Commercial Top Tips

Posted on: October 17th, 2015

Every now and then we come across interesting issues that you may not have considered yourself or are not aware of; Our top tips focus on giving you bite size tips on these issues and how they may potentially affect you and your business.

Agreement to agree

Generally an agreement would be void for uncertainty where it states that a certain provision will be agreed between the parties after the commencement of a contract, or where it is an agreement to enter into a contract at a later date.

In a recent case (MRI Trading AG v Erdenet Mining Corp LLC [2013] EWCA CIV 156), the Court of Appeal discussed the enforceability of contracts containing an “agreement to agree” clause in relation to a contract comprised of three documents. The Court held that the contract was enforceable because the parties had shown an intention to perform the contract and that the outstanding points, under that clause, would be agreed.

Courts may now distinguish cases on whether parties showed a true intention that the agreement would be binding or capable of being determined by some objective criteria of fairness and reasonableness. In practice, this means that parties should ensure that agreement to agree clauses are clear and certain, so as to indicate that the parties will agree the identified points. Parties should only leave minor details outstanding under an agreement to agree clause, which would encourage the courts to decide that the agreement would be binding without agreement of those points.

If there is an intention to avoid a binding contract, consideration should be given to avoiding:

  • the use of “shall” and instead use “may”;
  • the provision of arbitration clauses for disputes over the terms to be agreed;
  • the agreement of key terms specific to the contract; and
  • connected agreements which will be performed.

Internet Sales (Passive sales)

EU competition law covers a broad spectrum of anti-competitive practices in relation to distribution agreements; this short piece focuses on passive sales and in particular, internet sales. Passive sales occur where the customer approaches the seller. The nature of the internet means that customers may potentially approach a seller directly, via their website. Internet sales are therefore a form of passive sales.

A court ruling at EU level has confirmed that imposing restrictions to ensure that no internet selling can take place would constitute a breach of competition law and the usual route to compliance would also be not available.

From the distributor’s point of view, one potential way to mitigate the above ruling is to impose quality standards on the website of the reseller to resell his goods.

Distance Selling / Doorstop selling

The Distance Selling Regulations (“the DSR’s”). The DSR’s are a set of regulations to protect consumers when they shop online or enter into other contracts at a distance from the supplier. The rationale behind this is that a consumer does not have the benefit of meeting face-to-face with the seller and does not have the ability to inspect the goods or services offered for sale.

The DSR’s give consumers a right to:

  • receive clear information about the supplier, the goods or services and the sale before deciding to buy;
  • confirmation of this information in writing;
  • a cancellation period of 7 working days in which to withdraw from the contract; and
  • protection from payment card fraud.

The Doorstep Selling Regulations (“the Doorstep Regs”) provide consumers with certain rights if you sell products or services worth over £35 to them on their doorstep. You are required to provide the consumer with a Notice of the Right to Cancel when the contract is made.

The notice must:

  • be either a separate document or in a prominent separate box on the contract;
  • state that the consumer has at least 7 days to cancel the contract;
  • have a detachable cancellation form including your contact details that the consumer can complete and return to you.

Make sure your terms and conditions reflect the correct terms otherwise you will be unable to enforce the contract against the consumer.

Global Framework Agreements

Framework agreements are essentially facilitative in nature; it provides a mechanism for one party to place orders with the other on standard terms. Future contracts are formed incorporating the terms in the framework. One particular concern in framework agreements in the context of global orders is compliance with local laws – a future contract may potentially be formed in various local jurisdictions. The parties will need to take care to ensure they do not fall foul of any laws that may in some jurisdictions prevail or conflict with the terms in the framework agreement. The local agreements should have a space to allow for additional provisions such as employment or tax where the inclusion might be mandatory in various jurisdictions.

What does that mean?

Force Majeure

A force majeure clause excludes one, or both, parties from performance and from liability for breach of the contract following acts, events or omissions beyond the reasonable control of the party concerned. It must satisfy the reasonableness test. Force Majeure acts instead of the common law remedy of frustration, for which performance must be impossible and there is limited relief and remedies. It will allow parties to suspend a contract during a ‘force majeure event’; allow non-liability; give an obligation to mitigate; and give the right to terminate the contract. The clause will apply to events existing at the time of signing the contract and to events that are reasonably foreseeable. The seller shall, as soon as is reasonably possible, give the buyer notice of the reasons for delay, hindrance or failure to perform.

Counterparts

Parties may wish to include this clause in their agreement where they are each signing separate original counterparts. If an agreement does not include a counterparts clause but is executed by separate counterparts, it will not be invalid. However, including a counterparts clause is more certain and it ensures that the counterparts will be recognised as originals.

Have you considered?

  1. Protecting your Brand, Product Ideas and Know-How?
  2. Your terms and conditions of business – do they adequately protect you if a dispute arises?
  3. Your website – are you protected and compliant with the law?
  4. Do you engage Commercial Agents? If so, do you understand the implications of the termination of the contractual relationship. A commercial agent is entitled to either a compensation payment or an indemnity on termination.