CONTRACTSTRAINING WORKSHOP

A contract

is made up

of…

Term

Parties to the Contract

Background

Obligations

Consideration

Limitations / Breaches

Boilerplate clauses

Indemnities

Termination rights

Schedules

Liability

Dispute resolution

What will we cover today?

• Practical approach to contract review

• Use of a working example

• Understanding of key clauses

• Core legal principles

WHICH SECTION?

PETTIFOGGERS :Contract Period – Clause 3

Human Rights Act – clause 4.1

LA Law:Service Provider’s Obligations – clause 5

Financial arrangements – clause 7

EAGLES:Data protection – clause 9

Complaints – clause 12

RUMPOLES:Assignment and sub-contraction – clause 14

Service of Notices – clause 15

SHARKS :Intellectual Property – clause 16

Variation – clause 18

THE GOODMEN:Termination – clause 25

Effects of termination – clause 27

TASKS FOR EACH SECTION

1. SUMMARY: Summarise what you think is the key purpose of the section to explain to the rest of the group.

2. RISKS: What concerns you about the clauses within this section?

3. RESOLUTION: What changes or redrafts would you want making to the clauses within this section?

4. PREVAILING TRENDS: Provide at least one example of an issue you have had in this section of a contract in the past.

Remember!

• Start with the Background section

• Don’t read entire Definitions section

• Definitions have a capital

• Check the Definitions appearing in your clauses

• Follow cross-references (but don’t read the entre clause cross-referred to!)

Warranties

v

Indemnities

What is a warranty?

• A warranty is a contractual statement or assurance from a seller to a buyer.

Example:

“All assets of the Business are in a good working condition.”

A breach of a warranty results in…

• A claim for a breach of contract.

• This claim will follow normal requirements for proving loss as a result of the breach.

• The damages will put the innocent party in the position they would have been had the breach not occurred.

• Common law rules on remoteness and mitigation always apply

What is an indemnity?

• An indemnity is an promise to pay money if X event occurs.

• There are different types of indemnities, including:

• Bare indemnities: Party A indemnifies Party B for liabilities/losses in respect of a specific circumstance or event and that indemnity is not limited.

• Limited indemnities: Party A indemnifies Party against losses but the indemnity is limited by a set value or actions.

Typical indemnities

• The parties to a contract can decide what trigger events will incur a payment under an indemnity.

• Usually, an indemnity is given when there is a risk of an event that only one of the parties can control.

• Typical indemnity event in service contracts:

• Intellectual Property – breach of a 3rd party’s IPR

• Data Protection – failing to comply with the DPA 2018

• Health and Safety – breach of health and safety legislation

• Property – damage to property used

• TUPE – obligations under the contract and TUPE

• Environment – breach of environment regulations

Warranties v Indemnities

• An indemnity can apply even if there is no breach of contract / no ‘fault’, unlike a breach of contract.

• Sometimes, you do not need to prove loss when relying on an indemnity, you just need to demonstrate that the indemnity applies.

• If the scope of indemnity if wide, you can recover a greater type of loss.

• If the drafting allows, you do not need to worry about “remoteness”.

• Drafting risks of an indemnity – may be held to not cover losses you want them to. Therefore drafting is extremely important!

Example:

• Sandra purchased 100 hairdryers from Remidryers Limited for her salon on 8 January 2017. She paid £3,200.00.

• The hairdryers all failed on 9 September 2018. Sandra has purchased new hairdryers from a different supplier but the waiting period is 3 weeks. She is therefore unable to trade during this time, losing £2,500.00

• Sandra was unable to service a very lucrative fashion show contract of £15,000.00 which was to take place on 15 September 2018.

• Her reputation suffered and she lost customers. It took her 12 months to restore her customer trade to normal levels.

Warranty only

Damages for breach of contract:“Should be such as may fairly and reasonably be considered either arising naturally, ie. according to the usual course of things, from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of the parties at the time they made the contract, as the probable result of the breach of it.”

• Remidryers are required to compensate Sandra for

• the costs of the hairdryers - £3,200.00

• the loss of trade - £2,500.00

The lucrative fashion show contract is too “remote”

Indemnity Version 1

“Remidryer undertakes to indemnify … the Buyer … from any liabilities, costs, claims, demands or expenses which she may suffer or incur arising out of or in connection to the products supplied up to the amount of £100,000.”

Remidryers are required to compensate Sandra for

• the costs of the hairdryers - £3,200.00

• the loss of trade - £2,500.00

• the fashion show contract - £15,000.00

• the loss of trade - £2,500.00

Indemnity Version 2

“Remidryer undertakes to indemnify … the Buyer … from any liabilities, costs, claims, demands or expenses which she may suffer or incur arising directly or indirectly from the products supplied up to the 125% of the value of the products”

Remidryers are required to compensate Sandra £3,840.00

Review example contract

1. Is it a bare or limited indemnity?

2. How wide is the scope of the indemnity?

3. Is the indemnity limit the same as the liability limit?

Data Protection

• Many contractual arrangements require the processing of personal data.

• Following GDPR in May 2018, it is increasingly important to include adequate data protection provisions within contracts.

Questions:

1. Are you sharing personal data or are the other party?

2. Does the contract refer to the correct legislation? (2018 not 1998)

3. Do you want to be a Data Controller to Joint Controller?

4. Does the contract state you are a data processor?

5. If you are a processor, is the schedule attached?

6. Is there a cap on liability that need to exclude data protection?

7. Does the indemnity include losses incurred by way of regulatory fines?

Personal Data Protection – does the drafting cover:

• Limitation on transferring data outside EEA

• Data subjects’ rights and requests

• Accountability

• Record keeping

• Training and audit

• Privacy by Design and Data Protection Impact Assessment (DPIA)

• Automated Processing (including profiling) and Automated Decision Making

• Marketing

• Sharing personal data

• Privacy standard

• Lawfulness, fairness, transparency

• Consent

• Transparency (notifying data subjects)

• Purpose limitation

• Data minimisation

• Accuracy

• Storage limitation

• Security integrity and confidentiality –technical and organisational measures

• Reporting breaches of personal data

Boilerplate clauses

Examples of boilerplate clauses

• Force majeure

• Notices

• Severance

• Variation

• Waiver

• Entire agreement

• Third party rights

• Choice of law and jurisdiction

Force Majeure

What is a force majeure clause?

Excuses a party from performance of their obligations in the contract

Why?

An event has occurred outside that party’s control

Meaning?

French

List of events

Example events:

1.1 Force Majeure Event means any circumstance not within a party’s reasonable control including, without limitation:

(a) acts of God, flood, drought, earthquake or other natural disaster;

(b) epidemic or pandemic;

(c) terrorist attack, civil war, civil commotion or riots, war, threat of or preparation for war, armed conflict, imposition of sanctions, embargo, or breaking off of

diplomatic relations;

(d) nuclear, chemical or biological contamination or sonic boom;

(e) any law or any action taken by a government or public authority, including without limitation imposing an export or import restriction, quota or prohibition;

(f) collapse of buildings, fire, explosion or accident;

(g) any labour or trade dispute, strikes, industrial action or lockouts (other than in each case by the party seeking to rely on this clause, or companies in the same

group as that party);

(h) non-performance by suppliers or subcontractors (other than by companies in the same group as the party seeking to rely on this clause);

(i) interruption or failure of utility service.

Case report

In Tandrin Aviation Holdings Ltd and Aero Toy Store LLC and others [2010] EWHC 40, a party argued that the economic collapse of financial markets triggered the force majeure clause and prevented it from completing its purchase of aircraft. It was held that the sweep-up phrase "any other cause beyond the Seller's reasonable control" had to be read in the context of the entire clause.

Waiver

WAIVERA waiver occurs when a party indicates that it will not exercise a right or remedy under a contract, typically in respect of a breach.

Breach:

1. Assert your rights and remedies under the contract

2. Complain about the breach but take no action

3. Ignore the breach

BUT!

If you take too long to decide what course of action to take, or do nothing, you risk losing (or waives) its right to take action against the defaulting party for that breach of contract (or similar breaches in the future).

Entire Agreement

All entire agreement clauses are intended to prevent the parties to a written agreement from raising claims that statements made during contract negotiations which are not included in the final agreement (pre-contractual statements) constitute additional terms of the agreement or some kind of side agreement.

Entire Agreement

In or out?

• Pre-contractual statements

• ITT

• Bid proposal

• Oral agreements

• Previous terms and conditions

• Customary practice

Inntrepreneur Pub Co v East Crown Ltd [2000] 2 Lloyd's Rep 611 :

"The purpose of an entire agreement clause is to preclude a party to a written agreement threshing the undergrowth and finding in the course of negotiations some (chance) remark or statement (often long forgotten or difficult to recall or explain) on which to found a claim […] For such a clause constitutes a binding agreement between the parties that the full contractual terms are to be found in the document containing the clause and not elsewhere, and that, accordingly, any promises or assurances made in the course of the negotiations […] shall have no contractual force, save in so far as they are reflected and given effect in that document."

Classic case

Consider:

1. Old agreements

2. Multiple agreements

3. Schedules

4. Inconsistent terms

Jurisdiction and governing law

Jurisdiction

A clause where the parties submit either exclusively or non-exclusively to the courts of a specific country

Consider:

• Non-exclusive or exclusive

• Territory of services

• Territory of supplier

• Governing law clause

Governing law

Clause where the parties specify the system of law that will apply to the interpretation of an agreement

Consider:

• Dispute resolution

• Lawyer qualification

Severance – clause 23

No partnership – clause 36

Counterpart – clause 37

Disclaimer: Whilst every effort has been made to ensure the accuracy of these materials,

advice should be taken before action is implemented or refrained from in specific cases.

No responsibility can be accepted for action taken or refrained from solely by reference

to the contents of these materials. © Anthony Collins Solicitors LLP 2019

QUESTIONS?Anthony Collins Solicitors134 Edmund StreetBirminghamB3 2ESUnited KingdomTel: 0121 200 3242

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