Winning or losing a court-contested battle could be entirely determined by the contractual arrangements you have with the other party to the dispute. It is therefore important for parties to assess the provisions of their contractual arrangements, not only at the time of entering into the contract but also during the currency of the contractual relationship.
Undertaking periodic contract reviews helps your organization to assess your exposure for certain types of risks and to safeguard against them. Contracts are often drafted with provisions which are called “boilerplate provisions” but sometimes these provisions require amendment to meet your specific requirements and to avoid risks. On-going contract reviews help parties to a contractual relationship to assess whether the provisions of the contract are right for them and to take appropriate steps where necessary.
Some common provisions which would benefit from periodic reviews are set out below.
Releases and Indemnities
A contractual indemnity is a provision made in a contract where a party assumes the liability for certain kinds of risks in the contractual arrangement. A release is a provision which “releases” a party from certain events which may arise. For example, parties may agree that Party A will release and indemnify Party B if a third party suffers loss as a result of anything done by Party A. A common example of a contract in which you are likely to find an indemnity/release provision is an Agency Contract, where someone has agreed to act as an agent for another in executing certain functions. There are other types of contracts for which release/indemnity provisions may be useful. These provisions are usually carefully worded to deal with exposures. For example, the clause may specify the types of risks a party will not assume and if there are any monetary caps to the exposure.
The effect of an indemnity clause in litigation is an acceptance by the indemnifier of ultimate liability for the damages ascribed to the indemnified. The indemnified can add you to proceedings if you have given him an indemnity in relation to a risk that has materialized. Once liability is established against the party to whom you have given the indemnity you will be liable to compensate him for the loss he has suffered. If you have not been added by him to an existing suit, the person you indemnified can sue you afterwards in separate proceedings. The time for bringing those proceedings against you does not begin to run until the indemnified has suffered the loss for which you have indemnified him.
Warranties and Representations
Another area of importance is the extent to which any warranties or representations have been made in the contract. A contract review helps you to assess whether the circumstances which existed at the time you made the warranties/representations have materially changed. For example, if a party warrants in a contract to replace certain defective parts or goods to certain specifications, that party would want to ensure that they can still comply with that warranty. This is important because if the parts or goods are being outsourced, you would want to ensure that they are still available or accessible so that you can fulfill your contractual obligations. If you cannot meet those obligations, then you may need to determine whether to end the contractual relationship or make amendments to the contract.
Entire Agreement Clause
This provision is often overlooked, but can be the difference between a successful and an adverse outcome in a case. For example, where the provision exists in a contract, courts usually find against a party who alleges that there are oral agreements between the parties following the formation of the contract. An entire agreement clause is dispositive of the issue because it usually sets out the specific method by which a party may amend the agreement. If you have contracts in which there are entire agreement clauses, it may be prudent to assess your contractual obligations and make amendments or variations to the agreement which are consistent with the entire agreement provision. If the entire agreement provision requires that amendments to the contract be in writing and signed in a particular manner to ensure enforceability, you would need to comply with the provision in order to amend.
Provisions in Relation to Contract Termination
A closely related issue is the extent to which a contract permits you to terminate in certain circumstances. There are various reasons why parties may decide to terminate a contractual relationship. Some contracts are very specific about the types of circumstances in which parties may terminate and how they can go about doing so. Sometimes, it is expedient to have a catch-all which allows you to terminate the contract for any cause on giving a specified amount of notice. In other instances, it may not be desirable to do so. A continuous contract review will help you to assess whether circumstances have changed requiring you to revisit the termination provisions in your contractual arrangements.
Jurisdiction & Dispute Resolution Clauses
Parties sometimes specify the courts which have jurisdiction to try a dispute arising between them in relation to the contract or specific aspects of the contract. There are advantages and disadvantages that may arise from the use of certain kinds of jurisdiction clauses. For instance, the clause can exclude certain types of remedies which a court could ordinarily award. There are often contracts which say that a party is not liable for consequential loss arising in certain circumstances. The importance of such a provision is that it contractually limits the types of remedies that the court can award and may be the difference between a significant or reduced award in damages.
A jurisdiction clause may also be more widely worded to exclude all the courts of a given country or jurisdiction from trying matters arising from the contractual arrangement. It is therefore important to pay keen attention to these provisions and undertake periodic assessments to see if a provision which previously served your interests no longer does.
Another provision which is often overlooked but which is of importance is the dispute resolution clause. This provision may be the difference between having to resolve a dispute via mediation, arbitration or court proceedings (or a combination of them). It is essential that these provisions are properly worded if they are to serve your interests. Based on the wording of the provision, you may end up having to engage in proceedings in another country when all the witnesses and evidence are available in a different country. Courts routinely stay proceedings commenced in the local courts where the contract stipulates that the parties should resolve their dispute elsewhere. This can often be a costly endeavor and may be altogether determinative, where the costs of pursuing litigation elsewhere are out of proportion to the amount of money or the matters in dispute.
It goes without saying that, if you are undertaking a contract review, either at the start of the contractual relationship or at some later stage, you may require a legal professional to assist you. Lawyers are trained to foresee litigation and other types of risks and can help you to safeguard against them by means of properly nailing down your contractual arrangements. Many a case has been won or lost on the adequacy or inadequacy, respectively, of the contractual provisions governing the parties’ dispute.
Litrow Hickson is an Associate at Myers, Fletcher & Gordon and is a member of the firm’s Litigation Department. Litrow may be contacted via email@example.com or www.myersfletcher.com. This article is for general information purposes only and does not constitute legal advice.