Choice of contract law in light of Brexit

IP Draughts has just returned from a pleasant few days spent in Paris, where he chaired the third annual meeting of BioLawEurope FmbA, a not-for-profit association of specialist life science lawyers across Europe, who mostly work in small firms. In the last 3 years, we have referred dozens of projects between members of the association. IP Draughts’ firm is currently working on a regulatory matter that was referred to us by the German member of the network, and a commercial matter referred by the Danish member.

During our annual conference we have presentations on various topics. One that has stuck in IP Draughts’ mind this year was on choice of law and jurisdiction. When negotiating parties are based in different jurisdictions, they often need to find a compromise jurisdiction on which both of them can agree. Apparently, English law and jurisdiction has been a popular compromise choice, but is currently less popular for some of the BLE members, due to uncertainty over Brexit. Specifically, will there be mutual recognition of judgments between the UK and EU countries after Brexit?

IP Draughts thinks it is likely that the UK and EU will negotiate mutual recognition as part of the Brexit negotiations. Although the UK government is playing its cards very close to its chest, there is some ‘mood music’ to suggest that it recognises the importance of maintaining the reputation of England and Wales as a jurisdiction of choice. This seems to be a relatively uncontroversial topic where common sense would suggest that arrangements similar to those currently applicable (under Rome and Brussels regulations) will be agreed.

However, just because something makes sense and is uncontroversial is no guarantee that it will be negotiated, given the extraordinary times in which we live, so IP Draughts understands the short-term concerns that were expressed at our Paris meeting.

Part of our discussion was about the features of litigation in different jurisdictions. This discussion left IP Draughts feeling that, recognition issues apart, England and Wales had much to recommend it, including:

  1. A summary judgment procedure to get rid of spurious cases (unlike, it seems, France).
  2. Disclosure (also know as discovery) procedures to obtain access to the internal documents of the other party (unlike most civil law jurisdictions).
  3. Oral advocacy and cross-examination of witnesses, which tests the strength of the case in court, rather than relying mostly on written submissions (unlike in most civil law jurisdictions).
  4. A judiciary made up of experienced advocates, rather than career judges.
  5. A system of ‘without prejudice’ communications that are not disclosed to the court, and which facilitate freer communications in negotiations (unlike, it seems, Austria).
  6. The winning party usually gets a court order that most of its legal costs must be paid by the losing party. Apparently, in Austria, Germany and some other countries there is a tariff system which pays only a small proportion of the costs actually incurred. At the same time, for smaller cases in the Intellectual Property Enterprise Court, in London, there is a cap on legal costs of £50,000.

Other issues that we discussed included whether a non-English court would be willing to conduct the case in the English language, if the parties agree to do so. Apparently this is possible in Denmark but not in many civil law jurisdictions, where every document relied on must be  translated into the local language and certified to be an accurate translation, which can add considerably to a party’s costs.

Increasingly, IP Draughts is wondering whether Ireland might be an answer to some of these issues, bearing in mind that its legal system shares many features with that of England and Wales, particularly if the mutual recognition point is not dealt with in a timely manner.

But IP Draughts is crossing his fingers in the hope and expectation that all will turn out well in the next couple of years.


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Contract seminars over the next few weeks

IP Draughts will be running a series of one-day seminars at the UCL Faculty of Laws over the next few weeks. The full list and dates appear below.

Or, at least, they will run if we get sufficient numbers of bookings. Some, such as Advanced IP Licensing, and IP Terms in Research Contracts, always seem to be popular. Others, such as Introduction to Contracts and Advanced Contract Drafting, are less predictable in their appeal.

Which is a shame, as IP Draughts thinks they all provide lively and useful training for their intended audiences. Perhaps the UCL Laws mailing list, which is skewed towards IP practitioners in view of the popularity of IBIL (Institute of Brand and Innovation Law) events, doesn’t pick up enough general contract audiences.

Some of our courses run more frequently as in-house courses than as public courses. If you have at least 3 or 4 colleagues who want to join you in attending a course, it may be more cost-effective, and time-effective, for IP Draughts to visit you to give a seminar. In the last few months, he has given in-house talks to companies, universities and NHS Trusts, in locations as varied as Cambridge, Coventry, Eindhoven and London, and has discussed the feasibility of running seminars in Dublin and Edinburgh.

The next batch of courses will be:

25 May – Introduction to Contracts (designed for non-lawyers and trainees)

30 May – Advanced IP Licensing (for experienced practitioners)

6 June – IP Terms in Research Contracts (for lawyers and commercial managers)

13 June – Drafting Clinical Trial Agreements (for lawyers, commercial managers and trial managers)

22 June – Drafting Legal Terms in Commercial Contracts (for practitioners who want to understand better topics such as warranties, indemnities, entire agreement, law and jurisdiction clauses, etc)

26 June – Advanced Contract Drafting (for experienced practitioners who want to focus on improving their contract drafting generally)

Details of these courses, location and cost can be found on the UCL Laws website here.

UCL Laws is registered as a CPD provider with the SRA, Bar Standard Board and IPReg.

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Does the IP system work for SMEs?

This article, from nearly 5 years ago, still reflects IP Draughts’ views. The Patents County Court is now called the Intellectual Property Enterprise Court, and has lived up to its promise, particularly since fees were capped at £50,000.

IP Draughts

The arguments run something like this:

  1. Small and medium-sized enterprises (SMEs) are the economic life-blood of the nation, contributing more jobs and prosperity than any other part of the economy.  In a time of recession, more needs to be done to encourage them and make them successful.  We should focus G0vernment efforts on this sector rather than the bloated banking sector or other areas that can and should take care of themselves.
  2. We can no longer compete with countries such as China for basic manufacturing, and we are not as good as Americans at sales.  Our “added value” comes from professional services, from basic science, inventions and R&D, and from the creative industries.  In many of these sectors, intellectual property (IP) is of central importance.
  3. The IP system – particularly protection and enforcement – is designed for the needs of major companies.  While it may work well for huge disputes…

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Indemnities are often misconceived

When will we three meet again:
cause, remote and mitigate?

Why are there so many contracts in circulation that include indemnities?

The short answer may be that the drafter thinks they are expected, and doesn’t want to be criticised for omitting them.

But too often the wording seems misconceived, as if the drafter doesn’t really understand the principles behind them, or just has a vague idea that they somehow provide greater protection than a contract that merely has warranties and other obligations.

The classic way of looking at indemnities is to say that they provide stronger protection to the beneficiary of the indemnity than a contractual obligation on the other party. For example, being entitled to an indemnity against third party claims for IP infringement may provide greater protection than being the recipient of a warranty that no third party IP is infringed. This argument assumes that the indemnity provides, in effect, a “blank cheque” for the amount of any damages or settlement payment to the third party IP owner. By contrast, if there is merely a warranty, the recipient of the warranty can only recover if the “holy trinity” of contract claims are satisfied, namely:

  1. Causation. The loss suffered must have been caused by the breach of warranty.
  2. Remoteness. The loss must not be too remote from the breach.
  3. Mitigation. The recipient of the warranty must take reasonable steps to mitigate, or minimise, the loss.

There is some case law that suggests that mitigation, at least, may be required, even in the case of an indemnity. But, in general, drafters feel that an indemnity of this kind may provide stronger protection than a warranty, and in some types of negotiation a possible advantage is enough to justify including a clause, even if the precise extent of that advantage in an individual case is not clear.

While this argument is understandable using the above examples, there are many other examples, seen in practice, where the argument is much less clear. Sometimes, an indemnity is given against breach of warranty. Adapting the previous examples, a party warrants that no third party IP is infringed, and indemnifies the other party against its breach of warranty.

In this example, it is much less clear that the indemnifier is giving a blank cheque to the other party. The party asking for the indemnity is, no doubt, hoping that the indemnity will provide greater protection than the warranty, otherwise what is the point of the indemnity? But are they clear in their mind what that greater protection is? Are they expecting that the court will say that, because an indemnity against breach of contract is given, the party in breach no longer has the protection of causation, remoteness and mitigation?

In IP Draughts’ view, the case law on this point is far from clear. See further Wayne Courtney’s excellent book, Contractual Indemnities, for a discussion of the case law.

Even if it might be possible to persuade a court that an indemnity against breach strips away the protection of causation, remoteness and mitigation, why would the party in breach want to agree to removing their rights under contract law, which arguably provide a reasonable balance between the interests of the parties?

This type of indemnity, which has gradually crept into many English contract templates from overseas, notably from the USA, is arguably misconceived and should be avoided. Of course, the counter-argument is that it depends on which party you are acting for, but we shouldn’t just put stuff in contracts because others do, and where the rationale is not clear.

Once you start including this type of indemnity, the next question and area of confusion is whether liability under the indemnity should be limited. If the indemnity is viewed as a bolster or flying buttress for a breach of contract claim, then yes, liability probably should be limited in the same way that the contract typically limits liability for breach of warranty. But if the indemnity is designed for a different purpose, namely to allocate responsibility for third party claims (as in the first example given above) then different considerations apply. Some of this confusion can be avoided if the indemnity is drafted not as an indemnity against breach of contract, but as an indemnity against a third party claim.

Or the contract might not need any indemnities. In IP Draughts’ view, the contract drafter should start from the assumption that no indemnities are needed, then add them if there is a good reason to do so, rather than the other way around.


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