Contract – Prevention or Cure?May 19, 2014
I recently met with a business client with a multimillion pound turnover and representation in a number of countries in western and eastern Europe. The business had entered into a form of agency agreement with designs on breaking into a non-EU market. Our business team does draft such contracts but on this occasion we had not been approached either to draft the contract or to advise upon the contract prior to its execution by the parties.
Unfortunately, the agents were not proactively developing the market in that jurisdiction and yet they were receiving regular payments, in accordance with the terms of the contract document. As you can imagine, my client was rather upset that it appeared to be paying many thousands of pounds for no return. The contract had been drafted in such a way that my client was obliged to continue making the payments on the basis of very minimal obligations on the part of the agents. Furthermore, the provisions for termination did not work in the manner anticipated when signing the contract. In fact, the contract was open-ended and made no adequate express provision for termination. Any litigation would also take place in the foreign jurisdiction because of the jurisdiction clause.
Wearing my dispute resolution hat, I have provided my client with advice on how to move the matter forward. I cannot go into the details of that advice but what did strike me was that this is a powerful illustration of how prevention can be better than cure. If I had been involved at the beginning to review the contract or to draft the document, then it is highly unlikely that my client would have signed the contract without insisting upon the necessary amendments to protect its position or, at the very least, addressing the ambiguities in the contract document. What would this have cost? Probably a few hundred pounds at the most. What is the potential cost to the client in trying to cure the problem? Possibly many thousands or even tens of thousands of pounds.
If you are about to enter into negotiations or particularly if you are about to sign a business contract, then please speak with us. It can prove to be exceptional value for money in the long run.
16 May 2014