Update 61 – A New Commercial Contract – What To Look Out for Before You Sign Up?

We’ve had a number of matters come in this week which would seem to follow the age-old adage of ‘looking before you leap’ with contracts put in front of us where much pain and anguish could have been avoided had the agreement been reviewed and checked before completion.

This week, I thought I’d set out some of the key things to check when finalising an agreement. I’m starting firstly by making the assumption that you’ve already got to where you need to be on the key commercial terms such as specification, price, quantity and delivery times etc.

The key issues tend be around the more operative provisions and it is here where sometimes, the devil is really in the detail.

Some quick examples to look out for are:

“Time of the essence” – this phrase could mean that even a small delay in an obligation (such as delivery for example), could entitle the other side to terminate the contract and pursue damages

Fitness for a particular purpose – the risk around here is to think through the particular purpose and make sure you can stand behind this in the wording.

Intellectual property rights (IP) – make sure that you know who these belong to. They may state that any intellectual property rights in the agreement or in any goods or services may be assigned to them rather than remaining with you and being licensed for use by the other side. With IP, the trick is retaining ownership to then potentially exploit them elsewhere.

Warranties – these are effectively ‘promises’ in relation to all manner of things which, if breached, could entitle the other party to damages and/or terminate the contract. Make sure you can comply with them and expressly disclose (in line with any provisions in the agreement) any matters to the other side which you would want on record for them to be aware of in relation to any warranties.

Indemnities – these ‘obligations to pay’ can allow the indemnified party to short cut legal proceedings and can allow them to effectively claim from you.

Limitation of liability – you will no doubt wish to limit your liability particularly in relation to “consequential losses” e.g., loss of profits. However, bear in mind that a “particularly onerous or unusual” standard term (such as an exclusion of liability) will not be incorporated into the contract, unless fairly and reasonably brought to the other party’s attention.

“Notices” – Remember that the correct timing for service of a contractual notice can be a tricky issue. When calculating time, the general rule is that you do not count the first day of a time period (that is, the day when the event took place) and a day means a calendar day (starting at midnight) – the law does not recognise fractions of a day.

Governing law and jurisdiction – make sure that there is no foreign law jurisdiction clause, meaning that any dispute will have to be dealt with in a foreign court, subject to local laws. For obvious reasons, this could put you at a distinct disadvantage should a dispute arise.

Obviously, taking advice could save you a great deal of cost, time, and stress. In the interim though, please consider the above plus the drafting and layout of the terms themselves, as the more clearly they are set out, the more likely it is that they will be able to be enforced and relied on, with particular reference to any onerous or unusual clauses. This is true even where a contract is two commercial entities, highlighting the importance for all standard terms to be written in clear and concise terms with clear headings.

Regards to all,