It is important to understand the difference between applicable law and jurisdiction when negotiating a SaaS agreement. Applicable law specifies which country’s laws will apply to your SaaS agreement. Jurisdiction specifies which courts will have authority to deal with a dispute. Usually a UK SaaS agreement will specify the laws of England and Wales as the applicable law and the courts of England will have jurisdiction.
English or Scottish Law
Many SaaS suppliers are not aware that two legal systems exist in the UK. English law and Scottish law and each has its own courts. English law and Scottish are not the same and it is important to specify which law applies and which courts should have jurisdiction as there is no such thing as “UK law” or “UK courts”.
If you are a SaaS supplier used to dealing with customers located outside of the UK, you will be familiar with SaaS customers insisting on their local law applying to your SaaS agreement. Many SaaS suppliers agree to this by simply removing “English law” from the SaaS agreement and replacing it with, for example, “laws of Delaware” unaware of the consequences this will have upon their SaaS terms and conditions.
Consequences of Changing the Applicable Law
By changing the law applicable to your SaaS agreement you may automatically invalidate many of the limitations on liability contained in your SaaS agreement. You may also become liable for types of damages that you thought were excluded in your SaaS agreement, i.e. direct damages, indirect damages, typically foreseeable damages, or punitive damages, as in some countries liability cannot be limited for these types of damages, or the local understanding of what types of losses fall within these areas may differ from English law.
This could also result in you becoming subject to local laws applicable to consumer contracts, even though you are contracting with a business. For example, in France if you enter into a SaaS agreement with a business not operating in your business sector, your SaaS customer will be a consumer and will be protected by local consumer protection laws. i.e. with rights to refunds.
By agreeing to a change of law in your SaaS agreement you may also unknowingly grant customers new rights that do not exist under English law. For example, if you agree to a change to German law under mandatory German law a customer can lower the price it pays for the SaaS services if the service is defective.
If you agree to change the applicable law when negotiating your SaaS agreement you should also consider changing the country in which the courts are located that will deal with any disputes i.e. French law and the courts of Paris.
You should also specify in the SaaS agreement in which language disputes should be dealt with. If you do not speak or understand the local language of your customer you should state that all disputes must be dealt with in English. This is particularly important if the SaaS agreement has been translated into your customer’s local language. In this case you should state that the English version of the SaaS agreement will prevail if there is a discrepancy between the two versions.
Also do not forget that the local rules on the amount of costs that a court can order the losing party to pay the winning party can vary substantially. In some jurisdictions and in some areas of law, no costs are recoverable at all by a winning party.
For the above reasons when considering SaaS customer requests to change the applicable law or jurisdiction in your SaaS agreement it is essential that you understand the difference between applicable law and jurisdiction and the implications of changing these.
Irene Bodle is an IT lawyer specialising in SaaS agreements with over 10 years experience in the IT sector. If you require assistance with any SaaS, ASP, software on demand contracts or any other IT legal issues contact me:
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