Compliance with Laws and Regulations
Contract Type:
NDA
Jurisdiction:
Each party shall comply with all laws and regulations applicable to its performance under this Agreement.
Explanation
This clause obliges each party to comply with all laws and regulations applicable to their performance under the agreement. It is a broad compliance commitment covering both legislation and mandatory rules.
Key points:
1) Laws and regulations: The clause refers to both statutory laws passed by a legislature as well as regulations, mandatory standards and rules issued by regulators, oversight bodies or industry groups. It covers all legally binding norms.
2) Applicable: As with a standard compliance with laws clause, this refers to laws and regulations relevant to the agreement and activities under it. Only norms directly regulating performance and responsibilities arising from the contract are covered - not general compliance duties unrelated to its subject matter or terms.
3) All laws and regulations: There are no exceptions. Each party must comply with every piece of applicable legislation, regulation, mandatory standard or rule. Selective compliance is not permitted. Full alignment with all applicable norms is required.
4) Performance under this Agreement: The commitment only requires compliance with laws and regulations applying specifically to performance of duties and entitlements under this contract. Not all legal obligations of the parties in a general sense are included, only those directly governing their actual contractual dealings and performance.
5) Each party: As with a typical compliance clause, the obligation is neutral and binds both parties equally. Neither party alone is responsible and neither can demand compliance they do not also observe. The standard is mutual.
The objectives and rationale behind this type of clause are much the same as for a basic compliance with laws provision. Key purposes include:
1) Imposing broad commitments to lawful and rule-abiding performance of responsibilities under the agreement according to all applicable standards.
2) Reassuring parties as to intent for compliant behaviour and reducing risks of unlawful conduct or invalid terms.
3) Aiding enforceability of the contract through express requirements for legality.
4) Allocating shared duty to determine which laws and regulations apply and maintain conformity.
5) Avoiding exhaustive specificity by stipulating a general standard of alignment with all applicable norms. Too much detail could create uncertainty or limit scope.
The main difference is simply that regulations, in addition to laws, are also expressly included. The clause confirms parties' performance must satisfy both legal statutes and non-statutory but binding rules, especially from regulators or industry bodies with standard setting and enforcement powers. Overall, the clause takes a belt and braces approach to compliance for maximum reassurance.
Early commercial contracts typically made no express mention of compliance with regulations, focusing only on applicable laws. However, as regulatory oversight and rule-making accelerated during the 19th and 20th centuries, alignment with regulations became equally crucial to lawful performance and enforceability. Failure to address compliance with regulations risked uncertainty, breach claims, and even invalidation of agreements.
Courts initially viewed broad clauses purporting to require compliance with entire regulatory codes as potentially unreasonable, implying unrealistic duties and liability for any breach however minor or unrelated to contracts. For enforceability, qualification was needed around which regulations were genuinely applicable to parties' actual performance. Clauses emerged requiring compliance only with regulations governing responsibilities under specific agreements. This more tailored approach provided reassurance through addressing directly relevant regulation without implying perfect ongoing compliance with entire codes was either expected or guaranteed.
By the mid-20th century, as regulation intensified, references to compliance with applicable regulations appeared routinely in commercial contracts alongside laws. Regulators' rules could no longer be sidestepped, and contracts not specifying alignment with relevant regulations faced greater threats to validity and performance. However, determining which regulations applied and how remained challenging, especially as globalization complicated contracts.
Certain standard formulas emerged, e.g. compliance with "all applicable laws and regulations", but significant tailoring continued based on industry, subject matter, jurisdiction, and commercial expectations. Compliance came to signify conformity not just with governing law but also local, national and even international regulations where relevant. Contracts increasingly spanned regulatory spaces, but general duties were common. Obligations were not however unlimited - only directly relevant regulation was implied.
Today, joint references to compliant performance under both laws and regulations are ubiquitous in commercial agreements. However, tension persists between setting general standards, implying unrealistic duties, and accommodating increasingly complex interplay between countries'/sectors' rules.
Challenges also remain in allocating responsibility for keeping abreast of relevant regulation and ensuring conformity, especially where changes are frequent. But in summary, recognition that lawful performance requires alignment not just with statutes but also regulators' mandatory rules has driven this standard contractual mechanism for reassuring through demanding comprehensive standards of compliance where directly applicable to agreements.
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