Terms and Exit WIN Seminar Claire Edwards Legal Director David - PowerPoint PPT Presentation

Contract Drafting, Key Terms and Exit WIN Seminar Claire Edwards – Legal Director David Booth - Solicitor DLA Piper Manchester Office 5 July 2012

Introduction Contract Drafting – avoiding early mistakes 1.  Letters of intent  "Subject to contract"  Course of dealing  Entire agreement  Misrepresentation Key Terms – get it right so life is easy 2.  Dangers of ambiguity  Absolute and qualified obligations  Time for performance  Acceptance / right to reject  Pricing – what is included and what is not  Changes  Indemnities and warranties WIN Seminar 5 July 2012 2

Introduction 3. Exit – how to walk away gracefully  Termination rights  "Material" breach  IP rights on exit  Exit planning and transition WIN Seminar 5 July 2012 3

1. Contract Drafting – Letters of intent  Letter of intent  a temporary binding or non-binding arrangement entered into while the parties conclude formal contract negotiations, to enable work to commence  Advantages  enables work to commence before full contract formed  Disadvantages  uncertainty whether a letter of intent binds the parties and if so, on what terms  uncertainty as to the nature of the contractual relationship between the parties where a letter of intent expires and a contract is not signed  court may decide that parties have moved beyond negotiation and into contract (each case is decided on its facts) WIN Seminar 5 July 2012 4

1. Contract Drafting – Letters of intent  Content (should be as clear as possible)  whether binding or non-binding (in whole or part (and which parts))  parties' aims  terms and conditions applying to the work in the letter of intent  requirements for quality, timing and completion of work  any insurances required to be maintained  any licences required  payment clause and any cap on payment  dispute resolution clause  how to end letter of intent, including what happens if parties enter formal contract  any boilerplate clauses (governing law, rights of third parties…etc) WIN Seminar 5 July 2012 5

1. Contract Drafting – Letters of intent  RTS Flexible Systems Ltd v Muller [2010]  "perils of beginning work without agreeing the precise basis upon which it is to be done. The moral of the story is to agree first and to start work later" (Lord Clarke) WIN Seminar 5 July 2012 6

1. Contract Drafting – "subject to contract"  A "subject to contract" clause will not necessarily prevent a contract from coming into existence though it gives a strong presumption that the parties do not intend to be bound until a written agreement is executed or a condition is satisfied  The words "subject to contract" are not always given their literal meaning, but are interpreted by taking into account other factors, including conduct, which could waive such a clause Jirehouse Capital & others v Beller [2009]  Other clauses may be construed as a "subject to contract" clause e.g. a counterparts clause RTS Flexible Systems v Molkerei Alois Muller [2010] WIN Seminar 5 July 2012 7

1. Contract Drafting – "subject to contract"  Investec Bank (UK) Ltd v Zulman and another [2010]  guarantee was not signed by the guarantors, and was not "subject to contract"  clause recommended that guarantors seek legal advice before signing  Court of Appeal ruled the guarantee was unenforceable - pointless if parties intended they should be bound by oral agreement made before the draft guarantee drawn up  RTS Flexible Systems v Molkerei Alois Muller [2010]  letter of intent expired and work continued  a contract had come into existence on the terms of the full contract  the full contract contained a "counterparts" clause, but had not been executed  Supreme Court found agreement had been reached on all essential terms and work carried out and paid for on that basis – counterparts clause deemed to be a subject to contract clause, and waived by conduct WIN Seminar 5 July 2012 8

1. Contract Drafting – Course of dealing  Courts have held that certain terms are incorporated where, as a result of their consistent use in previous transactions, the reasonable expectation of the parties is that those terms will apply  even where these terms are omitted from the contract  "Course of dealing"  regular trading  over a period of time  on consistent terms  "Course of dealing" argument should only be used as an argument of last resort (courts will not uphold it automatically)  not to be seen as a substitute for clear contract drafting  Each case decided on its facts WIN Seminar 5 July 2012 9

1. Contract Drafting – Course of dealing  University of Plymouth v European Language Centre [2009]  Course of dealing did not create a binding contract  parties had worked together for number of years, agreeing a new contract annually  an email offering ELC places for 200 students was not a binding offer (no intention to create legal relations) and no acceptance  offer and acceptance should have been confirmed in writing, and terms recorded in signed document (as it had been during the previous four years of dealing)  ELC could not rely on exchange of emails and telephone calls as creating a binding contract  dealing had not been consistent WIN Seminar 5 July 2012 10

1. Contract Drafting – Entire Agreement  Intended to prevent parties of a written contract from relying on statements made during negotiations but which are not included in the final written terms and thereby ring-fencing obligations and liabilities within the "four corners" of the contract  Consist of a number of specific elements:  a statement that the written contract constitutes the entire agreement between the parties  a statement that neither party is relying on a statement which is not set out in the contract (expressly exclude implied conditions)  exclusion of liability for misrepresentation  an agreement that the remedies available will be those set out in the contract or will be a claim in damages (for breach of contract) WIN Seminar 5 July 2012 11

1. Contract Drafting – Entire Agreement Problems  can be uncertain and unclear  may not exclude representations and remedies for misrepresentation  clear wording needed to exclude implied "conditions" as to contract  may be interpreted as an exclusion clause for the purposes of UCTA and be subject to the reasonableness test WIN Seminar 5 July 2012 12

1. Contract Drafting – Entire Agreement  Contents – drafting needs to ensure that:  no other documents are incorporated into the contract  no oral statements are incorporated into the contract  no written or oral terms take effect as separate collateral contract/warranty  neither party was induced to enter the contract by reliance on a statement  incorporates both entire agreement and non reliance provisions  entire agreement provision alone may be insufficient to exclude liability for misrepresentation (even where worded in broad terms) therefore best practice to include non reliance provision  courts more likely to give effect to clause drafted in these terms, recognising the commercial reality that both parties want the certainty of knowing the written agreement constitutes the 'complete bargain' between them WIN Seminar 5 July 2012 13

1. Contract Drafting – Entire Agreement – draft clause  ENTIRE AGREEMENT (LONG FORM)  1.1 This agreement and [[IDENTIFY DOCUMENT] OR the documents referred to in it OR the documents annexed to it and initialled by the parties] (together, Transaction Documents)] constitutes the entire agreement between the parties and supersedes and extinguishes all previous drafts, agreements, arrangements and understandings between them, whether written or oral, relating to its subject matter.  Include this clause in all entire agreement clauses  1.2 Each party acknowledges that in entering into this agreement it does not rely on, and shall have no remedies in respect of, any representation or warranty (whether made innocently or negligently) that is not set out in this agreement.  this combines a non reliance statement with an exclusion of liability for misrepresentation, for representations that have not been incorporated into the final agreement  wording relating to remedies is subject to s.3 Misrepresentation Act 1967 and the reasonableness test in s.11(1) of UCTA 1977  the non reliance statement may amount to an exclusion, though not automatically  ensures liability for negligent misrepresentation is caught  do not add "fraudulently" to the clause – would not be valid  1.3 No party shall have any claim for innocent or negligent misrepresentation based upon any statement in this agreement.  excludes remedies for innocent and negligent misrepresentation based on statements in the contract (e.g. cannot rescind the contract)  restriction of liability for misrepresentation must satisfy UCTA reasonableness test  do not add "fraudulently" to the clause – would not be valid WIN Seminar 5 July 2012 14