Saturday, June 30, 2007

Understanding English contracts

This is an interesting article that informs readers about the Japanese perspective on English contracts. This was published in JETRO TTPP - News Vol.40(6/2007)in June

Three Points in Understanding English Language Contracts == Culture of Contracts and Rights Differs - English Language Contracts Seek clarity and Based on Patterns

By - Mr. Tatsuya Oishi, President, Focus Business Produce, Inc..

The topic in the previous month's issue (May 2007) was the risks in specific international transactions and how to deal with them in contracts. This time, we will return to the basics and explain three points for correctly understanding English language contracts.

English language contracts are required in all sorts of occasions in international business and international transactions such as long-term sales agreements with overseas companies, appointment of sales agents overseas, and commissioning of subcontracted production. I personally negotiated business contracts with companies of various countries for 20 years and was involved in drafting the actual agreements. Further, when living in the U.S., I made use of my qualification as a U.S. certified public accountant and checked all written contracts concluded by my company from the viewpoint of American business law.
These contracts were all in English.

While a contract, note that an "English language contract" is not an English translation of a Japanese language contract used in Japan.

<> Assumptions in Japan Are Not Valid Elsewhere When handling English language contracts in practice, the most difficult thing for Japanese is of course that English is a foreign language. Not only are the actual expressions different, but also the contracts are based on the culture, customs, and contractual thinking of the home countries of the English language, Great Britain and the U.S., and are steeped in Anglo-American law.
That is, English language contracts are hard to understand by Japanese since they differ from Japanese language contracts in their very foundations.

As a typical example, Japanese contracts often include a clause like "any doubts arising over matters not provided for in this contract shall be resolved by deliberation between the parties of the first and second parts in good faith". English language contracts seldom include this. Instead, they set down detailed provisions covering all conceivable cases. They also provide arbitration clauses and jurisdictional clauses for the resolution of disputes.

<> Eliminate Vagueness and Find Clarity Another point which Japanese companies or individuals must bear in mind when checking or drafting English language contracts as contract parties is that even if an English language contract is not based on Anglo-American law, the English legal terminology is interpreted based on Anglo-American law. That is, whether the other country in the contract is the U.K., the U.S., or another English speaking country or a country not having English as an official language, insofar as a contract is in the English language, the English legal terminology is generally interpreted based on Anglo-American law.

Anglo-American law requires clear agreement between the contractual parties, that is, grounds enabling sufficient legal compulsory force to be given even when judged by the court. Antifraud laws etc. require that important contracts be in writing. Further, the usual practice is for individual matters agreed upon in the process of contract negotiations to be included as clauses in the final written contract.

<> Learn the Patterns of English Language Contracts Since English language contracts are drafted based on the thinking of points 1 and 2, the inevitably end up increased in number of pages and at first glance appear complicated in content. Therefore, most Japanese first tend to cringe at the thought of having to read them. However, there is a real handy point which one should learn. That is, English language contracts may be roughly broken down into two parts: principal terms and general terms.

The principal terms are terms which differ with each contract and form the heart of a contract. For example, in the case of usual business contracts, these are the parts identifying the goods and services covered by the contract, the price, the terms of transactions, terms of payment, and other terms unique to the contract. First, focus on and carefully check these principal terms.

On the other hand, general terms are terms set down in common in many contracts. Of course, "common" does not mean all the same in content. It means the terms frequently appear in English language contracts. The language is also similar. That is, English language contracts include many set patterns. Once studying and getting used to the general terms of English language contracts, it becomes possible to immediately judge where the key points are based on these patterns.

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