The Most Frequently Asked Questions For Commercial Contracts
When businesses are seeking out a solicitor to prepare and/or negotiate commercial contracts, we know that they want more than just basic legal advice. Our team of experienced professionals, all of which have a vast track record with Commercial Contracts, provide all you could ask for.
Our team of dedicated solicitors understand the reality of running a business and will work to offer the most practical solutions on all issues surrounding Commercial Contacts.
As with much of business law, Commercial Contract issues can be daunting. Luckily, our team are on-hand to provide advice, guidance and much needed answers to all of your queries.
Below, you will find a list of the most frequently asked Commercial Contract questions, alongside helpful, actionable answers to each. Should you require an answer to a question you can’t find here, get in touch with us today.
Commercial Contracts Frequently Asked Questions
The express terms of a contract are those terms that have been expressly stated by the parties, either in writing or orally. Implied terms, on the other hand, are those terms which are not expressly agreed between the parties, but which have been implied into the contract, for example by law, court rulings, the previous dealings between the parties, custom and industry practice, or the factual intention of the parties.
Every commercial contract exposes your business to a certain element of risk and it is inevitable that you will want to exclude or limit liability as far as is legally and commercially possible. However, the Unfair Contract Terms Act 1977 prohibits, amongst other things, provisions in a commercial contract which seek to exclude or limit liability for death or personal injury caused by negligence; which seek to exclude liability in relation to the giving of proper title/ownership or quiet enjoyment/possession; and those which seek to exclude liability in relation to the quality, fitness for purpose and conformance with description of goods or services supplied (to consumers). Even those terms not prohibited by the Unfair Contract Terms Act 1977 will still be subject to a test of reasonableness and it is inevitably that the courts will determine whether any exclusion of liability is enforceable.
As business law solicitors, we are able to confidently prepare commercial contracts that will aim to provide as much protection as possible to give you peace of mind.
As a general rule, when the terms of a contract have been set out in writing, and evidence shows that the parties intended to execute a formal agreement, the courts will normally infer that the parties do not intend to be bound by the contract unless and until they have all signed it. However, the courts may be more flexible in their approach where evidence can be supplied which clearly shows that there was an intention of the parties that was different from the contract terms.
Penalty clauses are not enforceable under English law. However, properly drafted and considered provisions for liquidated damages may be included. Liquidated damages relate to compensation, at a fixed amount, which is agreed at the outset of the contract and which becomes payable in the event that a party commits a breach of the agreement, without the need to pursue a lengthy contractual claim. However, it is important to ensure that the agreed amount of damages represents a genuine pre-estimate of the loss suffered as a result of the breach. If that is not the case the courts are likely to interpret such provisions as a penalty clause which will be unenforceable.
We would always advise you to have a written contract in place to record the terms that have been agreed between the parties so that, in the unfortunate event of a dispute, the written contract can be used as evidence of what was agreed. That being said, oral agreements are generally enforceable (albeit often difficult to prove what was agreed between the parties in the event of a dispute), but it is important to note that there are a number of situations where a written contract is required by law or in order to fulfil certain registration requirements.
Having a standard supply agreement may be useful but they are often fraught with danger. By their nature, standard agreements are very general and will not necessarily accurately capture the full extent of the parties’ intentions. Where the supply of goods or services is complex, or the value is particularly high, a standard supply agreement is unlikely to have the sophisticated terms and details to provide proper protection and mitigation of risk for the parties. A bespoke supply agreement will aim to ensure that the agreed terms are sufficiently accurate, reasonable and comprehensive to cover pertinent issues.
A distributor purchases the goods or services of a manufacturer or seller (known as the principal) and resells them to its own customers. Unlike in an agency relationship, the contract for sale to the end customer is between the end customer and the distributor, not the principal. The distributor will own the goods (having already purchased them, or agreed to purchase them, from the principal) before they pass to the end customer. Distributors are sometimes referred to as ‘resellers’.
It is important to ensure that any distribution agreement you enter into includes all those terms and conditions which are required to meet the needs of your business. These will often include: appointment provisions (including the scope of the agreement, the territory and the duration/term of the agreement); the obligations of each party, any conditions of supply or sale; price and payment terms; any provisions (or restrictions) relating to the promotion and marketing of goods; anti-bribery provisions; protection of intellectual property rights (including any trade marks) and the right to use the brand name; limitations of liability; termination provisions and the consequences of any such termination; and dispute resolution provisions.
Competition law is designed to stop companies in a dominant position in any given market from abusing that position and to prevent anti-competitive behaviour that distorts, restricts or prevents competition/trade.
In the UK, anti-competitive behaviour which affects trade (in the UK) is prohibited by both the Competition Act 1998 and the Enterprise Act 2002. In addition, if either party is situated in an EU member state, then the EU competition policy set out in Articles 101 and 102 of the Treaty on the Functioning of the European Union (TFEU) (formerly Articles 81 and 82 of the treaty establishing the European Community) will apply. However, it is often possible to draft a distribution agreement so that it falls within an exemption (known as a vertical block exemption) and so that a specific exemption for the agreement/relationship is not required from the relevant competition authorities.
Competition law is designed to stop companies in a dominant position in a market from abusing that position and to prevent anti-competitive behaviour that distorts, restricts or prevents competition/trade.
In the UK, anti-competitive behaviour which affects trade (in the UK) is prohibited by both the Competition Act 1998 and the Enterprise Act 2002. In addition, if either party is situated in an EU member state, then the EU competition policy set out in Articles 101 and 102 of the Treaty on the Functioning of the European Union (TFEU) (formerly Articles 81 and 82 of the treaty establishing the European Community) will apply. However, it is often possible to draft international trade agreements in a way which falls within an exemption (known as a vertical block exemption) so that a specific exemption for the agreement/relationship is not required from the relevant competition authorities.
Incoterms (or International Commercial Terms) are an internationally recognised set of trade terms, developed by the International Chamber of Commerce (or ICC). The terms define the responsibilities and liabilities between an international buyer and a seller. They cover terms on responsibility for payment of freight costs, of insuring goods and any import/export duties.
There are 11 sets of Incoterm rules and these are:
- FOB (Free on Board);
- FCA (Free Carrier);
- EXW (Ex Works);
- FAS (Free Alongside Ship);
- DAP (Delivered at Place);
- DAT (Delivered at Terminal);
- CIF (Cost, Insurance and Freight);
- CIP (Carriage and Insurance Paid to);
- CFR (Cost and Freight);
- DDP (Delivery Duty Paid); and
- CPT (Carriage paid to).
The sale of music or software overseas is considered an export of a service, rather than of goods. Software may take a tangible form (i.e. on a hard drive or CD), be downloadable and accessed via the cloud. The form in which the software is delivered to the consumer may have potential tax implications and so it will be necessary to take specialist tax advice if you are considering selling your software outside of the UK.
Dropshipping is an evolving supply chain model but often refers to an arrangement between a seller and manufacturer (or another third party) which allows the seller to operate its sale of goods business free from the constraints of holding stock by leaving the physical stock with another party. The supply arrangements for goods are usually managed by a third party, often the manufacturer of the goods.
It will be for the parties to decide how much responsibility for consumer law compliance is apportioned to each of them. However, on the basis that the manufacturer of goods is often in control of much of the process (usually, packaging and delivery of goods as well as returns and complaints) the manufacturer will often also be in control of whether the merchant business is compliant with its consumer law duties. As such, the merchant business will often want the manufacturer to have the burden of ensuring compliance under the dropshipping agreement.
It will depend on the provisions of the white labelling agreement whether you can make any changes to the goods themselves. However, the manufacturer of the generic goods will typically insist that the white labelling agreement expressly prohibits the modification of any goods or other materials supplied. These provisions not only protect the manufacturer’s intellectual property rights in the goods themselves but also mitigates risk in respect of any potential product liability claims.