Put things in writing.
Many deals are done over a handshake or a beer but if you have something to protect or clarify its good to do the business ‘pre-nup’ then put it in the bottom drawer. This is where you record things like limits of your liability and responsibility. An agreement doesn’t have to be in writing to be enforceable unless selling land, but it is advisable to have a written record of what you agreed to.
It is all about identifying what’s been agreed, setting out who carries the risk and establishing procedures for when things do go wrong. Consider various outcomes of the deal - good or bad, and how they would be dealt with and document it.
A contract can not cover everything. It depends on the value of the transaction and the risks involved.
Drafting and reading contracts is a specialised skill. A 2 page agreement can take longer to finalise than a 30 pager. The skill is in what needs to go in, and what can stay out. Remember this next time a lawyer charges you what looks like $100 per word consider splitting the lawyers fees with the other side if one lawyer ends up doing all the drafting work.
Enforcing the contract. Unfortunately the best negotiated and written contract in the world can not protect you on its own if the other side does not agree to comply or interprets it differently to you. Often you have to take legal action to enforce your rights. This is definitely costly and not satisfying to anyone. Many commercial contracts these days have a requirement where any dispute has to go to mediation or arbitration instead of straight to court. This is worth considering – mediation is quite good if there is a chance of resolution or the value is low; arbitration is good because you have some control over the decision maker i.e you won’t get a Manukau District Court judge who has had all his criminal cases adjourned that day.
Jurisdiction. If you are involved in international trade you may have some choice about which countries laws and courts apply in the case of a dispute. Don’t automatically try for NZ - if you want to be able to enforce a judgement against someone in another country there is some merit in having things based there. Be aware that there are some international sale of goods and arbitration conventions that might be implied into your contracts. They are not all bad, but you should be aware of them and exclude them if you wish.
Terms of Trade
- These can be sophisticated negotiated contracts for sale or supply of goods or services between you and a customer, or a standard form small print set of terms and conditions of doing business.
- Having terms of trade are most important when you are the seller of goods and services when you want to get paid, and when you want certainty about what you are responsible for i.e. quality and performance.
- They are also important if you are the customer and want assurances as the purchaser – e.g. service levels, price adjustment policy, warranties etc.
- It is no good having them on the back of an invoice once the job has been done – they won’t apply if challenged. E.g if you want to charge interest on overdue invoices it needs to be declared by you before they buy the goods.
- Getting the other side to sign or initial your terms of trade is a good step to take, it shows they have accepted and are bound by your conditions of supply.
- Set out what happens to the products if the purchaser doesn’t pay the purchase price – will they have a purchase security registered which allows you to seize them back?
- Who is responsible for insuring goods once they’ve left your premises, i.e. during delivery?
- Who pays freight?
- Obviously it’s about negotiating power – big retailers might not accept goods on retention of title basis or other terms you specify.
- Identify and say who owns I.P and what the other party is allowed to do with it.
- Set out what happens when a relationship or agreement ends.
MacDonald Pilcher Partnership offers franchisee legal services and franchisor legal advice.