Anglo-American Contract Models and Norwegian or other Civil Law Governing Law

1. Topic

1. Introduction.

We have been witnessing for some decades a considerable internationalisation, which has affected all areas of society. Among the areas that to a high extent are exposed to internationalisation is that of business: import and export of goods and services, cross-border establishment of subsidiaries, acquisition of companies or mergers, as well as other international business transactions and financing are more and more widespread. As a consequence, the practice of international contracting has undergone a considerable development; this development, however, is affecting not only international commerce, but also domestic contracting.

2. Anglo-Americanisation of International and Domestic Contracting.

A characteristic feature of international contracting, which has been developing especially over the past couple of decades, is that it is more and more influenced by Anglo-American models. Anglo-American contract models are drafted on the basis of the legal system of the Common Law. However, not always are international contracts governed by a law belonging to the Common Law-family. Norwegian law, as well as, among others, the laws of continental and of Eastern Europe, belong to the family of Civil Law, which has a considerably different structure than the Common Law. This might create a tension between the legal concepts and the legal culture underlying the contract models, and those of the law that actually governs the particular contract. In a contract between a Norwegian and a German party, for example, the governing law will be either Norwegian or German law (according to the applicable choice of law rule), or the law chosen by the parties. More often than not parties choose to govern their contract a law that does not belong to the Common Law (if the transaction is not connected to a country belonging to the Common Law system, as in our example). If the contract is based on an Anglo-American model, we will witness the named tension: the contract will assume a series of rights, remedies and conditions that are inspired by Common Law, whereas it will be governed by a law belonging to the Civil Law.

Most of the internationally distributed publications collecting model contracts reproduce Anglo-American-style contracts. As a result, law firms and corporate lawyers in a variety of jurisdictions (not only Common Law jurisdictions) learn to draft international contracts on the basis of these models. International financial institutions, like for example the European Bank for Reconstruction and Development (EBRD), impose the use of Anglo-American-style contracts for the transactions that they are financing, irrespective of the fact that the financed entities do not come from Common Law states (in the case of the EBRD, which finances projects in Eastern Europe, the legal tradition of the financed entity is Civil Law), many of the investors participating in the project are not from Common Law states, and most of the contracts are not to be governed by English law or another system of Common Law. As a result, operators in Civil Law states get used to drafting in the Anglo-American style, in order to meet the expectations of financial institutions. Operators in states in transition to the market economy have during the '90s been brought up to draft contracts according to the Anglo-American style, notwithstanding their Civil Law tradition. Contract types developed by practice, such as, for example, swap contracts and other contracts for the trade of financial derivates, are standardised by branch associations following the Anglo-American contract style. As a result, new types of transactions are regulated exclusively by Anglo-American-style contracts, and these contracts are used to regulate not only international transactions, but even domestic transactions within Civil Law systems. Contracts for the hedging of financial risk, for example, might be written in English and inspired by Common Law even if they are entered between a Norwegian company and a Norwegian bank, and are governed by Norwegian law.

The above-described widespread use of Anglo-American models is such, that it is increasingly affecting even traditional contract types and domestic legal relationships, such as rental of real estate or sale agreements within the borders of the same country. Also contract models applied by the Norwegian public sector for public procurement are increasingly drafted on the basis of these models, that are generally considered to represent the state-of-the-art for contracting among the law firms that might be hired by the relevant state body to draft the tender documentation. The Anglo-Americanisation of contract models, therefore, influences not only firms and companies that engage in international commerce, but also individuals, companies and even public bodies with purely domestic interests. The relevance of this phenomenon to the national society extends therefore beyond the sector of society that is actively engaged in international transactions. The uncertainty and the excessive use of resources that follow this phenomenon increasingly affect enterprises and individuals involved in domestic legal relationships, as well as society at large, since the court system may increasingly be burdened with disputes connected with the uncertainties created by this phenomenon.

3. Consequences of the Use of the English Language to Draft a Contract that is not Regulated by Common Law.

A first aspect in this respect is that international contracts usually are drafted in the English language, even if the involved parties might not have English as their mother language. English has become the preferred language for doing business internationally, and it is only natural that the contract formalising a business transaction is written in the same language in which the parties have been negotiating. The language in which a contract is written, however, has more than just linguistic implications: to the extent the contract contains expressions that have a technical legal meaning, the use of certain words might be considered as a reference to the legal concepts that underlie those words. This might have legal implications for the parties that they might not have been aware of. To name an example, it is rather common to see international contracts that use expressions such as "the terms of this contract", "the conditions of this contract", or "the terms and conditions of this contract". Often these expressions are used interchangeably, without the parties attaching any specific meaning to any of them. However, these expressions are legal terms: using one or the other might imply or exclude, under English law, the possibility to terminate the contract in case of breach thereof. It may be questioned whether the parties were aware of and intended to make reference to the legal meaning of the expression, i.e. whether the parties had intended to apply English law on that matter. The parties might just have been aware of the linguistic meaning of those expressions, leaving the legal regulation to the law that governs the contract.

4. Consequences of the use of Anglo-American Contract Models even if the Governing Law does not Belong to the Common Law.

Another, more important aspect of the Anglo-Americanisation of international contracts lies in the widespread use of Anglo-American contract models. This may create difficulties in the interpretation of the contract if the law governing the contract does not belong to the Common Law systems, and may bring to consequences that are not foreseen or not desired by the parties.

To name an example, the Anglo-American model assumes that each party makes to the other party a series of representations: a party expressly states that it is duly constituted and validly existing, that it has the authority to enter into that specific contract, etc. The reason behind the long list of representations is that under the Common Law system the contract is usually interpreted literally: a judge is not inclined to interpret or integrate the contract in a way that is not directly based on its clear wording. Hence the need to spell out in the contract in a very detailed manner all the assumptions and eventualities that might affect the transaction. A Civil Law judge, on the contrary, has the duty to interpret a contract in the light of the rules and principles that govern private law relationships under the particular system of law. A contract governed by a Civil Law system, therefore, does not need to be very detailed as it can rely on a series of protections implied by law. If a contract for the sale of a company is regulated by Norwegian law, for example, many representations are not necessary, because the duty of information of the seller is already implied by Norwegian law. However, difficulties may arise if the contract nevertheless contains a series of representations, in accordance with the Anglo-American model. What happens in respect of the aspects of the relationship that have not been covered by an express representation? Does the information duty implied by Norwegian law come into effect, thus integrating the series of representations? Or is the series of representations to be deemed as a contractual waiver of the protection implied in the Norwegian system? In either case one of the parties might be negatively surprised: the terms of the contract and the governing law are not coordinated, and it is uncertain whether this can be solved by giving weight to the agreement of the parties or to the principles of the legal system.

The mentioned interpretation problems exist irrespective of the method that the parties may have chosen to solve disputes arising out of the contract. If the dispute is submitted to national courts of law, the judge will apply the choice of law rules of his or her own legal system, and these rules will determine the governing law; if the governing law does not belong to the Common Law (as it certainly is the case if the transaction has no contact with a Common Law country), the tension between the contractual terms and the governing law becomes relevant.
If the parties have submitted their dispute to arbitration, the arbitral tribunal will follow the same reasoning as a judge and will identify a national governing law, thus encountering the same interpretation problems as a judge, unless the parties have expressly empowered the tribunal to decide on the basis of general principles or other sources of trans-national law, or to act as an amiable compositeur. In contractual practice, however, the parties seldom make use of these options, and more often insert in their contract a choice-of-law clause determining the national law governing their contract.

5. Conclusion.

The lack of coordination between the adopted contract models and the governing law creates many uncertainties of the kind described above, and the level of awareness of this phenomenon is relatively low even among international lawyers. This may affect the efficiency and feasibility of many international as well as domestic transactions, creating unnecessary costs for avoiding or solving disputes that arise out of unforeseen or undesired effects of the contract. The consequences for Norwegian society are several: commerce and industry are negatively affected by the unnecessary use of resources connected with the named uncertainties, and they may face considerable losses if the outcome of the dispute turns out to be unexpected and undesired due to the ignorance of these aspects at the time of entering into the contract. Moreover, to the extent the contract does not contain an arbitration clause, the Norwegian court system is burdened with the unnecessary and complicated disputes that might arise out of these uncertainties, thus increasing the public expenditures connected therewith. Due to the increasing cost level of arbitration, more and more contracts give jurisdiction to the ordinary courts of law, as opposed to arbitration, especially if the value of the contract is not extremely high. Therefore, the Norwegian court system will be increasingly burdened with disputes of the kind described herein.

2. Literature on the Topic

1. Introduction. There is a wide literature, particularly in Europe and North America, devoted to the analysis of the relationship between Common Law and Civil Law systems. Broadly, this literature may be divided into three major groups: comparative law analysis, literature on legal transplants, and literature on the unification of contract law.

2. Comparative Law. Comparative law analysis has the purpose of comparing different systems of law, highlighting the different ways in which the various systems may achieve the same results, or showing why different regulations aim at achieving different results. Any branch of the law may be subject to comparative analysis, and the comparative literature on contractual law is huge. Among the most important works in the recent times are Zweigert, K. and H. Kötz: Introduction to Comparative Law, 3rd ed Clarendon Press, Oxford 1998, Sacco, R.: Legal Formants: A Dynamic Approach to Comparative Law, in 39 Amercian Journal of Comparative Law (1991), pages 343-358 Sacco, R.:. One Hundred Years of Comparative Law, 75 Tulane Law Review (2001) 1159-1176, Sacco, R.: Einführung in die Rechtsvergleichung, 2001 (German translation of the original Italian). A particular mention deserves also the international project "The Common Core of European Private Law", launched in the mid-nineties by the University of Trento, Italy, that has so far resulted in important publications such as Zimmermann, R. and Whittaker, S., Good Faith in European Contract Law, Cambridge University Press, and Gordely, J., The Enforceability of Promises in European Contract Law, Cambridge University Press.

3. Legal Transplants. Literature on legal transplants has flourished particularly in connection with the transition of former socialist countries to the market economy, and it analyses the effects of introducing within a certain legal system a legal regulation that belongs to a different legal system. Among the most important works within this area can the following be mentioned: Watson, A., Legal Transplants and European Private Law, vol. 4.4 Electronic Journal of Comparative Law, (December 2000), http://www.ejcl.org/ejcl/44/44-2html, Ajani, G., By Chance and Prestige: Legal Transplants in Russia and Eastern Europe, 43 American Journal of Coparative Law (1995), pages 93-117, Mistelis, L.A., Regulatory Aspects: Globalization, Harmonization, Legal Transplants, and Law Reform - Some Fundamental Observations, 34 International Lawyer (2000), pages 1055-1069.

4. Unification of Contract Law. Literature on the unification of contract law is extremely vast, and was until recently devoted in large part to the analysis of the Principles of International Commercial Contracts, published in 1994 by the Institute for the Unification of Private Law, UNIDROIT. These principles are a non binding restatement of contract law, resulting from the efforts of a wide group of scholars from a variety of legal systems, who have partially codified existing practices of international contracts, and partially have proposed original solutions based on an extensive comparative research. The purpose of the Principles is to serve as a source of inspiration for legislators, as a basis for interpreting existing instruments, as a guide to the drafting by contractual parties during the preparation of their contract, or even as an integration of the governing law. Extensive bibliographic references can be found in the link to the UNIDROIT: http://www.unidroit.org/english/principles/pr-main.htm.

A considerable scholarly engagement in respect of the unification of contract law was recently originated within Europe by a document of the European Commission, the Communication on European Contract Law, issued in 2001 (OJ 2001/C 255/01). In this document the Commission encourages scholars, representatives of business and other interested parties to comment on the advisability to create a common European contract law. The Communication presents four alternative ways to proceed in the field of unification of the European contract law: leaving the development to the market, creating common European principles of contract, improving the quality of existing EC law in the field of contracts, issuing a binding legislation on contracts. Nearly 200 documents have been filed by as many parties, addressing the Communication; some of these documents are very extensive, such as the joint response by the Commission on European Contract Law (lead by the Danish professor Ole Lando, who is also the leader of the project that resulted in the publication Principles of European Contractual Law) and the Study Group on a European Civil Code. The Commission has recently issued a new document, Action Plan (COM (2003) 68 final, 12.03.2003), summarising all these answers and encouraging a continued scholarly engagement pursuing particularly the path of identifying common European principles and of improving the quality of existing EC law. In the frame of this scholarly engagement, numerous working groups have been created throughout Europe, such as the already mentioned Study Group on a European Civil Code (http://www.sgecc.net,html), the Academy of European Private Lawyers, the European Research Group on Existing EC Private Law (http://www.jura.uni-bielefeld.de/Lehrstuehle/Schulte-Noelke/Institute_Projekte/Acquis_Group/index.html), the Society of European Contract Law (http://www.secola.org.html).

5. Contract Models and Governing Law. The above described literature and academic activity is strictly connected with our topic; however, our project has a different perspective. As mentioned above, comparative law analyses the different legal systems as such, with the sole purpose of identifying differences and similarities among the various systems. Research on unification, similarly to comparative research, analyses the systems as such, but with the purpose of reconciling different systems and replacing them with a unified solution. Neither of these two perspectives devotes much attention to the interaction between elements from different systems of law, which is the subject-matter of our project. The interaction between elements of different systems is analysed by the literature on legal transplants; the matter of the legal transplants, however, is different from the subject-matter of our project. The study of a legal transplant assumes that the transplant has been (or is to be) carried out by the legislator, and that a "strange" regulation has been (or is to be) imported into a system of law, thus becoming a part of the system of law. Our project, however, operates on a different level: the transplant is carried out not by the legislator, but by the parties in their contract. Therefore, the imported regulation is not a new integral part of the legal system, it is rather subject to the legal system. The problems of interpretation and of coordination that arise are different in the two mentioned situations.

The literature on the interaction between contract models and the governing law, i.e. on transplants carried out by the parties in their contract as opposed to transplants carried out by the legislator, is not very vast. From the most recent literature reference can be made to Graf von Westphalen, F., Von den Vorzügen des deutschen Rechts gegenüber anglo-amerikanischen Vertragsmustern, Zeitschrift für Vergleichende Rechtswissenschaft, 2003, pages 53-74, and Döser, Neue Juristiche Wochenschrift, 2000, pages 1451-. The matter has also been dealt with, less recently, by Selvig, E., Paramount Klausulen, Arkiv for Sjørett, 1959, pages 549-599, id., Interpretation according to Norwegian or other Scandinavian law of charter parties and other standard contracts written in English, Tidsskrift for rettsvitenskap1986, 2, id., The freight risk, Arkiv for sjørett, (1978), Grönfors, Interpretation of freight contracts, Gothenburg Maritime Law Association paper 67, Falkanger, Engelsk og norsk kontraktsfortolkning, Arkiv for Sjørett 9.537 (1969).

3. Scope of the Project

1. Systematic Analysis of the Interaction between Contractual Models and Governing Law.

Our project is meant to research and analyse the most important uncertainties that can arise out of the use of Anglo-American contract models for contractual relationships that are regulated by Norwegian law (or by another law of the Civil Law Family). The aim of our project is to achieve a systematic overview of the frictions that might run counter the expectations of each of the parties: the party that had relied on the effectives of the (Anglo-American inspired) contractual formulation, as well as the party that had relied on the applicability of the (Norwegian or other Civil Law) governing law. The project will, therefore, consist of a series of specific researches, devoted each to the study of a specific contractual clause or type of clause under (primarily, but not exclusively) English law as well as to its effect under (primarily, but not exclusively) Norwegian law. Attention will also be devoted to the practice of arbitration. On the basis of these specific studies, the project will develop knowledge relevant to and useful for the interpretation of contracts and the harmonisation of contract law across the borders of national states. It will be one of the aims of the project to systemise this knowledge in order to contribute to the development of legal theory both in the field of interpretation of contracts and in the field of harmonisation of contract law.

Some of the aspects that may be the subject-matter of our project are common to a large number of contract types, and arise out of the so-called "boiler plate clauses" that are often similar irrespective whether the underlying transaction is a sale, a loan, a licence, a distribution or another type of relationship. These clauses are representations and warranties, hardship, assignments, amendments, clauses regarding the interpretation of the contract, etc. Each of these issues deserves a comparative analysis of the function that the clause is meant to fulfil under the Common Law and how this function is fulfilled in the governing Norwegian or other Civil Law system. As a result of the comparison, it will be possible to identify an interpretation that coordinates the assumptions of both systems or solves any conflicts that may arise between the two systems

Further issues that are not specific to certain contracts, and where coordination between the contractual models and the governing law is desirable, are to be found in the areas of guarantees and of damages. Anglo-American models operate within each of these areas with distinct concepts: covenants, warranties, representations, guarantee, indemnification, reimbursement, liquidated damages, penalties. The various implications of these legal terms and their coordination with the governing law may be further subject-matters of our project.

The use of Letters of Intent is also increasingly widespread and is affected by clauses that create tensions with the principles implied in the governing law, such as the clause according to which the letter of intent is not binding. The function of a Letter of Intent and the coordination between the assumption that it is not binding and the regulation of the formation of contract in Norwegian law and other systems of Civil Law may be a subject-matter of our project.

Other aspects that may be the subject-matter of our project are typical for specific branches of business: in particular, in the field of maritime law charterparty and insurance contracts are based on English models, and in the field of petroleum investment, most contracts are often inspired by Anglo-American models.

2. Method

Our project will analyse the specific clauses or types of clauses that originate the mentioned frictions between different systems of law: we will assess the specific function of each clause or type of clause in the contract model under the original Common Law system (primarily under English law), and we will verify to what extent that clause or type of clause is capable of exercising the same function once the contract is inserted in the context of a different governing law (primarily Norwegian law).

Through the analysis of the function of the contractual formulation (seen in the light of the Common Law system) as well as of the function of the applicable Norwegian (or other Civil Law) regulation, our project will aim at proposing satisfactory solutions that take into due consideration the international contractual practice. Solutions may reconcile the two conflicting systems and suggest an interpretation that meets the expectations of all the involved parties, or they may assess that the contradiction cannot be overcome and suggest alternative contractual structures that might permit to achieve the protection of the involved interests.

Our project, therefore, will partly consist of a series of analyses, one for each type of clause, on the basis of the comparative method. In addition, the results of the comparative analysis will be the basis for researches applying the dogmatic method: one on the interpretation of contracts, and one on the harmonisation of contractual law. In this way, our project aims at contributing to the development of legal knowledge that is of the utmost relevance to the practice of contracts (by way of the comparative analyses), as well as contributing to the legal doctrine in the field of interpretation of contracts and to the ongoing European work on harmonisation of contract law (by way of the dogmatic researches).

The material to be analysed in the course of our project will consist partly of easily accessible standard agreements and standard clauses, such as those produced by the International Chamber of Commerce or by branch associations such as the ISDA in the field of financial instruments or the FIDIC and the ORGALIME in the field of engineering and construction. Moreover, the material to be analysed will be taken from existing standard contracts currently applied by leading Norwegian and international law firms, as well as from the practice of the project's members, who have long practical experience as arbitrators, consultants or practicing lawyers. Furthermore, extensive material can be found in the ICCA Yearbook Commercial Arbitration as well as in the numerous international publications specialised in international arbitration and international business. The legal effects of the analysed clauses or types of clauses will be assessed on the basis of the judicial practice and doctrinal material of, primarily, English and Norwegian law, as well as arbitration practice.

The analysis of the functions and effects that the examined contractual clauses have in the original contract models assumes a deep insight in the English and US (according to the origin of the model) contract practice and law.

Our project will connect with renowned academics and practicioners within English and US Contract Law, who will act as advisors on their respective fields.

4. Publication of Results

The results of our research are planned to be divulgated on various levels.

There will be two to three seminars a year with the users' group to present the final result of the individual research carried out by the undergraduate students and by the research fellows, as well as by the permanent members of project.

The undergraduate theses and the postgraduate theses, as well as our individual research on the topic, will be sought published to the largest possible extent as articles in international specialised reviews.

By the end of the four-years period of our project, we aim at having produced 1-2 PhD theses and 8-12 undergraduate theses; our aim is to develop all these theses along a coherent strategy, so that they may be published as a collective publication.

By the end of the four-years period of our project, we will have received 8 foreign visiting lecturers; we will have identified themes for joint research with the institutions of the visiting lecturers, which again will have resulted in exchange of researchers and scholars.

The publication of the results is planned coupled with an international conference, where the knowledge developed within our project can be confronted and complemented with the research that is ongoing on the international level. The international conference is meant partially as a broad presentation of the research environment that we are planning to establish with this project, and partially as a consolidation of the international network that our project shall contribute to enhance.

5. Funding of the Project

1. Financing by the University of Oslo

The Department of Private Law and the Scandinavian Institute of Maritime Law will contribute to the project by providing the salaries for the five permanent members of our project, office space and the necessary infrastructure. In addition, during the period of the project each of the Department of Private Law and the Scandinavian Institute of Maritime Law will finance 1-2 undergraduate students (vitenskapelige assistenter).

2. Financing by External Sources

The law firm DLA Nordic has in the academic year 2002-2003 initiated a yearly scholarship for one undergraduate student to write a thesis in International Commercial Law. The subject-matter of our project is the core of the programme of the course on International Commercial Law that is being taught at the Oslo University, therefore our project will benefit of the financing by DLA Nordic.

External funds finance also some undergraduate students in the field of maritime insurance.

3. Financing by Research Council of Norway

The Research Council of Norway finances two PhD research fellows (doktorgradstipendiater) and 1 undergraduate student per year (for a total of 4 undergraduate students).

6. Short bibliography

• Falkanger, Thor, En sammenligning mellom engelske og norske prinsipper for fortolkning av kontrakter, Arkiv for Sjørett, bind 9 s. 537-566 (1969)
• Gorton, Lars, Syndicated Loans – Some Thoughts on the Reception of Anglo-American Contract Practice into Swedish Law, European Business Law Review, Kluwer Law International 2007
• Hagstrøm, Viggo, "Due diligence" ved virksomhetsoverdragelse, Tidsskrift for forretningsjus 1999 s. 391-399
• Hagstrøm, Viggo, Om grensene for ansvarsfraskrivelse, særlig i næringsforhold, Tidsskrift for Rettsvitenskap 1996 s. 421-518
• Moss, Giuditta Cordero, Anglo American Contract Models and Norwegian or other Civilian Governing Law - Introduction and Method, Institutt for privatrett, Skriftserien, Nr. 169, 2007
• Moss, Giuditta Cordero, International contracts between common law and civil law: Is non-state law to be preferred? The difficulty of interpreting legal standards such as good faith, Global Jurist: Vol. 7: Iss. 1 (Advances), 2007
• Moss, Giuditta Cordero, The Function of Letters of Intent and their Recognition in Modern Legal Systems, foredrag Münster 01.12.2006
• Moss, Giuditta Cordero, Harmonised Contract Clauses in different business cultures, Key note lecture presented at the Conference on Private Law and the Many Cultures of Europe ,University of Helsinki 2006
• Moss, Giuditta Cordero, Lectures on Comparative Law of Contracts, Institutt for privatrett, Stensilserien, Nr. 166, 2004
• Moss, Giuditta Cordero, Lectures on International Commercial Law, Institutt for privatrett, Stensilserien, nr. 162, 2003
• Selvig, Erling, Tolking etter norsk eller annen skandinavisk rett av certepartier og andre standardvilkår utformet på engelsk, Tidsskrift for Rettsvitenskap 1986 s. 1-26
• Selvig, Erling, Paramount klausulen, Arkiv for Sjørett, bind 3 s. 549-599 (1959)