Most Favored Nation
Contract Type:
Generic Contract
Jurisdiction:
The Client shall be entitled to the benefit of any more favorable terms with respect to price, payment, or other commercial terms that the Consultant grants to any other client after the Effective Date of this Agreement for similar services. Upon becoming aware of such more favorable terms, the Consultant shall promptly notify the Client of such terms and the Client, at its sole option, may elect to have such more favorable terms apply under this Agreement.
Explanation
Here is a plain English explanation of the Most Favored Nation clause:
- This says the Client gets the benefit of any better price, payment, or commercial terms the Consultant gives other clients.
- It applies to any more favorable terms granted after this Agreement starts.
- The more favorable terms must be for similar services to what the Client is receiving.
- The Consultant must promptly notify the Client if it gives better terms to others.
- The Client can then choose to get those same improved terms under this Agreement if they wish.
- But it is up to the Client whether they want to invoke the better terms or not.
- The purpose is to ensure the Client is always treated at least as well as other clients.
- It prevents the Consultant from giving certain clients special deals without extending the same perks.
- Overall, this gives the Client price and term parity with the Consultant's other customers.
The origins of the most favored nation (MFN) clause date back to medieval treaties between European rulers. Kings and princes would promise each other most favored trading status as a gesture of economic alliance.
In the 17th and 18th centuries, European powers incorporated MFN provisions in commercial treaties to extend special privileges negotiated with one nation to others. The United States later adopted the practice in its early foreign trade agreements.
By the late 19th century, MFN clauses became common in private international contracts, especially for commodities and freight services. They ensured buyers and shippers got the best market rates.
As global trade expanded after World War II, MFN clauses proliferated across sectors. However, critics argued they impaired free competition. Some jurisdictions restricted their use.
Today, English law permits reasonable MFNs provided they increase competition and customer benefits.
Contemporary application focuses on ensuring non-discrimination and price parity between buyers. After centuries of use in diplomacy and commerce, MFNs remain an important contractual mechanism.
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