scope to affiliated companies and employees. Because the confidentiality obligations
are normally assumed by two or a limited number of formal entities, it is important to expand the scope
of confidentiality to persons related to those entities. Furthermore, the receiving party should limit such
expansion only to the extent necessary (albeit that in practice everybody will be aware that the par-
ties are exchanging confidential information). An example:

Related parties. The Receiving Party shall disclose Confidential Information to its group compa-
nies (including subsidiaries and affiliates), directors, employees or other representatives only on
a need-to-know basis. Prior to the disclosure of the Disclosing Party's Confidential Information
to such persons, the Receiving Party shall inform each such person of the confidential nature of
the Confidential Information and shall expressly require that the person agrees to treat the Con-
fidential Information as is provided in this Agreement. Notwithstanding due observance of these
requirements, the Receiving Party shall be liable for any breach of the provisions of this Agree-
ment by such person.

Employees would, in most jurisdictions, be subject to statutory duties of confidentiality; but even when
they are subject to such obligations by virtue of their employment conditions it would be odd not to
expressly refer to such obligations: this prevents that they receive information and use it even un-
consciously for other purposes than permitted. Directors are mentioned separately from employees
since in many jurisdictions they do not qualify as an employee of the company they serve.

It is appropriate to stipulate that employees may receive confidential information on a need-to-know
basis only, which makes it easier for the disclosing party to question unnecessary internal disclosures
(and require a higher level of care). Finally, because all those individuals are not themselves contract-
ing parties and probably not even capable of bearing the consequences of a breach, it is important to
attribute such breach to the receiving party (even if the receiving party has implemented proper
measures to prevent disclosure).

4
Compare Common Frame of Reference IV.C. 2:105(2).
11

Exceptions to confidentiality. A properly drafted confidentiality clause also addresses the excep-
tions, even though they may well be presupposed or raised as a defence against a claim for breach:

2.3 Exceptions. The restrictions and obligations in this [Agreement][Article] shall not apply to
the Disclosing Partys Confidential Information, which:

(a) is or becomes generally available to the public other than as a result of a disclosure by
the Receiving Party (or its representatives);
(b) was received by the Receiving Party from a third party and not indirectly from the Disclos-
ing Party in violation of any obligation of secrecy or non-use; or
(c) was in the possession of the Receiving Party prior to disclosure or was developed inde-
pendently from such Confidential Information, as is shown by competent evidence.

2.4 Court orders. In case Confidential Information is required to be disclosed by the Receiv-
ing Party by virtue of a court order or statutory duty, the Receiving Party shall be allowed to do
so, provided that it shall, without delay, inform the Disclosing Party in writing of receipt of such
order or coming into existence of such duty and enable the Disclosing Party reasonably to seek
protection against such order or duty.

2.5 Specific Confidential Information shall not be deemed to be within the exceptions merely
because it is embraced by more general information in the public domain or by more general in-
formation in the possession of the Receiving Party. In addition, any combination of information
shall not be deemed to be within the foregoing exceptions merely because all individual parts of
such information are in the public domain or in the possession of the Receiving Party.

The exceptions under sections 2.3 and 2.4 are common and presumably self-explanatory. Under sec-
tion 2.3, the information itself is exempted from the scope of the agreement, whereas under section
2.4 an additional obligation to disclose with a corresponding right to act is necessary.

Section 2.5 mitigates the scope of the exemption under 2.3(a). In several contexts, section 2.5 will be
unnecessary. It protects inventions, analyses, ideas and know-how, which combine in a somewhat
unorthodox manner two or more public (non-confidential) things, facts or events. The information to be
covered by the confidentiality obligation is then limited to the mere combining of those things, facts or
events.

IP rights. If disclosures are made in connection with research or development projects or develop-
ment services and intended to be protected under intellectual property rights (or if the agreement re-
sults in the creation of a work), it is important to regulate the input or suggestions for improvement. In
the context of an NDA, those suggestions might be made by the receiving party. Intellectual property
laws protect the creator or inventor for his or her ideas, if, whilst presenting inventions to an adviser or
interested customer, that customer gives feedback on the ideas, the latter may claim co-ownership or
co-inventor rights.

If the receiving party (i.e. the adviser or potential customer) refuses to waive ownership rights on any
feedback and the disclosing party nevertheless desires to make the disclosure, it may be important to
agree on a protocol allocating time and opportunity to make a disclosure in full or give feedback, re-
spectively. A similar example can be found in (end-user) software licences or online click & agree li-
12
cense terms, where modifications and suggestions for improvement or additional functionalities are
gratefully appropriated by the licensor.
4. APPLICABLE LAW CLAUSES
Most contracts contain a provision on the applicable law. The effect of a choice of law is that, in princi-
ple, the contract is governed by the law chosen
5
. (If a contract has never been signed but the choice of
law has not been disputed either, the Rome Convention provides that the agreed choice of law will
apply.) The standard and sufficient pattern of a choice of law provision is:

Applicable law. This Agreement is governed by the laws of Switzerland.

The effect of the choice of law is that the chosen law applies to the agreement. Although, the parties
may be unable to avoid certain mandatory law provisions of the contracting parties national laws (i.e.
under the Rome Convention). By operation of the applicable conflicts of law provisions, a distinction
must be made in relation to:

subject matters which qualify as a category of private international law for the parties cannot
choose another law other than the lex causae. This may be the case in connection with the
transfer of ownership of real estate, movable property in a foreign jurisdiction, aspects of com-
pany law, insolvency law, securities law, competition law etc.;
subject matters which are covered by a scope rule (i.e. a super-mandatory rule that applies re-
gardless of the law governing the contract), usually matters of employment law or employee co-
determination law;
regulatory matters, including matters of public policy: examples include regulatory matters de-
signed to protect a local market, such as food, feed and pharmaceutical regulations, regulations
relating to the registration or authorisation of chemical substances, laws and regulations relating
to the financial markets, insurances and provision of financial advice, telecom and energy laws
etc.;
the applicable arbitration law (or other law of civil procedure): an arbitration is governed by the
law of the agreed place of arbitration, whereas a choice of court implies a choice for the civil
procedural laws applicable in the chosen jurisdiction. If exceptionally, the parties wish to agree
on a particular other arbitration law, they may do so explicitly
6
;
in the case of employment agreements and consumer contracts, different choice-of-law rules
apply in order to protect the interests of the weaker party.

The law applicable to the listed subject matters is determined on the basis of different provisions of
private international law (or public international law, as the case may be) than those of contractual
obligations. Of course, they might well be subject to the law chosen by the parties, but that would be
for the reason that the relevant provisions point to the same legal system. In the following paragraphs,
a few particularities of legal practice are discussed.

5
Art. 3 Rome Convention of 1980 on the Law Applicable to Contractual Obligations, entry into force 1 April 1991.
6
Theoretically, the force and effect of such deviation may be mitigated by the lex causae governing the arbitration (i.e. if the
otherwise applicable arbitration law does not allow for party autonomy on such choice).
13

In principle, the chosen law applies to the contract in its entirety. The parties are free, however, to
identify specific parts of their contract (or agreements attached as a schedule or annex) and submit
those parts to a different applicable law. This phenomena is called depeage. In this respect, it is
worth mentioning supranational rules and regulations such as the Incoterms and UCP600
7
. The legal
status of these rules is not always clear; in some jurisdictions they are considered contractual ar-
rangements incorporated into the contract by reference, whereas in other contracts they are seen as
a separate body of law. In any case, a reference to such rules and regulations would qualify as de-
peage and be valid and enforceable.
4.1 International nature
In order for a choice-of-law clause to be effective, a contract must be international. If a contract is not
international, the effect of the choice-of-law clause is that only the supplementary law (ius disposi-
tivum) from the local law of the contracting parties is replaced by the chosen law; the mandatory law of
the contracting parties jurisdiction cannot be contracted away.

A contract is international if there is an element of some significance in the agreement that points to a
jurisdiction other than the law which would otherwise be assumed to apply in the usual course of
things. This is most obvious if the two parties are established in different jurisdictions but also when
both contracting parties are from the same jurisdiction and delivery of the goods takes place abroad; a
sales contract is generally considered to be international. It is not clear in all jurisdictions when a con-
tract becomes international but the prevailing opinion is that the criteria are relatively easily met.

The relevant time for measurement is always the moment of contracting (the time of consensus) be-
tween the parties. This implies that if one party relocates abroad, in principle, this does not affect the
internationality of the agreement. In other words, the agreement does not become international as a
consequence of such event after entering into the agreement. Nevertheless, the threshold for assum-
ing internationality is low and if the parties anticipated the relocation, that might be sufficient to ex-
pressly choose the applicable law (and accordingly, but subject to the courts assessment, a foreign
law can be chosen).
4.2 Dispense with excluding its conflicts of law provisions
Choice-of-law clauses regularly contain the phrase excluding its conflicts of law provisions or, similar-
ly, disregarding its provisions on private international law. It is used so often and yet is so useless that
a clarification is desirable.

Obviously, the phrase excluding its conflicts of law provisions attempts to exclude the private interna-
tional law provisions of the law chosen under that same choice-of-law clause. (Conflict of laws is an
area of private international law, which deals with determining the applicable law, as may be appointed
by a choice-of-law clause.) The phrase excluding its conflicts of law provisions is meaningful only if the

7
The UCP600 is the successor of the UCP500, a set of rules governing the issuance of and performance under letters of
credit. ICC Publication No. 600. ICC Uniform Customs and Practice for Documentary Credits.
14
private international law rules of the chosen law would refer' the same matter to another law. This is
only possible under the (private international law) concept of renvoi.

Many systems of private international law reject renvoi, which is understandable because renvoi is a
source of legal uncertainty, potentially leading to circular or endless referrals. Moreover, renvoi would
not necessarily provide a solution, which is by definition unequivocally acceptable. Finally, many legal
systems reject renvoi because it may introduce inefficiencies in the case at hand. Countries that do
accept renvoi normally reduce its scope to a minimum. Areas typically excluded from the working
sphere of renvoi are contractual obligations and areas that permit broad party autonomy (ius disposi-
tivum). In essence, the applicability of renvoi in the case of a choice-of-law clause, and hence the
phrase excluding its conflicts of law provisions, seems rather exceptional.

In order for the words excluding its conflicts of law provisions to be meaningful, the following criteria
should be met cumulatively:

(a) neither the private international law rules of the chosen law nor those of the lex fori (i.e. the law
of the country where the court is located) may reject renvoi. If the private international law rules
of the lex fori do, the court will, after applying its own private international law rules, refuse a
renvoi (if any) by the private international law rules of the chosen law;
(b) the applied private international law rules should not permit contracting parties to choose the
applicable contract law themselves because if they do, such a choice-of-law clause would al-
ready be conclusive; and
(c) if the previous two criteria are met, the court must not determine that the parties actually intend-
ed to apply the chosen law (e.g. because they wrote this down) or that they had a legally valid
other justification for the chosen law.

Do you see how highly exceptional if not completely hypothetical the facts of a particular contract must
be in order for the words excluding its conflicts of law provisions to make any sense?
4.3 Exclude the applicability of the Vienna Convention?
Many contracts opt out of the applicability of the Vienna Convention (also: CISG)
8
. Most lawyers do
this because everyone does and many opt out even if it is not applicable. There are very good rea-
sons not to exclude the Vienna Conventions and hardly any reasons to do so.

Scope of CISG. The scope of the Vienna Convention is well defined. It is limited to international sales
contracts only. Accordingly, it is nonsense to exclude its applicability in licences, service contracts,
manufacturing agreements or loans. Furthermore, the convention excludes certain sales contracts
because of its purpose (i.e. consumer contracts), its particular nature (i.e. sales by auction, on execu-
tion or otherwise by operation of law) or because of the nature of the goods (i.e. shares, investment
securities, negotiable instruments, money, ships, aircraft or electricity). Therefore, a share purchase
agreement does not need to contain an exclusion of the Vienna Convention, simply because the con-
vention would not be applicable anyway.

8
The U.N. Convention on Contracts for the International Sale of Goods (Vienna 1980).
15
Wide spread ratifications. Considering the number of ratifications, the Vienna Convention is a great
success. The convention is ratified by some 70 countries worldwide. Important countries that have not
ratified the convention (yet) include: the UK, Brazil, India, Portugal, South Africa and several countries
in the Middle East
9
. An up-to-date map can be found on or via the websites of UNCITRAL or legacar-
ta.net/maps.

If you wish to exclude the convention, you may do so as follows:

The Convention on Contracts for the International Sale of Goods (Vienna 1980) shall not apply.

Reasons not to exclude CISG. Is it important to exclude its application? Probably not, the law on the
(international) sale of goods is one of the bodies of law, which have become harmonised considerably
over the past centuries. (Its being predictable has always been an important factor for trading compa-
nies to do business.) Even the legal concepts under sales contract law are similar or equal under the
various legal systems. The Vienna Convention is not really different in this respect. A court will not
likely answer important questions relating to fitness for purpose, conformity, free from liens or mer-
chantability differently under the Vienna Convention as opposed to under the applicable national law.
In many cases, the handbooks on the Vienna Convention provide more details on the case law devel-
oped in the various national courts than the national case law is reasonably capable of addressing. It
is commonly considered that opting out of the applicability of the Vienna Convention has to do with
getting cold feet.

Accessibility of CISG and supporting materials. There is one important reason to permit the ap-
plicability of the Vienna Convention: CISG has been translated into the six official U.N. languages, as
well as (inter alia) into German, Italian and Portuguese. This makes the convention widely accessible.
Moreover, there is an abundance of materials explaining the scope and application of the Vienna Con-
vention
10
.

9
Please note that in order to be applicable, it is sufficient that only one contracting party has its place of business in a con-
tracting state and the rules of private international law lead to the application of the law of a contracting state (Art. 1).
10
See in particular: Commentary on the Draft Convention for the International Sale of Goods, prepared by the Secretariat
(document A/Conf.97/5), dated 14 March 1979. See: www.cisg-online.ch

This free e-book is part of a chapter of Willem J.H. Wiggers, Drafting contracts Techniques,
best practice rules and recommendations related to contract drafting, Kluwer 2011.

Drafting Contracts is an essential reference guide for in-house legal counsel and attorneys-at-law.
The book addresses all your contract drafting issues in a concise and structured manner. Drafting
Contracts discusses techniques for avoiding ambiguities and improving the readability of an agree-
ment and contains many best practice rules and recommendations relating to all aspects of contract
drafting. It provides a helpful insight into the common core of European legal systems and it highlights
key differences with U.S. legal practice.

Drafting Contracts addresses:

dos and donts relating to drafting definitions, conditions precedent, covenants, warranties, dis-
pute resolution clauses and other miscellaneous (boilerplate) provisions
many examples of legalese and typical contract phrases
drafting style and legal culture
structure and presentation of agreements
how to upgrade your model contracts effectively and efficiently
aspects of implementing (automated) contract assembly software

This book discusses phrases such as for the avoidance of doubt and excluding its choice of law prin-
ciples; it explains why many miscellaneous clauses are redundant and further clarifies that in witness
whereof is common law language (and, if relevant at all, meaningless in civil law jurisdictions).

Willem Wiggers has vast experience in international commercial transactions. After his research work
for which he visited several top legal institutes worldwide, Willem became an attorney-at-law (advo-
caat) in the M&A practice of a premier European law firm, followed by interim assignments with sever-
al major multinational companies. Willem is the owner of Weagree, a company that accelerates con-
tract drafting by providing model-contract-drafting services and a contract assembly software applica-
tion.

Published by Kluwer
To order the full printed book, click:
http://shop.kluwer.nl/boeken_products/drafting-contracts/prod10178137.html

ISBN 9789013092561
Copyright Willem Wiggers 2011

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