Applicable Law Is Now A Risk

“Party A will comply with applicable law” was one of the obligations you would commonly find in contracts (particularly financial services contracts). It was one of those phrases that didn’t add much

 

(after all, if Party A was already under that obligation as a matter of public law, adding the same obligation – this time as a matter of contractual obligation to Party B – was not a big shift), but it gave the lawyers involved a comfortable feel.

But in an online world, “Party A will comply with applicable law” becomes a much more dangerous commitment.

Imagine you are a small UK SaaS provider, providing a SaaS service to companies from anywhere in the world. You know what English law (or Scottish law, or the law of Northern Ireland) requires, and you are comfortable complying with it and you are comfortable in promising to your customers that you will comply with it.

But now you’ve got a problem. You now have customers from all over the world including from Country X. You have no idea of what the laws of Country X provide. You don’t even know if and when the laws of Country X apply.

At this point, promising to comply with applicable law has become foolhardy. So – what do you do?

Here’s what I suggest.

  1. You promise that your service will comply with the laws of your home jurisdiction.
  2. You provide that, if a customer wants your service to comply with the laws of Country X, that customer has to propose Country X as an additional jurisdiction.

In other words, change control kicks in and you get the opportunity to adjust your pricing depending on the costs and risk of complying with the laws of Country X.

...in an online world, “Party A will comply with applicable law” becomes a much more dangerous commitment.