Top Tips for Wise Contracting

Here are some of the basic areas that every contract lawyer will look at when considering any contract:

  1. Get the parties right

 This is a very common mistake. 

  • Consider who is entering into the contract and, with legal persons like companies and LLPs, make sure you have the right names, registered numbers, contact details etc.
  • Generally, although reforms are due, only the parties to a contract can enforce the contract.
  1. Make sure the parties have the capacity to contract

 Again, getting this wrong can be fatal.

  • Think about whether or not the other party you are dealing with has the legal capacity and the authority to deal on the level you need.
  • Certain companies only allow directors, or specified signatories to sign off on contracts above a certain level.
  • When selling products which will form part of a consumer’s home (e.g. a bespoke kitchen), make sure the property owners are parties and sign up. Remember, in law, a husband is not his wife’s agent (or vice versa).
  1. Make sure what has been agreed is in the contract

 Not doing so is perhaps the biggest cause of disputes. 

  • Put simply, the contract needs to deal with the agreement between both parties.
  • Remember too, not all agreements are regarded in law as binding contracts.
  • This sounds obvious but, when negotiating, get all the awkward issues on the table then agree and record the detail. Later, parties can discover they had not, after all, reached a binding agreement at all.
  • Price is rarely everything – you must also think about who is bearing the risk if things go wrong.
  • Do not assume silence means the other party has agreed with you.
  • Get the contract to cover what you need but bear in mind it is only as good as the asset or covenant strength of the legal or natural person you are contracting with. If that covenant is not enough, think about getting some form of security. 
  1. Is there anything which is not in the contract, that affects this contract? 

Double check the contract can do what you want it to do. 

  • Do not assume any draft or set of terms from the other party are the end of the story. They may have deliberately omitted certain terms because the law favours their position if they stay silent.
  • Consider if the agreement is Business to Consumer (B2C), Business to Business (B2B) or both. If B2C, there are many statutory rules which regulate the contract, regardless of its terms. Even with B2B there are statutory limiters on exclusion and limitation provisions.
  • Are there any standard form terms and conditions, industry or trade association rules, guidelines, or legislation which affect the contract? You may need to refer to these then expressly dis-apply them, or some part of them.
  • Who/what else is needed to make the contract work? Sometimes, this can be easy-the other party binds their sub-contractors or suppliers with your terms. Often, however, the acts or omissions of third parties, over whom neither side have legal control, need to be addressed and the risk allocated.
  1. Read the draft carefully 

Then read it again. 

  • Make sure you read the whole draft, not just the parts which have been fought over (perhaps for many months or even years).
  • Some typing or printing errors can be catastrophic, for example the difference between a “not” and a “now” can make all the difference because that single letter typo changes a prohibition into a permission.

This is only a snapshot of what needs to be looked at in relation to commercial contracts, and every contract will need to be considered alongside your business and its own circumstances.  Our team has years of experience in negotiating, drafting, revising and enforcing various forms of contract. Everyone likes lists so here is a non-exhaustive one of the areas we cover: standard form contracts; bespoke terms and conditions; master service agreements; framework agreements; outsourcing agreements; short term and long term supply agreements; research and development agreements,  collaboration agreements; consultancy agreements, distribution agreement, reseller agreements, agency agreements; procurement / commercial tendering matters; B2B; B2C; heads of terms, non-disclosure agreements, confidentiality agreements; privacy policies, mobile app development agreements, user terms, online terms and conditions,  website terms and conditions, software development, software as a service, systems integration agreements, hardware maintenance and other areas in IT and technology.

If you have a contract you would like to be reviewed or another query in relation to this area, please get in touch with Emma Arcari or Stephen Cotton at 0845 22 33 001.

‘No Variation’ Clauses – What are they and how to take advantage of them

What are they?

“No variation” or “anti-oral variation” clauses are commonly found in commercial contracts under numerous guises. They aim to prevent the parties from making variations to the contract, unless the changes have been agreed in writing and signed by both the parties (any other variations not following this, wouldn’t be valid).

Whether such clauses are effective remained an unresolved question for 15 years under English law, until June 2016, where  the Court of Appeal in MWB Business Exchange Centres Ltd. v. Rock Advertising Ltd. [2016] EWCA Civ 553 considered the effectiveness of clauses requiring all variations to be in writing and signed by both parties.

The dispute related to a claim against Rock Advertising for arrears of licence fees and other charges. Rock Advertising issued a counterclaim relying upon an oral agreement, arguing that it was open for the parties to vary the contract as a whole, in any way they choose MWB relied on the no variation clause in the contract.

The Court of Appeal took the approach of that of the previous case Globe Motors Inc. v. TRW Lucas Varity Electric Steering Ltd. [2016] EWCA Civ 396: that, in principle, the contract could still be amended without compliance with the parameters set out in the relevant clause.  LJ Kitchen considered that party autonomy and the right of self government were important factors here.

So, what we can take from this is: provided it can be demonstrated that the parties have waived compliance with the clause (which will be fact sensitive) and that the amendment is supported by “consideration” i.e. something of value (which can be a practical benefit), such a clause will not prevent the amendment to the contract from taking effect even where there has been a failure to comply with the clause, at least where the contract is subject to English law.

This decision serves as a warning that a contract can be amended orally even if it contains a clause purporting to prevent the contract from being amended.

Top Tips when varying your contract:

  • It is still recommended that contracts contain well drafted no variation or anti-oral variation clauses for dispute purposes where it will be necessary to consider whether, on the facts of a specific case, a contract has been amended.
  • When negotiating, (whether oral or in writing) make it clear whether an amendment has been reached. Keep notes of oral negotiations and retain all e-mails and other written communications.
  • Don’t assume that such a clause in an on-going contract allows for negotiations to take place with no risk of inadvertently agreeing an amendment to the contract (either by words and/or conduct).
  • Take care to ensure that any conduct is not inconsistent with negotiations.
  • Consider limiting the ability of particular individuals to amend contracts.
  • As a matter of good practice, any amendment to a contract should be recorded in writing and, where possible, signed by all parties.

Goodbye annual returns: PSC registers and the new confirmation statement

There are a number of changes taking place in company law at present and most companies will see the practical effect of this as they try to file returns of various types from this month onwards.

As you will have seen from our previous legal updates, the introduction of PSC (people with significant control) registers for all companies will from July now appear on the public register at Companies House. Commencing with those companies who have an annual return date of 30 June, all future returns will be made by way of a new “confirmation statement”. This looks quite different and will include the PSC register. It will also have a simplified version of the statement of capital, which has been a headache for many companies since its introduction in 2008. The “amount paid up” column will not longer be required, which simplifies matters greatly for many companies (especially older companies) who have complex or uncertain historical records of payments made for shares.

All companies should be aware of the new versions of forms released on 30 June 2016. For many cases, Companies House will not accept old versions of forms. The new forms can be downloaded from Companies House here. Revised fees for Companies House from 30 June 2016 can be found here.

Our company secretarial team will be happy to help you with any queries in relation to the new forms and requirements.

Please contact cosec@ccwlegal.co.uk with your enquiries.

Update for Landlords and Tenant: Lease Dilapidations

Recent case-law on dilapidations has stirred up Scottish lease law, as the courts had favoured a new trend to re-write ambiguous cases, on the basis that the tenants had entered into a bad bargain. It appears that the dust has settled in this respect as the courts found in Dolby Medical Home V Respiratory Care Ltd V Mortara Dolby UK [2016] CSOH 74 that in order to restrict or limit their repair liability under the lease, tenants will have to make sure that clear wording is used.

Facts

This case is also interesting for mid-landlords recovering from sub-tenants.

  • In the case of Dolby Medical, Dolby was the tenant under the head-lease; they granted a licence of a large proportion of the property to their subsidiary company Mortara Dolby UK.
  • Under the head-lease, Dolby served a notice to quit half way through the lease, and the head-landlords served a schedule of dilapidations on them.
  • Dolby invited Mortara to join in the negotiations with the head-landlord, but they declined. Eventually, Dolby reached a settlement with the head- landlord, but the costs were not apportioned to individual elements in the schedule.
  • The licence provided that the licensee (Mortara) was liable for 75% for the cost of maintaining and repairing the common parts. Although the common parts were undefined in the agreement, the court held that it was clear what these meant, and it was decided that this wording was clear and unqualified.
  • Finally, since there was no schedule of condition to prove what the present state of the property was in, Mortara’s wording restricting their liability to maintain the property in its current repair was not clear enough.

The case was decided by the Outer House of the Court of Session, so watch this space for any appeal decisions!

Lessons to Learn

  • When negotiating the repair clause in your lease, think about 1) the current repair of the building and 2) your bargaining power that you might have with the landlord.
  • If you want to limit your repair liability as a tenant, clear wording must be used so there is no doubt to the meaning of the clause.
  • You will not be able to rely on ambiguous wording in court.
  • Limit your liability by incorporating a schedule of condition in your lease, but remember that this doesn’t include inherent and latent defects in the property.
  • A bad bargain isn’t enough to justify re-writing the contract.

A week, no a day is a long time in politics

To misquote Sir Alex Ferguson, “Politics – bloody hell!” As a spectator sport, this is great fun: just a shame that it’s serious.

We have now had the spectacle of political journalists running from one sensation to the next – to the extent that I’m worried about pressing “send” on this blog in case something happens between me pressing that key, and you reading it.

Let’s recap. The referendum took place because David Cameron felt he had to promise it in order to try to keep the two factions of the Conservative Party together. That worked, didn’t it? Since then. (and I wish these were my original words, but they aren’t) the Leavers have left and the Remainers have left. Nigel Farage has wandered off. We may be facing another General Election (and that prospect must be causing panic in the Labour Party, seems to be on the point of self-destructing). And who said politics wasn’t interesting?

So where are we? In terms of Brexit, this somehow feels like the end of something: perhaps we have just had our amuse bouche and are about to start on the real meal. But what does this all mean for business?

Business really wants boring politics, so we are not there yet. And we haven’t  even started discussions with our EU colleagues, let alone know how they are going to turn out. So, there are bound to be many more twists and turns ahead – but it does feel slightly better to have someone leading the negotiations who doesn’t start by laying down their list of wants without considering what the other party wants. It might even be a good idea to bring to this party people who have successfully negotiated something in the past – but that’s probably me being silly again.

Therefore, from a business perspective, no change yet after 23 June. The possible outcomes remain as before and in effect, and despite all the political noise, nothing has really changed yet. So, I am afraid, the business uncertainty goes on – and on, and…..

But, let’s not be too isolationist about this. Some Italian banks are in such a state that there is nervousness about the Euro; there is deadlock in Spain following the latest election there; the Australian Prime Minister may be about to be kicked out following their latest election; and we also have elections to look forward to in Germany, France and elsewhere.

Could this be the new export that will revive the UK economy? Exporting political chaos?

But please do remember to read this quickly before checking your news feed, as everything may have changed (again).

John Clarke

12 July 2016