How many times do you think ‘if only I had thought about that sooner’? You can check out issues with us before they become problems. We help SMEs negotiate with larger organisations. Review, drafting and negotiation are all part of the service offered by our experienced solicitors. Our style is to operate as in-house counsel working with you to help you make decisions rather than providing arid legal advice. Often we can provide a fixed fee and we will always provide an estimate which we stick to.
Please do call us with any questions.
How to get the business contract commercials right:
Finding the right support to tap into
Our clients tend to work with us on their more complex, higher value business agreements where the exposure to risk is greatest. We step in to manage the process. The ability to tap into support when needed is helpful as we are flexible on how we work. We draft bespoke business agreements or work on existing templates.
We can either negotiate the business contract or work in the background to guide you on how to approach the negotiations – every situation is different. We are attuned to the discrete commercial drivers at play. Our aim is to draft a robust agreement that prevents disputes in the future and reduces commercial risk.
What obligations are you signing up to under the business contract?
Usually, there are three types of terms within a business agreement. They are 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 agreement, 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
Innominate terms that are neither conditions nor warranties. If a breach of an innominate term deprives the aggrieved party of the whole benefit of the agreement, then the aggrieved party can rescind the agreement and claim damages. If some benefit of the agreement can be retained, then only damages are available.
Performance obligations under the business contract
The performance obligations should be suitable for your side of the business agreement. It is easy with everything else going on to overlook:
- Who is to do what?;
- Where, how and when the performance is to be done?; and
- Whether time is of the essence.
The level of performance obligations depend on your bargaining position and the value of the business agreement. In English contracts, there is a distinction between a party using “reasonable endeavours” and “best endeavours”. We take into consideration future obligations and provide for the changing nature of business. We take the time to ensure that the drafting protects your position.
Tail end payments under business contract
We often advise on whether tail end payments are due following termination of the business agreement. Tail end payments arise where the agreement 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 arise on accounts concluded before termination of the business agreement– the question is, will that entitlement survive once new accounts are no longer introduced following termination of the business agreement? The answer is, it all depends upon the drafting.
Reducing risk around use of technology and intellectual property
There is a risk for businesses involved in the creation or maintenance of intellectual property that the creators claim ownership rights. We manage this risk and protect your asset by ensuring that business agreements include a full assignment to the company of all intellectual property rights the company wants to claim.
Types of business agreements where assignment should be considered
Typical business agreements which need to include assignment rights include:
- Framework agreements;
- Employment agreements;
- Consultancy Agreements;
- Franchise agreements;
- Shareholders’ agreements; and
- Joint venture agreements.
Problems a business contract assignment clause can prevent
Assignment of intellectual property by creators of IP such as employees and contractors in a clearly documented and property executed agreement should prevent several problems which could otherwise arise. Such as:
- Elimination of issues arising relating to ownership when the intellectual property is sold; and
- If there is an infringement of the intellectual property such as attempting to use it in competition then – stopping the infringement is usually much easier.
The assignment of any intellectual property must be given for consideration or by deed.
If the business agreement 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.
How to ensure that the business contract be interpreted in your favour
One of the key components to successfully drafting, reviewing, or contesting a business agreement is the interpretation of its terms and obligations. Interpretation and construction are used interchangeably to describe this task.
Basic rules of interpretation of a business agreement
A basic rule of UK commercial law is buyer beware. Parties to a business agreement are expected to know what they are negotiating and to understand the implications of the contract. When drafting or reviewing your business agreement we take the time to explain your obligations, rights and consequences of breach.
What was the intention of the parties?
When interpreting a particular term or obligation in a business agreement, the starting point is to ask contractual parties what their intention was. The next step is to interpret in accordance with conventional use and to review in the backdrop of the whole business agreement. 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 agreement.
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 agreements. 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 agreement 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 agreement 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 under business contract
Most, but not all, business agreements 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 agreement; and
- Jurisdiction: refers to a country’s courts that will have the power to adjudicate over the agreement and its law and any dispute arising out of it.
How jurisdiction works in business contract
This means that the business agreement 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 agreements, in the absence of choice, the governing law for the business agreement 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 manage business risk and avoid exposure to litigation further down the line.
Arbitration clauses under business contract
To limit your costs should a dispute over the business agreement 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.
Mediation to resolve business contract disputes
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.