A contract should clearly define the terms of the contract and the expectations and obligations involved in the transaction for both parties. It should also set out the consequences, should either party fail to adhere to the terms of the contract, regardless of whether the default was deliberate or due to unanticipated circumstances. Having a well-drafted contract that is watertight can protect the business if, for any reason, the business relationship fails, which can result in a detriment to your business, particularly during these challenging times arising from the consequences of the mini-budget.
No two business collaborations are the same and the business landscape changes all the time but frequently a contract drafted in the past is used time and time again. Commissioning a legal review of a contract is money well spent, especially if the update results in introducing clauses that ultimately protect the business if a dispute arises. Commercial history is littered with examples where a situation could have been saved or has been saved by an unambiguous watertight contract.
Gonzalo Butori, a partner, points out "business survival depends on your level of foresight to protect against risks."Gonzalo further comments "it is essential to ensure that your contract is in line with current law in England & Wales and includes all the appropriate clauses to protect your business should an unforeseen development occur."
The unexpected Covid 19 pandemic was a shock to businesses and insurers alike. Businesses rapidly discovered that insurers did not share their view of business interruption clauses. The polar opposite stances that businesses and insurers assumed was only clarified due to the Financial Conduct Association's (FCA) decision to take the issue to the courts. The Supreme Court's complex decision, which was largely in favour of the policyholders, was heralded as a significant win for businesses. However, this was a lesson to businesses to treat "boilerplate" clauses in their contracts, those provisions that are not actually part of the commercial transaction but include an aspect of protection for the business, with the same level of scrutiny as the terms of business governing the transaction.
Each transaction has its own requirements. The common clauses that offer protection that would be wise to incorporate largely focus on protecting the business should a dispute arise. In the current economic situation, it is crucial to limit the potential for a costly and long-drawn-out legal dispute.
In the event of an unavoidable dispute an alternative dispute resolution clause (ADR) will establish that before an attempt to litigate through the court process is considered a negotiated settlement is sought by means of ADR. The ADR route to settlement limits the costs and length of time to resolve the dispute, as well as removing it from the public domain in court. It also allows the dispute to be under the control of the parties involved, they appoint the mediator or arbitrators.
The most common methods of ADR are arbitration and mediation. Arbitration being a more formal approach where each party puts their point of view before the appointed arbitrator/s separately. The arbitrator then makes a decision that is legally binding on all parties.
Mediation is a more relaxed and all parties are present in the discussions. The mediator will attempt to find a solution that is acceptable to everyone.
If agreement cannot be reached using ADR, the only option is litigation.
Another protective clause it would be prudent to incorporate is
an exemption clause, which limits the potential
for legal action in the situations outlined by defining instances
where liability is excluded or limited. There are two types of
exemption clause – exclusion clauses where liability is
completely excluded and a limitation of liability clause where
liability is limited but not completely excluded. Giambrone &
Partners' corporate and commercial lawyers can advise on the
circumstances that permit exemption clauses to be applied as there
are some situations that cannot be restricted or limited in any
way. Whilst a limitation clause may limit liability,The Unfair Contract Terms Act1977 (UCTA)
expressly prohibits such clauses in the following
Death and personal injury caused by negligence - this cannot ever be excluded or restricted.
Misrepresentation - equally, a clause excluding or attempting to limit the legal remedies available for misrepresentation has no effect.
Breach or non-performance of a contract - Section 3 of UCTA prevents clauses that attempt to exclude accountability for breaches of contract or the attempt to vary a contractual performance that is substantially different to the expectations, or to prevent the performance of the contract.
Additionally, Retention of title clauses enable a supplier to recover goods that have been supplied but have not been paid for. The supplier will also have priority over secured creditors in the event of insolvency. The supplier must ensure that they have the right to enter the premises of the buyer and that the goods supplied will be easily identified.
Giambrone & Partners litigation lawyers regularly advise on cross-border contentious matters and have a comprehensive understanding of all aspects required when doing business overseas. A jurisdiction clause is vital in order to establish in which jurisdiction a dispute will be litigated in. A jurisdiction clause enables you to choose the most advantageous jurisdiction for your purposes, as opposed to finding that the other party has initiated proceedings in a jurisdiction where the courts' procedures and likely outcomes dramatically differ from your jurisdiction of choice.
There are three types of jurisdiction clause, exclusive, non-exclusive or unilateral. Exclusive clauses limit a dispute to the courts of one jurisdiction. Non-exclusive clauses allow either party to take the dispute to any jurisdiction they find appropriate. Unilateral clauses, or one-sided clauses, allow only one party the choice of jurisdiction.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.