Contracts, Contracts, Contracts 2013 10 Key Deal Points :: Laurence Kaye

Health Warning:These FAQs are not intended to be exhaustive and do not constitute or substitute legal advice, which should be sought on a case by case basis. Please treat the answers as general information, not legal gospel. Please remember that the law is constantly changing, so the answers are subject to change in the light of new legislation or case law. These FAQs are based on English law.

Contracts, contracts, contracts – 10 key deal points Every contract is unique. A good contract reflects the respective risks and rewards of the participants who enter into it and caters in way that meets their respective interests. You may find it useful to use our checklists. If nothing else, every contract needs to deal with the following: 1. Parties. It’s not always obvious who they should be. For example, with a group of companies it’s important to get the right contracting party. It may be appropriate to have the parent company contract with an express reference to its subsidiaries having enforceable rights through the Contracts (Rights of Third Parties) Act. 2. Term. There are lots of permutations and it’s important to pick the right one e.g. fixed period; initial period which can be renewed or which automatically “rolls over” for further periods unless terminated; for an indefinite period subject to notice of termination. 3. Termination and effect. This is where you have to think about the divorce at the same time as getting married! But this can often prove to be one of the most important contract clauses. For example, if software is involved, does the contract deal with access to source code? Or in the case of contracts involving other types of intellectual property, does the contract spell out which rights can be used and by who etc. 4. Sole / exclusive / non-exclusive. If the contract grants rights (e.g. an appointment of an agent or distributor or a licence to use intellectual property), it is important to make it clear the basis on which they are granted. "Sole" means that the party granting the rights can continue to use those rights but will not permit anyone else to do so. "Exclusive" means that the party granting the rights cannot itself use those rights nor can it permit anyone else to do so. The grant of exclusive rights can often raise competition law questions. "Non-exclusive" means just that – the party granting the rights can use them and can also permit others to do so. 5. The ££. Need we say more? But there are lots of details: the basis of calculation; currency; payment terms; payment method; right to audit in the case of royalties, commissions and other sales-based payments; gross or not; ex or inc. VAT – the list goes on. 6. Territory. What is the territorial scope. In the case of a contract for the sale of goods or services via the Internet, there are still ways, contractual and technical, to limit the geographical scope of the contract. 7. Scope of rights. Make sure the contract is clear about the rights (and obligations) that each party has under the contract. For example, in the case of a sales agency contract, does the agent have power to conclude sales or just to negotiate them? 8. Warranties & indemnities. We’re into "legal boilerplate" country here. However, iIf you are entering into the contract in reliance on certain key assumptions (e.g. as regards ownership of an asset, the right to grant certain rights etc), it is vital that that are mirrored in the contract as warranties or indemnities.

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The distinction between a "warranty" (e.g. "I own the copyright in...") and an indemnity (e.g. "I indemnify you against third party claims for copyright infringement..") is that breach of a warranty gives rise to a claim for damages based on losses actually suffered as a result of the breach. A claim under an indemnity on a "£ for £" basis. 9. Exclusions & Limitations. The flipside of giving warranties is the desire on the person giving them to try and exclude their liability for certain things and to limit it in other areas. This is really about risk apportionment and is a key part of the contract negotiations. For more detailed commentary on exclusion and limitation clauses, click here. 10. Governing law & jurisdiction. "Governing law" is the law which applies to the contract. So if it is English law, it is the rules of English contract law that are applied to determine the meaning and effect of the contract. "Jurisdiction" means the courts or other forum (e.g. arbitration) which has jurisdiction to determine any dispute arising under the contract. The key message is: make sure the contract contains an express choice of governing law and jurisdiction.