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#10196 - Intro To Commercial Contracts - International Commercial Law

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INTRODUCTION TO COMMERCIAL CONTRACTS
Contract types

  1. Upstream those which provide the client with the resources needed in order to carry on his business.

  2. Downstream contracts under which the client passes on and exploits the fruits of his labour, contracts for the supply of goods and services by the business.
Standard terms and conditions

  • Use of standard terms ensures that the contract suits the needs of whichever party has been able to insist on their use.

  • Buyer will want to ensure that:

  1. The goods to be delivered are on time, preferably to own premises; and

  2. The seller to be liable for any defects.

  • The seller will want to ensure that:

  1. They have flexibility for late delivery if it is to be let down by its own suppliers;

  2. The buyer preferably collects the goods from its factory; and

  3. They are not liable for every trivial problem (will usually accept some liability for defects).

Advantages of standard terms Disadvantages of standard terms

  • Contract on favourable terms to client;

  • Standardised procedures;

  • Commercial certainty;

  • Cheaper;

  • Starting point for negotiation

  • Lack of flexibility;

  • Effective training and procedures essential;

  • Incorporation difficulties/ ‘battle of the forms’.

  • Need for regular review;

  • Legal constraints (e.g UCTA 1977).
Drafting and content of commercial contracts
Key factors in drafting commercial agreement Basic checklist for commercial agreement

  1. Analysis of client’s instructions;

  2. Establishing client’s objectives;

  3. Not losing sight of C’s commercial aims;

  4. Adapting precedents to fit C’s instructions (and not other way around).

  1. Commencement and date;

  2. Parties to contract;

  3. Recitals (if any);

  4. Definitions and interpretation;

  5. Conditions precedent (if any);

  6. Agreements;

  7. Representations/ warranties; Operative part

  8. Indemnities;

  9. Limitations and exclusions;

  10. ‘boiler plate’ clauses;

  11. Execution clause and signature;

  12. Schedules.
Recitals

  • Recitals can be useful to help put the contract in context or explain the reason the reason for a contract being entered into.

  • Alternatively, may set out the factual background to an exclusion clause by explaining the decision of the parties to impose the risk of loss on one party rather than the other.
Definitions clause

Basic rules:

  1. Should give no more than give a clear meaning to defined terms;

  2. All defined terms should start with a capital letter;

  3. Defined terms should be listed alphabetically for ease of reference;

  4. Should be used only where they are recurrent in the body of the agreement (or where danger of ambiguity);

  5. All defined terms should be defined in the definitions section;

  6. Definitions must meet the requirements of the agreement;

  7. Care should be taken in defining things which might be subject to change during the contract.
Interpretation clause

  • Covers the basics of interpretation, for example, by providing that the headings do not form part of the agreement.

  • Principles of European Contract Law:

  1. A contract is to be interpreted according to the common intention of the parties even if this differs from literal meaning of the words;

  2. If one party intended contract to have a particular meaning, and at time of the contract’s conclusion the other party could not have been unaware of the first P’s intention, the contract is to be interpreted in the way intended by the first party.

  3. If not intention can be established according to the above, the contract is to be interpreted according to the meaning that could reasonably be understood by peers of the parties in the same circumstances.
‘The operative part’
Conditions precedent

  • Conditions that must be satisfied before the agreement comes into effect.

  • Such as contract being conditional upon buyer obtaining letter of credit.
Agreements

  • Define the rights and obligations of the parties.

  • For example, in a sale of goods contract, the seller will be promising to seller and deliver goods of a certain description and quality.
Representations and warranties

  • Statements of factual and legal matters which one the parties requires to be made to it in a legally binding way.

  • Warranties are promises that a given statement of fact is true.
Indemnities

  • One parties promises to make good another’s loss.

  • If A incurs loss as a result of the happening of a particular event, then B will indemnify A.
Limitation & exclusion of liability in contracts

  • Is clause liable to come within the scope and effect of UCTA 1977?
‘Boiler-plate clauses’
What are they?

  • Standard clauses which are included as a matter of course into all agreements of a certain type.

  • No precise definition.

  • Typical ones as follows:
Prevail clauses

  • States that, in the event of a dispute, one party’s terms shall prevail.
Entire/ whole agreement clauses

  • Provides that all of the obligations of the parties are recorded in one document.

  • Seeks to avoid the evidential difficulties associated with oral representations and discussion.
‘No authority clause’

  • States that variation of the contract will be effective only if made by certain people (such as directors) or in a certain way.

  • Attempts to keep out extraneous terms and to prevent unauthorised variation of the terms of the contract.
Waiver

  • Clause to prevent any waiver arising as a result of one party agreeing to a relaxation of contractual provision.

  • Such as an express delivery date.
Buyer becoming insolvent

  • Makes provision for what happens if one of the parties becomes insolvent.

  • Often linked to retention of title clause in a sale of good agreement.
Choice of law/ jurisdiction

  • Important that the contract includes an express choice of the law and the jurisdiction which will govern the contract in the event of a dispute.

  • UK normally is the law of E & W and the jurisdiction of the English courts.
Service of notices

  • Has to provide for the places where notice is to be served, the method of service and the time at which the notice is deemed to be served.

  • Most will require notice in writing rather than orally.

  • Typically require notice to be served during business hours if served in person.

  • Principles of ECL (PECL) page 10 &11.
Force majeure

  • Intended to suspend/ terminate the contractual obligations in the event of an occurrence outside the control of the parties.

  • Such as fire, flood, storm etc.

  • Usually for the benefit of the seller/ deliverer of goods.

  • If one or more of the specified events occurs then contractual performance will be suspended for a specified period of time.
No partnership clause

  • Seeks to ensure that the agreement cannot be construed as a partnership between the parties to the agreement.

  • Avoids disadvantages of partnership law (such as liability for...
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