If you are a SaaS supplier who often deals with customers located outside of the UK, you will have experienced 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, “German law” unaware of the consequences this will have upon their SaaS terms and conditions.
Law and Jurisdiction
There is an important difference between applicable law and applicable jurisdiction. Applicable law specifies the country’s laws that will apply to your SaaS agreement, if there is a dispute. Jurisdiction specifies which courts will have authority to deal with a dispute. Usually your SaaS agreement will specify England and Wales as the applicable law and the courts of England as the jurisdiction.
Therefore, if you change the applicable law in your SaaS agreement you may also want to consider changing the country in which the courts are located that will deal with any disputes.
Do not forget to 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, particularly if you have agreed to your SaaS agreement being translated into your customer’s local language. You should also state that the English version of the SaaS agreement will prevail if there is a discrepancy between the two versions.
Limitation of Liability
By agreeing to a change of the law applicable to your SaaS agreement you could automatically be invalidating many of the limitations on liability contained in your SaaS agreement. For example, in France and Germany you cannot limit your liability for gross negligence, wilful misconduct, breach of material obligations or some types of force majeure.
By agreeing to a change of the law applicable to your SaaS agreement you may also become liable for types of damages that you claim to exclude in your SaaS agreement, i.e. direct damages, indirect damages, typically foreseeable damages, 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.
Consumer or Business
By agreeing to a change of the law applicable to your SaaS agreement you could become liable to local laws that apply 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 which does not operate in your business sector – the customer will be considered to be a consumer and will be protected by local consumer protection laws.
By agreeing to a change of the law applicable to your SaaS agreement you may grant customers new rights that do not exist under English law. For example, in Germany under mandatory German law a customer can lower the price it pays for the SaaS services if the service is defective.
For the above reasons English law is often the law of choice used in international SaaS agreements. Suppliers can more easily avoid “hidden” mandatory laws which can invalidate your carefully drafted supplier terms and conditions and English law allows you more freedom to draft terms free from mandatory legal restrictions.
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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