Compliance with Laws

Contract Type:

Each party shall comply with all applicable laws in performing its obligations under this Agreement.


This clause simply obliges each party to comply with all laws applicable to their performance and obligations under the agreement.

Key points:

1) Applicable laws: The clause refers to laws that are relevant to the agreement and activities under it. This includes all laws applicable to the agreement's subject matter, terms, and the parties' duties - not just laws of a particular jurisdiction. The governing law of the contract itself is not necessarily the limit here.

2) All applicable laws: There are no exceptions. The obligation is to comply with every applicable piece of legislation, regulation, mandatory standard or rule that is legally binding. Compliance cannot be selective.

3) Obligations under the agreement: The clause requires compliance only with laws applying specifically to responsibilities and entitlements arising from the agreement - not general compliance obligations unrelated to its performance. But this still covers compliance with all aspects of applicable law that directly or indirectly regulate parties' contractual performance.

4) Each party: The obligation is neutral and applies equally to all parties. Neither party has a greater duty than the other here, and neither can demand compliance that they themselves avoid. The clause sets a mutual standard.

The main purposes of this type of catch-all compliance provision are:

1) Imposing broad, legally binding commitments around lawful performance and behaviour according to all applicable norms as relevant to the agreement. This "blanket" compliance duty aims to avoid unlawful acts, breaches or claims arising readily without high standards having first been set.

2) Providing reassurance through a simple statement of intent and obligation rather than an exhaustive specification of every applicable law. An over-detailed clause may actually create uncertainty by omission or limit the breadth of commitment. A general but sweeping statement is preferable.

3) Expressly requiring lawful conduct as a baseline to support enforceability of the agreement. Unlawful terms, illegal behaviour or deficient regulatory compliance threaten validity so a commitment to abide by all applicable law helps satisfy the basic ingredient of a legally sound contract.

4) Potentially allocating shared responsibility for identifying, monitoring and complying with all relevant law. A broad clause puts the onus on both parties to determine compliance needs, not relying entirely on specified terms. They must work proactively to align performance with legal standards.

In summary, an all-encompassing compliance with applicable laws clause aims to set an overarching standard of lawful performance, provide reassurance as to intent but without exhaustive specifics, ensure baseline validity and secure shared responsibility for maintaining legal alignment. The clause is often straightforward but pack a punch as a fulsome mutual commitment to compliant dealing, both boosting enforceability and managing complex expectations.

History of the clause (for the geeks)

Early commercial contracts often made no express reference to compliance with laws, assuming it as an implicit duty and to avoid constrained dealing. However, this approach failed to account for growing complexity of regulation, risks around invalid terms or claims, and need to evidence intent for proper performance.

By the 19th century, compliance with laws provisions emerged to remedy uncertainty and curb unlawful behaviour that could undermine contracts. However, courts were initially wary of broad "blanket" clauses seeming to require universal lawful conduct without limitation, which appeared unrealistic and could make any breach claimable. For enforceability, qualification was needed around scope of duties covered.

Clauses developed requiring compliance only with laws specifically "applicable" to the contract and performance of responsibilities under it. This more tailored commitment addressed relevant regulation without implying flawless legality in all regards was expected or guaranteed. Parties need comply only with laws directly governing their actual contractual dealings, not legal duties unrelated to the agreement. Courts viewed reasonably qualified clauses as fair and commercially practical versus unreasonable extremes.

Through much of the 20th century, compliance with all applicable laws became a standard contractual duty, implied or expressed. In commercial contexts, "applicable laws" came to signify relevant regulation of the contract, parties, subject-matter, sector, etc - not merely governing law. Mutual responsibility for determining applicability developed, though in complex deals some specification of key laws still occurs. Certain standard formulas emerged, e.g. compliance with "all national and local laws". But significant tailoring continues based on facts.

Today, qualified compliance clauses remain ubiquitous. They aim not to imply flawless legality in all spheres but to require it where directly relevant to the performance and subject of agreements. However, globalization/digitization has increased interconnections between country/sector laws, and once separate areas of regulation now frequently overlap. This can complicate determining "applicability" and shared understanding of compliance needs. Negotiation often focuses responsibility, while general duties persist.

In summary, recognition that lawful performance requires qualification and limitation for commercial practicality drove the spread of tailored compliance clauses. They aim not for unreasonable requirements of legality in all regards but for comprehensive standards around parties' actual dealings. Yet, complex interplay between regulations continues complicating scope.

Tension remains between general duties and reasonable expectations, but "compliance with applicable laws" endures as a mechanism for setting shared responsibility for lawful behaviour where directly relevant to agreements, if not further afield. Overall, the trend is toward obligation mirroring expanding scope of relevant regulations rather than radically altering approaches to setting attainable standards in contracts.