- Implied duty of good faith
US law and English law differ as to good faith. Unlike most other common law countries (e.g. England), but aligned with civil law countries such as France, US law does have a general duty of good faith in the performance and enforcement of contracts. English law does not have a general implied duty of good faith except in limited areas such as employment law and insurance law in relation to pre-contractual disclosure by a party seeking cover.
- Terminology – Style
The choice of words in an American law and English law contract can cause different results. For example, “best endeavours/reasonable endeavours” is the English law norm for endeavours clauses whereas “best/reasonable efforts” is the US norm. The danger of using different terms to those regularly interpreted by the courts in a particular jurisdiction is that the courts may consider that the parties intended something different to what would generally be intended by the use of the correct terminology. Another example would be the use of the word merchantable quality in relation to a sale of goods contract in contrast to satisfactory quality which is English law term. It is questionable whether an English court will interpret merchantable quality as equivalent to satisfactory quality. “Wilful misconduct” and “gross negligence” are other US terms that are increasingly common in English law contracts without any long-standing judicial interpretation.
Under English law the test in relation to an ambiguous clause is what would the clause reasonably mean to a person with all the background facts available to the parties at the date they entered into the contract. The courts are not entitled to take into account parole evidence such as pre-contractual discussions or earlier drafts and agreements in order to construe the meaning of a particular clause. In civil law jurisdictions the aim is to ascertain the good faith intention of the parties taking into account all appropriate facts and circumstances, customs and practices and in such instances parole evidence is acceptable for such purposes. The US system seems to prefer a more civil law approach with regard to interpreting what the good faith intentions of the parties are, albeit that in line with the English law system, no parole evidence is admissible.
The concept of unilateral mistake (i.e. where one party is mistaken) operates differently under US and English law. Under US law the mistaken party can avoid the contract if enforcement would be unconscionable and the innocent party did not know or have reason to know of the mistake. Under English law however, the contract would be void only if the party that is not mistaken knew of the other party’s mistake (i.e. acting almost fraudulently) and the mistake relates to a fundamental part of the offer.
- Limitation clauses
One prime example of the same language having very different effects under English law and under US law is that the words “indirect and consequential losses” in US law expressly excludes loss of revenue, production and profit that stem from a breach of contract. English law on the other hand often consider such losses as direct losses and therefore in order to exclude such losses the party must expressly and properly exclude such losses by clear wording.