Summary
Often, a client will approach us with concerns about being defrauded. On occasion, those claims arise out of a commercial contract, for example, supplier / procurement fraud. Whilst there might be a temptation to consider the issues and focus on the available claims in fraud, it is important to be pragmatic and look at the lower hanging fruit claims that might arise out of the contractual agreements between the client and the counter-party alleged to have been dishonest. In those obligations, risks, remedies and dispute resolution issues will often be covered which may present a less costly and more effective solution and outcome compared to purely focussing on proving fraud.
Overview
As specialists in dealing with fraud, we also have to be experienced in litigating around issues concerning commercial contracts.
This article is a reminder of some of the standard contractual matters that need to be considered in terms of contract terms and remedies. Our Lawyers have highlighted some common issues to help you navigate your contractual agreements and the potential consequences that can arise when one party fails to uphold their end of the bargain. These pointers may just be an easier route to a recovery than a claim in fraud, albeit a claim in fraud might remain an alternative claim to bring, at the same time.
Tenet have the knowledge and expertise to guide you through the process of preparation and negotiation to help prevent long and costly disputes. Contractual disputes can be a significant burden on your business, both in terms of time and resources. That’s why we are committed to resolving these disputes efficiently and cost-effectively, allowing you to focus on what matters most – running your business. If a contractual dispute is not the obvious answer and solution to allegations of fraud, our knowledge of the numerous tortious claims is on hand to find you a route through the issues you are concerned about.
We are happy to discuss and explain anything mentioned here in more detail, and if you would like to learn more about how we can help you to protect your business, investigate claims, or progress your matter to a resolution, please get in touch as it would be great to connect.
Commercial Contracts: FAQ’s & Key points to consider
What is a commercial contract?
A contract between two parties, governing a business relationship, setting out the terms of a deal, usually with a commercial (money making) purpose for:
- goods / services
- sale / distribution
- purchasing a business
- trading terms and conditions, and more
Of course, a commercial contract refers to business to business contracts, although we understand that there are sometimes contracts entered into by individuals (rather than businesses) that may require our legal assistance too.
What elements need to exist for there to be a binding contract?
- An Offer
- An Acceptance
- Consideration (e.g. usually the payment of money)
- Intention to create legal relations
Does the contract need to be in writing?
Under English law, most contracts do not need to be in a certain form.
They can range from: a verbal agreement to a written agreement, or otherwise. Even an implied action such as a handshake could form part of the contract.
We would usually always recommend a counter-signed written agreement, so the crucial details of a contract can be clearly evidenced if there is any misunderstanding later down the line.
We understand that when it comes to fraud related matters, sometimes an action, (e.g.,. the bank transfer of money for a product / service that never materialises) can form part of the ‘contract’ between you and the wrongdoer.
Why is a commercial contract so important?
- Formalises the deal between the parties
- Sets out the parties’ obligations and benefits
- Assists with alleviating potential risks / disputes
- A useful reference tool to go back to at a later date
- Maintains strong co-operation and adherence
- Operates to protect / promote your business
- Can help to generate more revenue
What is the traditional structure of a commercial contract?
The traditional outline structure usually includes:
- Heading (marking it ‘draft / subject to contract’) and the contract date
- Parties’ names / addresses / titles / company numbers
- Background / Recital / Pre-amble (only if necessary)
- Definitions
- Details of the agreement and operative provisions – who, what, where, how, when? (e.g. conditions precedent / performance / payment / ancillary obligations, effective start date, timing, etc)
- Limitations
- Boilerplate clauses (i.e. standard clauses in a contract – which can be adapted)
- Schedules / Appendices (e.g. forming part of the contract, or not?)
- Execution details (including dates of signatures, being sure that the person signing has the authority to be bound on behalf of the named party, etc)
What is my ‘Objective’?
Have in mind WHY you and / or your business are asking your Lawyer to draft / review / advise on a contract.
Is this simply for your protection? What do you envisage could go wrong?
Whatever your answer – make sure you discuss this with your Lawyer and think about including such provision in your contract to cater for this – because a contract tailored to your business and situation is always best.
It is really important to continue to consider compliance and risk throughout the life of a contract. Contract reviews by your lawyer really do help to mitigate risk, which is crucial to any organisation, and especially against the backdrop of the possibility of fraud. [Fraud being the most common crime type in England & Wales according to the National Crime Agency].[1]
Just to note: It is not possible to cover every single eventuality in your contract, so just focus on the points that matter most to you and your business (including possible issues that you think may arise, even if they are unlikely). Making the time to discuss this with your Lawyer could be time well spent.
What other things should we consider including in our contract?
Some key considerations (many of which will fall under the boilerplate clauses) include:
- Conflict of Contracts / Clauses, and which takes precedence
- Choice of Law & Jurisdiction (e.g. England & Wales / High Court or Arbitration in London)
- Dispute Resolution procedure
- Assignment (i.e. assigning the benefits / obligations to another party)
- Conditions / Warranties
- Variations (i.e. amending the contract)
- Third Party Rights (e.g. do you want a third party to be able to enforce the contract?)
- If time is of the essence (If yes, say so)
- Confidentiality (e.g. listing what needs to be kept confidential, the contract, the terms, the benefits, etc)
- Liquidated damages (e.g. for delay, poor performance, etc)
- Limited Liability (e.g. checking insurance matches cover)
- Entire Agreement (i.e. does this contract encompass the entire agreement between the parties?)
- Survival (e.g. which clauses survive the contract ending?)
- Termination (e.g. when and how)
- Force majeure (e.g. unavoidable interruptions)
- Payment
Our Lawyers would be more than happy to explain these clauses to you in more detail and advise on how they may affect your circumstances.
Is it all about the money?
Usually, for most parties entering into a commercial contract, the answer is yes.
[Taking the last of these points in the list above, by way of example – ‘Payment’ – it’s a pretty important clause].
One of the main purposes of a commercial contract is usually to set out the obligations regarding the payment of money for a product / service. Therefore, things to think about when drafting this particular clause include:
- Payment amount (and if it includes VAT, or other taxes / charges)
- Currency ($)
- Exchange rates and which party bears the burden
- Payment arrears or in advance
- Frequency of payments (i.e. exactly when)
- Payment method (e.g. Bank Transfer, Letter of Credit, etc)
- Country of payment
- Name of bank and account details
- The possibility to change the bank details (e.g. on notice and exactly how, so as to try to avoid a hacker for example, interjecting and changing bank account details to benefit them)
- Price increases / reductions (e.g. variables such as supply-chain issues, indexed maximum price increases, etc)
- Guarantor (e.g. usually consider adding as a party to the contract)
- Liability for late or non-payment (e.g. Interest, etc)
- A Schedule of Calculations / Formulas (if an explanation in words and figures would help to reduce any ambiguity)
Can we vary the commercial contract?
Usually yes, however, the process of varying a contract should be clearly set out in the contract itself, so the parties are clear when this can happen and how (i.e. the requirements and procedure).
The process of varying the contract usually requires an agreement in writing. However, sometimes fraudulent behaviour does occur (that goes against the contract) and that is why legal advice is so important at the outset, to help you make the best decisions for you, when it comes to taking next steps.
Just to note: You may wish to be careful not to vary the contract unilaterally (i.e. without the other parties’ agreement), or in a way that results in a termination of the contract – as this could mean significant penalties. Take legal advice first, before taking any action – as this could help to protect you and your organisation.
Can we cancel the commercial contract?
Usually yes, however, the process of cancelling a contract should be clearly set out in the contract itself, so the parties are clear when this can happen and how (i.e. the requirements and procedure).
If there is no such clause in the contract, the parties are usually free to give ‘reasonable’ notice to terminate.
Contract termination (i.e. when the contract is brought to an end before the end date) can be very complex (especially if it involves fraud) and you should always take legal advice at every stage of your contracts journey, to try to avoid causing any loss to the other party, the matter escalating to court, etc. Having a Lawyer to hand to assist, is always useful in this regard, and this is where we can help with all things contract / fraud / compliance and risk related.
Just to note: In consumer contracts, there is usually a ‘cooling-off’ period, but in Business to Business ‘B2B’ i.e. commercial contracts, there is no such protection (unless the contract specifically allows for this).
How do we deal with an ambiguous clause?
Always take legal advice before you take any action. This could possibly save you a lot of money.
When it comes to contract interpretation – the courts have historically interpreted clauses of a contract in favour of the party that did not draft the contract or introduce the clause (also known as the ‘contra proferentem’ rule).
On that point, it probably doesn’t help, if you draft the contract completely one-sided (i.e. for your benefit / protection only). If you do, this could be interpreted against you, or the other party may (pre-contract) try to negotiate harder than they may have done without your one-sided terms.
What happens if there is an issue, or a dispute between the parties?
No worries! This is where our wealth of legal expertise can support you to avoid disputes with careful contract drafting, and also bring about a resolution as swiftly as possible, if a dispute does arise.
We are well versed in contract risk and compliance matters and sometimes our advice is to go for the contractual claims, rather than the usually more difficult to prove, challenging claims in fraud.
Our experienced Lawyers are experts in their field and work within the Contracts and Disputes Resolution arena daily: drafting, reviewing, advising and running cases from start to finish, in a variety of sectors, for clients all over the world.
In the commercial world, issues do arise, and that is where we can help:
- If you don’t have a contract – we can draft you one.
- If you do have a contract – we can review / amend this for you, advise and negotiate on your behalf.
- If there is a dispute – we can manage this for you – dealing with legal implications and recommending options that best suit your situation and budget.
We support and help to protect you and your business every step of the way. This is why we see repeat clients return to us again and again – and of course, we appreciate that a lot!
Please feel free to reach out and say hello or ask us any questions you may have.
Author: Victoria Hatton
