Recovering Losses in a B2B Contract

Hello and welcome to this data Webinar. How to ensure that losses can be recovered in a B to the contract will be working through the following over the next 30 minutes. Here they are, first of all, contract structures. Then we're going to look at some liability basics. Then we're going to think about some key concepts, some obligations, and have to drop the KP eyes a very good way of getting some cash flow through on abatement against the contract. Price will consider some warranty tips using the indemnity for huge part off recovering liability liquidated damages on finally getting the notice right. So if you manage all that will be doing really well, nothing I'm going to suggest is that we review our contract structures. This is because we have seen the rise off the case off the implied contract, which is where you are running after the business on trying to catch their performance within the contract before the contract has started. Andi, that behavior can be really critical because as soon as they begin performing than the contract follows, even if it hasn't been signed, and as you can see there, the foot is well and truly through the door is just to denote the fact that many supplies work on the basis that if they just keep their heads down, keep going. Purchaser won't spot. They haven't signed up to those onerous teas and sees just to let you know that the reveille and an attack case is another one of a long line of cases in relation to contract by conduct on those cases. Our cases where even if you are still in prepare ITRI or ramp up phase, you could be deemed to be in in a contractual relationship in implied contractual relationships, a performance based contract so mawr than many prepare Itri's The test in reveille. They were selling through television channels source mints on bond, no Soul Spence result. But they had ramped up to the point that they had crossed over from more than merely preparatory into enough performance to denote a more full contract arrangement on. Therefore, they were tasked with the obligations, and often that can be particularly dangerous when you're performing against a drop contract, when the draft contract can come back in and bite you in the sense that it will apply, even though you haven't signed it now, of course, were looking at this really through the eyes of the purchaser. Try to recover liability, safeguard against losses. So it's very important that you make sure that before the foetus through the door, you get to sign up to the T's and C's. In my experience, people like to put Cabinet to put contracts in the Cabinet in the drawer, even though their electronic filing draws these days, I never look at the beginning until something goes wrong. And, of course, the problem is that by that time the contract's been varied. It's been changed. It doesn't seem to be the same as the one that might have Bean first signed. So keeping the contract up to date, making sure the structure is agile to cope with that is a good grounding for achieving liability. Talking about structures. Finding the best structure is important. Precedence is about making sure that if there's a conflict ambiguity, we look at the main contract, the Master Supply agreement or Master Services agreement to prevail. So, for example, if you have warranties or indemnities set out in the frame agreement, then the subsequent documentation it could be a work package agreement Purchase order. Follow suit Now, Unfortunately, really, the RWE Empire case is very much about pulling away from that and saying, Well, we'll look at each document its own independent light on That's being a little bit of a blow to those of us who, like Teoh, maintain discipline by using a framework structure as an umbrella on overarching agreement so that conflict or precedent schools may need a little bit more careful drafting just to make sure that it really does prevail against any conflicting interpretations. Standalone contracts. I use those two on there, a different structure. Find the structure that works for you, so spell out the obligations. Clearly spelling out obligations clearly is fundamental to working with liability. I regularly see people in chambers who say to me, Have you could you could you sort something that could you have any liability? You could get them. Please. We're fed up with them. Well, no, I can't because as in life as in contracts, get out what you put in. So if you haven't planted an obligation that you have no right, you don't have liability is an absolute concept. It's relative to your obligations and the obsession with obligation, um, is a useful one on what's been really interesting that in the last few years we've had and there are two cases in relation to contract interpretation where the spell it out approach has worked very well. The first cases Arnold in Britain, where there were draconian leases. But the court said, well, spelt it out. So that's okay, maybe a ridiculous amount of money for mowing the lawns and tidying up the common areas. But nevertheless you signed it so that text your literal interpretation was used Well, that's all very well. If it's clear, it doesn't take a lot to make a contract unclear. As far as the other side is concerned, they said, Well, we see this totally differently. And in wooden capita, which was an unclear indemnity on, we're going to look at that indemnity. Later, in this webinar, the court married together textual ism and conch extremism and said, Look, we don't have to lurch between one of the other. Now we haven't talked back contextual ism, and that's the word was I would describe that I would use to describe a ring doughnut ring doughnuts, a quite important in contract interpretation. It's not the ones with the jam in the middle. It's ones with a hole in the middle. The gap, the void, the ambiguity, the conflict on what you'll notice is that there is donut around the outside. That's the context off the ambiguity. Have you got a context of the ambiguity you get to contextual ism? It usually goes into things like recitals and pretty contractual conversations and draft contracts and those useful track change bubbly things. So all of those lead to context, but well, Capita, said Waas. If it's clear that we look at both, we always look at both. But if it's clear we spend more time looking at the guy at the text, not the context, it's unclear done. We'll look at the context, but look at both to see how that interpretation works in two ways. So really, both of those cases allow us toe, have what it says on the tin, and if you want to create liability, then you start by drafting clear obligations. You stress test it, you reverse engineer it back to see whether or not it will work under pressure on you. Imagine a worst case scenario and then dropped against it. Okay, so some of our key contractual concepts when we're planting recovery mode losses, I put them in the high to low. This is just the way in which I look at things. It may not be you do with your clients, but it provides a brief explanation of those concepts. You don't need them all. And that's one of the things that I see very often in my troubles contracts where every single one of those concepts is set out. Andi, obviously, we would want to have most of those in the contract official. The trouble is that the contracting professionals who have to work with that president find it very difficult to actually negotiated and usually drop one or two along the way. And it may be that putting your basket of it lower and saying that as a strategy, What do we need? Do we need termination? Do we need guarantee? Do we need warranty? What is it that we're really using? I'll give an example in some of my contracts. We can't easily terminate, um, another contracts We used Termination is a big strategy. It's It's a very powerful strategy that, you know. Well, thank you very much. Goodbye. Somebody else is out there. So if it's a contract where it's a fixed term contract or were just too deep in to try and hand over which can't be bothered, then we need to get the warranty to work because the warranty is about slogging it out day in day act. It's not one that you would use for termination in relational contracts. I know in transactional deals in different, but in relational contracts, it's It's very much about performance, so you could boost the warranty by using a performance guarantee, because you can't get rid of them or don't want to get rid of them. So that's a better strategy. Equally determination plus liability could be the way forward All. Perhaps, I might want to use key performance indicators using service level agreements, liquidated damages, which is a little bit on often, but I enforce it so that I get the abatement against price. It's a price reduction because, you know, I can live with full performance to a certain extent, but I'd like to have some recompense fel that. So I think you have to sit down and think, Look, you know, I've got a precedent, but what's my contracting strategy and have a disgusted with the board? What does the client want? How do we approach this? I'm not throwing everything into that contract and say Who are here? It goes, you know, cocktail contract. You got the best of everything. Try and get that one signed. But I have thought about it a little bit more carefully, and I've got the right tool for the job. Get back to, uh, layering into that contract. Perhaps see the basic premise of the contract, which our obligations Now I work in different systems of Lauren. I do like the French law system, which had really focuses on the word obligation very well. And But I quite like about Continental Civil Code system is that obligations can be divided into different types of obligations. Whereas we don't really think that in common law when we draft, we have to use verbs. So, looking up this little technical requirement except from a contract, can you spot the pitfalls as you read it and you'll see that it's a a picture of a Trojan horse and nothing to do with the anti virus. It's to do with the fact that the technical requirements were placed in the schedule. I drafted the main contract. It said. The service provider shall carry out schedule one technical requirements. I lost visibility, technical requirements. They didn't have the draft incompetence with me to complete the work. I gave it to the business to fill out. It came back a while later, already in failure mode upon required upon enquiries to who drafted the technical requirements and came the response. The supplier. Now, when you're acting the purchaser and you've drafted as a purchaser, that's very disappointing. Can you see what they've done with the burbs? I'm sure you can. I mean partly it was gobbledygook. Comprehensive overview. Secondly, we have may and then we have sure. Do we have provided that which cuts the obligation? Half believe this internews I is a case which helps us understand the A nominal to the anomaly enters have failed condition. It's a verb that just too lightweight. It's a sentence that doesn't have enough power in it to make good where you need to pay, and I think it's very basic drafting point. But what verb are you using on. Is it a condition? Because a bit of a nominal term, then your liability and your breach. And certainly your termination will be compromised. Those rights will be less a really good example Is termination for time? I know you know how to draft a condition. The time Time is all the essence. But if you don't put that in, what have you got? Well, somebody tried it. Grand China is a case where time is of the essence was replaced with punctual payment is Monday tree? It didn't work. It wasn't a condition. Of course. I think we know what this is. It should shouldn't be. Time is of the volume. Written time is of the essence. You know, checking what your drafting is is very important. If you want to maximize liability, you need a condition. And if you get it wrong than the incorrect houses causes a wrongful termination counterclaim. So that's really salt in the wound. They're in the wrong. You terminate seeking liability and realize that you didn't have the contractual power to do that. In which case they have a counterclaim against you. The innocent party for wrongful termination and porous and Telford is a horrible example of that with a builder, a nightmare builder who still managed to have the last laugh. So you know you do. It has lots of issues, really, in terms of the drafting and making the correct choice. Getting that front line operational safeguard. I know you're going to tell me you dropped in No way a clause, but I'm going to pour lots of cold water on that and say, I have to tell you to be careful. You still need not to affirm that contract in the light of poor performance. Let's take you back to the drafting Key performance indicators. KP Eyes Marvelous. What a fantastic invention. Loving verbs shall mast undertakes, Avoid the nominate but also loving the idea that we can put into metrics the precise quality that we're looking for. The problem with KP armies and I use them all the time. That well is that if you don't have a rinsing, how do I know when I reach the bottom line of termination that there's quite a high KP I there 99.9%. But if you're watching the telly equates to seven minutes in year downtime when you could be watching a blank screen. So it has to be high, Um, but a red zone. And that's a pretty low rent. So naturally, 82% would be hours and hours of blank screen. So a red zone helps me understand when it gets to the point or termination, because it's not just allowable slippage, it is proper termination or release the right to turn that I may choose not to. But if you're in the red zone, that's gonna help me with my damages. It's gonna help me with my operational ways out. I need to make that clear. If they're consistently doing, they're incompetent. Best you won't be able to get rid of them. Okay, there's breaching termination. So remember we were talking about this in nominal terms. Just be careful because repudiate tree breach, which is when the A nominal term is there. Instead of a condition you want material Bridge material bridge is under your control if you're desperate than you resort to common law, because the contract has failed in its draft in. But that common or test is very low, so repudiate tree breach is I know, you know, can you remember Hong Kong for shipping goes to the off the contract. It's flooding back to you. Goes to the root off the contract. Yeah, that's almost abandonment. So, you know, use material breach. Don't wait for the A nominal, so loving warranties The problem with warranties In terms of liability, it's not your best look. The problem is that if I give you warranty about cabbage, would you purchase for your supper? Take it home, cut it open, find that it is rotten through and through. Then how much do you get for a rotten cabbage? Is a day the cost of a new cabbage? Be the difference between a rotten and a good cabbage or see the consequential losses of the Marks and Spencer's meal deal a constant cure. Be difference in value. See consequential notes. It's seen. It's the different because you have not got nothing. You have a rotten cabbage. Please be grateful, So difference in value is not normally the best that we've had lots of possibilities. With warranties, we can push them in the direction of representation. Xas wants the hope in the summer Tomoe case courts a dying. On a minute it begins with a W. Not in our. It's definitely a warranty. Well, warranty and reps were we could having to change. Stay in Lane said the court. So many of us don't usually try and use reps, but they're often tracked out cause reps will give you much more of a powerful tool. But a warranty is a useful strategy if you want to stay in the game. But it doesn't provide determination, and it doesn't provide the best measure off liability. I put a table showing you the difference between the warranty and indemnity. Now I love indemnities. Don't we all? How can you drop without indemnity? So the indemnities is quite different to the warranty. Very good Together. I like the whole warrants, warrants warrants and And if you mess it up and it is a rotten cabbage, you indemnify may which will be everything that I spend because of the rottenness of the cabbage. Just to be clear, so indemnities could be a very powerful tool. The fact you know what, folks, I think it's the best tool to recover financially from a contract. I'm avoiding the word liability because what I want to show you on the next side is that it looks like liability, but it isn't liability. Liability is about breaching the obligation of the nature of the verb use, and whether it's a NA minute or a condition on the test, you apply with your firm All Star on that we haven't even got onto the exclusion clothes, which would stop or cap liability. Identity should bypass that all together. It is quick and it is dirty, so it's a better concept that liability, because it's a century cause of action in debt and debt, has not many strings attached legally. I've compared it to a warranty you often see with the guarantee a financial guarantee bond that the indemnity sort of worked through it on. That instrument works at different levels. It creates a primary and a secondary and indemnity, you know, so it tends to be intertwined together. Now top tips for drafting indemnities. First of all, is it capped? There's no point. I think that you're queuing in the same queue is liability. Use it in addition to liability and take it out of the cap now as a quick sort of IHS just to make sure you're still listening. We're going to look at some maximizing indemnities. And then we're gonna look a few clauses just to see if you can see why maximizing the indemnity is important and making sure it's not kept. Let's have a look at maximising the indemnity festival. It is debt used at think now off words The debt. Here we go. Money, good expenses, sums, revenues, losses, any amounts paid to another supply any amounts paid to my customer. Any amounts having to be paid any fines as a result of that GDP on the icy own any recovery action. They are simple financial concepts and thus more easily recoverable. Make sure that you have the possibility of recovering at the end of a trial, but that's in a different part of the indemnity. Go for it with judgments and liability and damages and holding harm. That's all of those sorts of things which entwined you much more into the muck and bullets of liability, however caused, so causation isn't a defense against the indemnity and keep the losses going. Keep going. Keep going to the full extent of that loss, but most importantly, pull it out off the limited liability. Make sure it is a separate cause of action. From the cap, it comes a little. Drink it. Here's the quiz. Can you see the difference between the red on the black? Let me just say that they get in the red one live Tennessee for indirect losses in any other course of action is exclusion or limited in the black. One party, actually, no circumstances be liable to party. Why, for any indirect or consequential lots of damage. And in any event, the liability of party extra party one shall be limited to a 1,000,000. Which is the more successful cap, the red and black. And why? Well, as you're thinking that and so we stay in order, I should tell you the answer. The red is the more successful cap because it specifically targets any other cause of action rather than bland words like in no circumstances. And in any event, no, The Red is much better because it has, at its heart another cause of action. And that's what liability under the indemnity is. It's a course of action in debt. Good. Let's also look at the trigger. And I did say that the donut case, which was the case where in the capital short term case, the context and text were married together in a pluralism, pluralistic approach to interpretation. What I'm interested here, though, is the way they drafted the indemnity actions, proceedings, losses, claims, damages, costs, charges that pretty good. The red I like the red Wow. Yeah, the Rays. Great trouble is, there's a comma. Andi finds compensation remedial action quite good for the GDP honor. But it's a financial context, and in order to trigger, you have to make a complaint to the FSC or the ombudsman or any other relevant. And they didn't they just didn't. So can they get the red without the blue? Hell, No, because they didn't finish the sentence. It's a good example of a textual approach, really, Is that And there was some context reasons why it wouldn't make sense. So after the word incurred the end of the red, there is but a comma, not even a semi colon. Parts of legal interpretation history would have been different had their bean adopt. What this case is about is isolating different triggers for the indemnity and making sure that you appropriately punch straight to keep them separate. So that the route to the indemnity is easy to use. Well fixed. We're almost at the end of our time together, but I don't want to leave without telling you about liquidated damages. I think it's common knowledge now that the chest changed a couple of years ago with Mike Odessa and Mrs Iverson late to the shops back to the car after shopping in bluewater. Well, I mean, you could lose track of time in these places. Anyway, I've set out the new test, which is much more useful than the old test, because now it has to be out of all proportion to the legitimate interests. So if you have a good, legitimate interest on your side, the proportionality can be pretty extreme. Basically, even in all sorts of different consequences and contexts, the use of liquidated damages is an excellent way off, at least making a price adjustment if no getting into some real damages, their back against the counter party because they already signed up to them, there should be no negotiation. In fact, I work in some supply chains where they automatically deduct them from the invoice because they are already signed. One thing that you may not know about penalties. Post Micah Jesse is that the authority said that you could avoid doctrinal together. If you can draft as a primary obligation now, things have been back this. Let me give you an example. If I finish this weapon on time, I'll get one of my feet. If I'm three minutes late, I'll get 90% of my feet. If I'm five minutes late, I'll get 80% of my feet so well done, you'll still get your primary fee. But less. What the clothes doesn't say is, if you are late, you will lose if you are in breach. The consequence and that's a secondary, so keep calm and carry on. But there's a lesser amount of money is a primary now, if you can see the difference and get the knack of that, I'm pleased to tell you that the whole liquidated damages, such as it is doctrine, doesn't apply to second year projections. How cool is that out of? Finally, so I do finish on time. If you're going to use and notice provision to achieve liability, whether it's a notice provision for breach off a cure or for liquid and get it right. There are insane amount of cases where people are unable to read the drop to the contract, signed the contract but seem to be unable to read it when it comes to serving the notice. Those two cases are sorry. Cases have gone wrong. Notices all the piece people, all the peas. What's the purpose of the notice? How would it be perceived by somebody who's not the counter party? Are we doing it now, or is it your intention in the future to bring proceedings or for them to cure and make sure it's sufficiently detailed and particular rised according to the terms of the contract? Well, thanks. What have been been looking at? Choose the right structure. Make sure you understand the relationship between rights and obligations. Key concepts. What's the strategy for you? Draft those obligations in a way that gives rise to conditions are not the a nominee. It love KP eyes but used them. Enforce them on Include a red zone. Warranties are a different tackle together, not a high roller, but keep going. Keep going. Indemnities are a critical part of your drafting strategy. To maximize a debt based recovery, liquidated damages have loosened up a lot for purchases. Make full use of the primary secondary distinction. Get the notice. Right. Thanks for being with me. All right?