Commercial resolutions for a more prosperous new year
With many personal New Year’s resolutions already having fallen by the wayside, it is important, and there is still time, for businesses to learn from lessons of the past and prepare for a more successful 2020.
Having taken on board our clients’ experiences of 2019, below are 10 commercial resolutions, which if followed should increase the chances of avoiding potentially costly commercial disputes in this coming year.
1. Ensure you have terms and conditions covering the goods/services you provide. Ideally these should be professionally drafted and be specific for your business.
Very often we see either people attempting to update old terms and conditions, without fully grasping the effect of the changes being made, or worse still, trying to incorporate parts from other terms that they have seen elsewhere. The biggest issue with the latter is that often clauses refer to or rely upon definition elsewhere in the document. Clauses can often be rendered meaningless, confusing or even detrimental to the owners from this type of drafting.
2. Review and update any existing terms and conditions. When was the last time these were reviewed and updated to ensure they are still fit for purpose?
Not only are there changes in legislation that necessitate changes but also the types of business and customers can change overtime. If parties have got used to a new way of working, such as longer payment terms, which are different to those within the terms and conditions this can render them potentially unenforceable or amended by such conduct.
3. Check whether your current terms and conditions have been modified since they were originally drafted. If so, and if different terminology has been used that changed any meanings or introduced new undefined terms, then you should seek advice as to the impact these modifications may have.
4. Ensure your up-to-date terms and conditions are the last sent out in any transaction. Many businesses have clauses asserting that the last terms and conditions sent are the ones that govern the contract between the parties.
Many parties often believe that when agreeing a transaction or basis of supply that their terms and conditions have been sent out to the other party and so form the contract between them. What is so often overlooked is that when the parties are ironing out the details of the forthcoming orders or supplies, if the other party attaches or includes their terms which confirm they are the dominant agreement in place of all others, these can then become the terms by which the relationship is governed.
5. Ensure any changes or extensions made are clearly set out in writing and consider their impact on the original agreement.
6. Avoid, where possible, agreeing to help one another by way of accepting payment outside the agreed periods. If this is unavoidable then it should be made expressly clear this is an exception and what remedies will apply if there is a default.
7. Include provision for payment of legal costs in your terms and conditions, especially if debt amounts are below the small claims track threshold. This will then provide a contractual right to claim them when the court may be less likely to utilise their discretion to award them under their own powers.
8. Ensure clarity on jurisdiction. Failure to do this is potentially one of the most expensive mistakes businesses make and disputes relating to international agreements and services are the most common we help our clients resolve. Failure to clarify jurisdiction provides the other party an opportunity to try to argue that the country they are based in is the most appropriate forum to hear the dispute.
This is arguably one of the most important clause in many contracts when they become disputed. You can have the best case or claim against a party but if (i) the jurisdiction is on the other side of the planet, (ii) it is so unclear it requires judicial clarification, or (iii) worse still it is also the country in which the other party is based, the costs of the dispute alone could prevent you running the claim on a costs based analysis. It is important to be clear as to which courts and which law will apply to any dispute in your contract.
9. Ensure arbitration clauses are clearly drafted as, if they are not, they can be almost worse than none at all. If the arbitration clause is unclear, and the other party will not agree an ad hoc arbitration, the court’s clarification is required to confirm the body and rules which will oversee the arbitration, otherwise it can be left open to challenge.
Really give thought to exactly what process or method of dispute resolution you wish to use if there is a problem. It is never nice to start a commercial agreement by contemplating failure but some basic consideration of how it should work will prevent potentially costly issues later.
10. Do all you can to assess the security or creditworthiness of the other contracting party or parties. It is easy for solicitors to say what businesses should do and there is an element of risk in all transactions/relationships; however, you should consider the level of risk and potential reward before beginning. If there is a lack of history or there are previous issues with the other party then their refusal to provide security may be sufficient to indicate this is a transaction to avoid.
Simon Beasley, partner and head of the dispute resolution team at Bolt Burdon