WE NEED TO TALK

Being stuck with a commercial agreement that is onerous in its terms and effects (costing you time, money and stress) is frustrating. What practical steps can you take to try to get out of it? Is there a Way Out?


THINGS STARTED SO WELL ...

The initial courtship was positive and promising. The tender or procurement exercise produced what you thought was a favourable outcome. The tendering company selected and awarded the contract took a real interest in your company, communicated with you promptly and enthusiastically and left you feeling valued and warm inside. A ‘closing the deal’ lunch at a fashionable London restaurant came and went in haze of bonhomie.


BUT WAIT A MINUTE ...

Before the handshakes and broad smiles, had anyone read the contract and possibly the accompanying service agreement and thought - ‘this needs a little bit of careful reading, analysis and probing?’ Why not? The common reasons given when companies are asked this question, particularly those with no in-house legal function are that ‘we felt that we did not have any choice in the matter – it was take it or leave it on the other company’s standard terms and conditions’ or ‘we don’t like working with lawyers – they are expensive and don’t seem to understand our business or really ‘get us’.’


WE THINK WE HAVE A PROBLEM ...

We now realise we were sold ‘a pig in the poke’ and want to get out of this contract. But how do we do it? We asked politely in writing and received a terse email reminding us of our contractual obligations and threatening us with legal action if we did not pay the stipulated amounts on the agreed dates for the remainder of the agreement. The other side say we cannot unilaterally withdraw and, furthermore, they have taken legal advice and say we would be in repudiatory breach of contract.


NOW COMES THE TRICKY PART ...

Exclusion and limitation of liability clauses are unlikely to provide a lifeline for one party just walking away from the contract. Explicit wording will be required in a contract to exclude liability for deliberate repudiatory breach. Such wording is rare and, if the contract is on the other party’s standard terms and conditions, is not going to be present. Trying to go on the attack and argue that the other party is in material breach is a high risk strategy and may end up in court with an award of damages and legal costs against your company for unlawful termination.

So absent a reason to lawfully terminate the contract, say one that is for 3 years but with a 5-year service agreement that no one spotted, there may not in reality be a great deal that can be done, save to learn the lessons for next time and let a commercial lawyer review the contract first and advise. A ‘termination for convenience’ clause can be negotiated and agreed as well as ensuring that the other clauses of the contract and any service agreement are consistent and fair and are at the very least market standard and not putting you at a commercial disadvantage.

A company not understanding what a clause of a contract actually means and the extent of obligations thereby owed in the event that it is not ‘happy ever after’ is not a sensible strategy or recipe for a successful business relationship.

So, in difficult times or perhaps before you take the plunge again, please get in touch. We would be delighted to assist.

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