Commercial Disputes

Partnerships – Unwanted Risks
16 February, 2017

A partnership can be a very efficient and flexible business structure, but it can have unwanted consequences for the partners. Some of the key issues to consider are outlined below.

What is a partnership?

A partnership is a collection of individuals, who trade together with a view to making a profit. The ‘partnership’ is not a separate legal entity, although it is often given a trading name for ease of reference.  A partner cannot also be employed by the business (you cannot employ yourself), so it is important to carefully consider and document the status of any ‘salaried partners’ or senior ‘employees’. 

Is there a partnership agreement?

If you are in a partnership it is important that you have an up to date partnership agreement to document how the business should be run. In the absence of any agreement (which may be an oral agreement or implied by conduct) the terms set out in the Partnership Act 1890 will apply.

Liability of the partners

Unless the partners agree otherwise they all (individually) have the power to enter into a contract on behalf of the partnership. The partners are jointly liable for the debts of the business and there is no limitation on the extent of this liability.  If you wish to limit the liability of the partnership then you should insist on a carefully worded limitation clause in your business contracts.

Duties owed to the other partners

Each partner owes the other partners a duty to act honestly and in the best interests of the partnership. A partner should not benefit themselves at the expense of their co-partners and has a duty to account to them for any profits they receive out of the business.

Dissolution

Unless the other partners agree (e.g. in a partnership agreement) a partner cannot resign from the partnership. If one of the partners wishes to leave or dies then the partnership would need to be dissolved and the proceeds divided between the partners (or their estate).

Summary

A partnership can be an efficient way of running a business, but it is important to have a clear understanding of partnership law, so you can avoid any unwanted disputes.


Is ‘time is of the essence’ and what does it mean?
10 February, 2017

Has your firm placed an order for goods but they haven’t been delivered by the agreed date?  Or has a deadline for making a payment to your company under an on-going contract been missed?  These are common scenarios but before deciding whether to wait a bit longer or to try and cancel the contract on the basis of delay, one important matter to consider is whether time is ‘of the essence’ (‘OTE’) for that obligation.

 

What ‘time of the essence’ means

If time is OTE for a contractual obligation in a commercial contract this means the deadline is a condition of the contract, rather than merely a term, entitling you to terminate the contract (but not obliging you to) even if the deadline is missed by the other party by only a narrow margin.  In one reported case a delay of just ten minutes in a buyer transferring completion monies in respect of a property, entitled the seller to terminate the contract and keep the deposit. 

Beware however that when time is OTE, you can’t terminate a contract on the grounds of delay if your own conduct, even if perfectly legitimate, made it impossible or impractical for the other party to meet the deadline.  Unless the contract provides otherwise, in these circumstances the specified deadline would be replaced with a duty to perform within a reasonable time.

 

When is time OTE?

Express term

Time is OTE where the contract expressly says it is.  It’s often used where it’s important to secure performance by the agreed date such as delivery of goods, completion of a sale or some types of payments. 

 

Implied term

If you haven’t expressly agreed that time is OTE, then the deadline is probably not a condition of the contract. However, an intention to make time OTE may sometimes be implied into commercial contracts, depending on the circumstances and the contract wording.  The question is “must the parties have intended even a slight default to lead to a right to terminate the contract?”

 

It will usually be implied that time is OTE in the sale of perishable goods because late delivery may be useless to the buyer.  Similarly, for completion of the sale of a business as a going concern, it’s important that the buyer can take control of the business before there’s too much change to its business, employees or assets.

 

Time is unlikely to be considered OTE if:

  • The contract has no fixed or ascertainable date for performance. Phrases like ‘as soon as possible’ and ‘within a reasonable time’ are not sufficiently clear. 
  • The contract contains another inconsistent consequence of delay.
  • The contract provides a procedure for extending a time limit, with liquidated damages.
  • There is a clause giving interest on late payments which could indicate that time was not of the essence for payment.

 

What if time is not OTE?

In my next blog I’ll look at how notices ‘making time of the essence’ can be a helpful procedure for terminating a contract on the grounds of delay in performance where time was not expressly stated to be OTE.

 

Even if time is not OTE, a delay might still justify termination under an express contractual right, or at common law depending on the facts and contract terms. If you’re in any doubt about the legal implications of a contractual deadline being missed by either party, it’s best to seek legal advice before taking any steps which might prejudice your position.


Litigation and the rise of the machines
30 January, 2017

This is not a reference to The Terminator film franchise, but to the rise of Artificial Intelligence (AI). This is already being applied in process driven aspects of litigation such as disclosure.  Some lawyers might think that this is where it will rest, as just another technology tool.  However, AI brings with it, depending upon your point of view, significant new opportunities or significant new threats.

A simple example; a client wants advice on how a particular clause in a contract would be interpreted by a judge in light of a particular set of facts. Traditionally, the lawyer would review the contract and the context, research case law (how have the courts applied similar contractual clauses?) and then provide an advice. 

Much of this exercise can be converted into an algorithm that can be processed by a machine. Now everything is online a machine could review every text book ever written, ever relevant case ever reported and its own background knowledge (as it gradually learned) and produce a report with a percentage view on how the clause would be interpreted.

At this basic level the only human input required is feed the machine the facts and sense check the result. The owner of the machine is the real provider of the legal service.

Will this replace lawyers for this kind of work? Probably yes where the context is simple, the facts are clear and the value is relatively low.  Probably not where this does not apply or where a client wants an adviser, rather than just some advice.

So for the moment, until the machines gain both consciousness and the trust of humans (and for anybody who saw The Terminator at an impressionable age this might be a big leap), the role of some human lawyers is secure. Those who are advisers, providing bespoke solutions to bespoke problems, will always have a role.  Those whose role is more process driven or lacking perceived value by clients are undoubtedly at risk in the not too distant future.

A world with fewer lawyers. What’s not to like?


EU “Freezing Orders” available from 18 January 2017
16 January, 2017

Before issuing a claim any potential claimant must consider (i) whether the intended defendant is able to pay and (ii) whether there is a danger that a defendant may attempt to put their assets beyond the claimant’s reach.  

The new European Account Preservation Order (“EAPO”) can freeze monies held in the defendant’s bank accounts in various member states. It will operate in a similar way to a freezing order in England and Wales (which also prevents a defendant from dissipating its assets) but brings the advantages of a uniform procedure and enforcement across multiple jurisdictions. 

The EAPO procedure uses the same application form, regardless of the country in which the application is being made. A claimant in one member state can obtain an EAPO which is enforceable in all other participating member states: for example, a German claimant involved in proceedings in Italy can obtain an EAPO from an Italian court, which can be used to freeze the defendant’s accounts in Italy and Spain without the need to obtain any further orders. 

Explaining the rationale behind the EAPO, the European Commission has said: “Current fragmentation of national rules on enforcement severely hampers debt collection within the EU. Creditors seeking to enforce a civil court order in another EU country are confronted with different legal systems, procedural requirements and language barriers which entail additional costs and delays.” 

The UK and Denmark have opted out of the EU’s EAPO Regulation. This means that UK and Danish courts will not issue EAPOs, and bank accounts in these countries cannot be frozen by EAPOs made in other member states. Furthermore, only claimants which are domiciled in participating member states can apply for EAPOs – so UK, Danish, and non-EU claimants cannot use them. Prior to the referendum result, the UK stated that it agreed with the aims of the EAPO Regulation, and may opt-in at some point in the future if changes to the EAPO regime were made. It is not currently known whether a future opt-in will be possible post-Brexit. 

However, UK, Danish and non-EU companies may still be affected by the new EAPOs: if any company has bank accounts within any of the participating member state jurisdictions, there is a possibility that these might be frozen under an EAPO if the company has proceedings brought against it.


A Smarter Approach to Social Media?
12 January, 2017

Whether you’re an individual or a business, there are risks when using social media.

You can’t eliminate risk, but you can manage it: here are our Top Tips on how to manage it:

 

 

Privacy

The first thing to consider is your audience: whether it’s in work or outside, you need to be smart in managing your Facebook and other social media accounts. Before you share, think about what you’re sharing and who you’re sharing it with.

Businesses now encourage employees to ‘like’ and actively connect with their social media presence online, however with that is the risk that your private and work life will unintentionally overlap if your privacy settings are not adequate.

How private is your account? When was the last time you reviewed your privacy settings?

Ownership of Content

If you create content, as a general rule you will own copyright in it, which gives you the right to prevent others from copying and exploiting the work without your permission.

Whilst you expect content you upload to social media to be shared, you still have the right to prevent others from misusing it.

You don’t lose ownership of the content when it’s uploaded; you do however grant the social site the right to use that content (in return for free use of their site) for the duration of its posting.

You can make use of the reporting systems on social media sites which allow you to report not only content misuse, but also offensive and abusive content.

Rights in Content 

Before posting something online, ensure you own the rights to that content or you have the consent of the owner, otherwise you could risk infringing a third party’s copyright. If you’re ever unsure, it’s advisable to seek legal advice before posting or using content you find online.

Protecting Content 

When posting your own content, you can use the © symbol and use a watermark on an image, for example, to make it less attractive to copy (and it’s also easier to evidence copying).

Liability for Content

A business can be held liable for the content posted on social media on its behalf by its employees: for defamation or copyright infringement, for example. Risk can be managed by having an up to date social media policy in place, setting out clear guidelines for employees on what content can be posted and by whom within the business.

Aside from reporting content to the social media site directly, if you have concerns that you have suffered, or will likely suffer, damage as a result of a posting online, (whether it infringes your copyright or is defamatory about you) it’s recommended that you seek legal advice without delay.


1 2 3 11