Business contracts & agreements
- John Deane
- Updated: Tue, 22nd Nov 2016
We are specialist business contract solicitors. A business contract underpins your legal rights to be paid on contracts, to exploit assets such as intellectual property rights, and to reduce liabilities. We provide a quick analysis of the commercial reality and find solutions that achieve your business goals.
Our business contract advice includes:
We work with a variety of businesses across a range of sectors. Our skill is the ability to spot potential problem areas and discuss solutions. We review any existing business contract to suggest areas for better protection. We also draft bespoke business contracts. We can negotiate the business contract or work in the background to guide you on how to approach the negotiation – every situation is different and we are attune to the discrete commercial drivers often at play.
Our clients tend to work with us on their more complex, higher value business contract where the exposure to risk is greatest.
Business contract obligations
Depending on the type of business contract and the concerns over the other party’s ability to perform the terms of the contract, different terms will have to be used. Usually, there are three types of terms within a business contract, as follows:
- Conditions: are terms that are fundamental to the business contract, such as pricing mechanisms and payment dates. A breach of a condition will entitle an aggrieved party to rescind the contract and claim damages.
- Warranties: are terms that are not fundamental to the business contract, such as the service of notices or the method of party communication. A breach of a warranty will entitle an aggrieved party to damages only.
- Innominate (unclassified) terms: are terms that are neither conditions nor warranties. If a breach of an innominate term deprives the aggrieved party of the whole benefit of the contract, then the aggrieved party can rescind the contract and claim damages. If some benefit of the contract can be retained, then only damages are available.
We draft performance obligations suitable for your side of the business contract.
- Who is to do what?;
- Where, how and when the performance is to be done?; and
- Whether time is of the essence.
These obligations depend on your bargaining position, which we always establish as it is crucial to commercial advice. In English contracts, there is a distinction between a party using “reasonable endeavours” and “best endeavours”. We take the time to ensure that the drafting protects your position.
We often advise on whether tail end payments are due following termination of the business contract. Tail end payments arise where the contract involved an annuity element under which typically fees and commissions are payable over a number of years following introduction of a business opportunity. For example where fees arises on accounts concluded before termination of the business contract – the question is will that entitlement survive once new accounts are no longer introduced following termination of the business contract? The answer is, it all depends upon the drafting.
Reducing risk for intellectual property based businesses
There is a risk for businesses involved in the creation or maintenance of intellectual property that the creators claim ownership rights. The solution is to make sure that business contracts include a full assignment to the company of all intellectual property rights the company wants to claim. Typical business contracts which need to include assignment rights include:
- framework agreements
- employment agreements
- franchise agreements
- the shareholders’ agreement; and
- joint venture agreements
Benefits of assignment by creators of IP
Assignment of intellectual property by creators of IP such as employees and contractors in a clearly documented and property executed agreement will stem several problems which could otherwise arise such as:
- Elimination of issues arising when the intellectual property is sold over ownership of intellectual property; and
- If there is an infringement of the intellectual property such as attempting to use it in competition to the owner of the business – stopping the infringement is usually much easier.
The assignment of any intellectual property must be given for consideration or by deed.
Licences for the use of IP
If the business contract is a licence for the use of intellectual property there is an obligation for the licensor to own the IP being licensed. Amongst other things this means that:
- Assignments from the creators of IP should be in place before the licence is created.
- The licensor would be expected to have registered the IP being licensed.
One of the key components to successfully drafting, reviewing, or contesting a business contract is the interpretation of its terms and obligations. Interpretation and construction are used interchangeably to describe this task.
Basic rules to interpretation of a business contract
A basic rule of UK commercial law is buyer beware. Parties to a business contract are expected to know what they are negotiating and to understand the implications of the contract.
What was the intention of the parties
When interpreting a particular term or obligation in a business contract, the starting point is to interpret in accordance with conventional use and to review in the backdrop of the whole business contract. This requires not only an understanding on rules on legal interpretation, but also commercial knowledge to draft or argue either way – this is where we assist. Different terms and obligations will have different implications to the parties, depending on the market and intended use within the business contract.
Should the parties act in good faith?
Interestingly, English law does not recognise a contractual duty of good faith. That is not to say that a good faith clause is not fairly commonly inserted into business contracts. The parties can agree to act in good faith but in practice what this means, and whether there has been a breach, will depend upon the contract and the facts.
Even without mention of good faith there is a duty of rationality, and a duty for each party to act within their powers, for example under its articles of association.
Can a party be forced to act in good faith?
A party can be obliged to act in good faith, but it will take a factual analysis to decide whether a party has breached this obligation. The very use of a good faith clause can be enough to persuade a defaulting party to enter into settlement discussions, or agree on mediation to resolve the business contract breach. However, in some cases more formal litigation procedures are required depending upon the attitude of the parties and the sums of money involved.
Jurisdiction & governing law
Most, but not all, business contracts contain a clause detailing the relevant jurisdiction, and law, to be applied in the event of a dispute. We often find businesses confused over the difference between law and jurisdiction, put simply:
- Law: refers to the law that governs the business contract; and
- Jurisdiction: refers to a country’s courts that will have the power to adjudicate over the contract and its law and any dispute arising out of it.
This means that the business contract may be subject to French law, but adjudicated in England and Wales. We are commonly instructed on disputes relating to the sale of goods. Under sale of goods contracts, in the absence of choice, the governing law for the business contract will be the country where the seller has its habitual residence. Legal and commercial factors will play a factor in determining exactly where the seller’s habitual residence is.
By anticipating any future dispute, and using our knowledge of the intricacies behind EU and non-EU rules on jurisdiction and law, we make sure that you are not exposed to any unnecessary litigation further down the line.
To limit your costs should a dispute over the business contract arise, we are able to draft suitable arbitration provisions. England and Wales is fast becoming the forum of choice for arbitration proceedings, as an alternative to the litigation procedure. This is due to the fact that usually, arbitrators are experts in their chosen field and bring commercial as well as legal knowledge to the table.
We will consider your concerns over the other party’s potential non-performance of their obligations to ensure that:
- You are not exposed to expensive and time consuming litigation over the meaning of the arbitration agreement or clause;
- Your chances of successfully enforcing an arbitration award are not jeopardised by failing to include choice of jurisdiction and/or choice of law provisions; and
- You are not bound to unnecessary and expensive procedures or rules that you are not happy with.
There can be enormous benefits in terms of time and costs to consider mediation before taking steps to invoke arbitration provisions or litigation. We draft the option for you to use mediation. We also run and manage mediation processes for you making sure the evidence and everything you need for a successful outcome is in place.
Our business contract track record
Issues on which clients recently sought our advice relating to a business contract, include:
- Joint venture business contract: concerning the shareholding structure for the joint venture business contract. Importantly how, at the end of the business contract, the joint venture would unravel. These issues had tax implications. In addition, we reviewed the service level agreements.
- Shareholders agreement: ensured the investment was protected as the business grew and generated value. We focus on privately managed and controlled businesses backed by private funds or by institutional funds such as venture capitalists.
- LLP partnership agreement: to regulate the partner’s dealings with each other and the division of profits, losses and capital. In this specialist area rights and liabilities are created by statue and common law. We explained each partners potential obligations, liabilities and exit route.
- Business acquisition & share sale contracts: the contract for the sale of shares or a business involves a great variety of issues which can leave you short changed if not addressed. Our expertise can help you to achieve the best value on sale, reduce taxation liabilities, and understand the protections needed such as the level of indemnities and warranties given or required. We manage the due diligence exercise and secure robust documentation.
- Management buy out agreement: to provide for the owner of a business to pass his shares to the next generation.
If you want a business contract that works you will need to adapt a standard form in most cases. However, fortunately for you, through our years of experience as business contract solicitors we will have dealt with a situation similar to yours previously. Experience means we will know what to look out for within the business contract. Whether you are issuing a business contract or receiving another party’s standard terms and conditions business contract, we are able to formulate our advice to put you the best legal and practical position to promote your business.