The latest learnings in drafting commercial contracts

Last week I blogged about the Lexis Nexis webinar on consumer protection law.  Yesterday I was able to “attend” a webinar aimed at in-house lawyers about drafting commercial contracts.  The speakers were Charles Maurice of Macfarlanes and Simon Stokes of Blake Lapthorn.

Charles began the session with a round-up of recent cases and the drafting tips that could be gleaned from them.  The first case he considered was El Makdessi v Cavendish Square Holdings BV & Anor [2013] EWCA Civ 1539, which is one of the latest case son liquidated damages and takes the test for whether liquidated damages are lawful and not penalties a step further.  The High Court set out a four stage test for deciding whether the liquidated damages were enforceable.  The Court of Appeal reversed the decision but retained the four stage test – the Supreme Court will consider the case in July 2015.

He also considered the case of Unaoil Ltd v Leighton Offshore Offshore Pte Ltd (Rev 1) [2014] EWHC 2965 (Comm) which raised the question of timing when making a pre-estimate of possible loss. Charles also considered the case of Durley House Ltd v Firmdale Hotels Plc [2014] EWHC 2608 (Ch) which gets to the heart of what an indemnity is designed to do.  The next case Charles spoke about was Januzaj v Valilas [2014] EWCA Civ 436, which illustrated the challenge of proving that a counter-party is in repudiatory breach of contract.

Finally, Charles talked about Fujitsu Services Ltd v IBM United Kingdom Ltd [2014] EWHC 752 (TCC) which considered collaboration agreements.

Charles provided some drafting guidance in the light of the issues raised by each of the cases.  For example, in relation to El Makdessi and Unaoil he made clear that you should ensure that liquidated damages are a genuine pre-estimate of probable losses, and if you are renegotiating the deal at a later date, consider if the original pre-estimate is still appropriate. In relation to Fujitsu, ensure that clauses around partnerships and agency work for the collaboration in question.

Simon then followed the case-law round-up with a discussion of boilerplate clauses and which will need careful review to ensure that the clauses are fit for purpose in the context of the deal, eg termination clauses.  He said that some will be uncontentious generally, eg waiver clauses.  However, other boilerplate clauses can be contentious and need careful consideration eg notices, third party rights, set-off, further assurance, force majeure, assignment/sub-contracting and confidentiality.

At the end of the webinar Charles and Simon discussed how lawyers can shorten contracts and make them simpler – often clients (especially in-house) ask for one-page agreements and want everything to be as straight-forward as possible.  Sometimes, if the risks are small a very short contract may be fine (although the risks will still be there) but commercial lawyers need to consider the nature of the deal and the commercial objectives when they seek to document the deal. In general it will be better to have things written down.  It’s also important to remember that the boilerplate clauses are as important and possibly even more important than the commercial clauses.

Area of Interest