This publication is intended to give an overview of common contractual issues that often create sticking points during negotiations and contract drafting. The questions in each chapter relate to business-to-business supply contracts for goods and services and are not industry-specific.
Contract law is bespoke to each jurisdiction and combined with a general theme of ‘freedom to contract’ in business-to-business relationships, there is limited statutory control on the terms that can be included in a commercial supply contract. There are key differences between civil and common law jurisdictions, although, unsurprisingly, there are also similarities, particularly in countries that are members of the European Union and are obliged to implement certain EU-wide legislation.
At the start of a negotiation process, parties will often agree a key set of legal or commercial terms in a document which may be called a ‘letter of intent’, ‘heads of terms’ or ‘memorandum of understanding’. The binding nature of this type of pre-contract document can vary by country, and parties must understand the risk they face if they walk away from a negotiation before the final contract is signed. In some jurisdictions this is regarded as an act of ‘bad faith’ and can lead to a damages claim.
A key issue when negotiating and drafting a supply contract is the level of risk that a party will accept in relation to breach of the obligations in the contract. The ability of a party to negotiate appropriate exclusions or limitations of liability is often critical in order to achieve a contract that is commercially satisfactory for a business. Therefore, it is important to understand what liability can never be excluded in a particular jurisdiction and any statutory controls on exclusion or limitation clauses.
Another area that can be contentious is agreeing when payment is due for goods or services. Having a longer time to pay an invoice can greatly assist a buyer with cash-flow management. Conversely, a supplier may face cash-flow problems if it is not paid on time. Although many countries have legislation intended to support suppliers in requesting timely payment of their invoices and allow suppliers to charge interest on late payments, the practical success of such legislation is dependent on suppliers being able and willing to enforce their rights. Many suppliers find it difficult to enforce payment legislation against key buyers for fear of damaging ongoing commercial relationships. In the past few years, the European Commission has highlighted the damage that late payment can cause to suppliers, particularly small and medium-sized businesses.
Other questions covered in each chapter include the ability to assign or subcontract contractual obligations, the ability of a third party to enforce the terms of a contract, the ability to terminate a contract and appropriate notice periods, and choice of law and jurisdiction provisions.
We hope you find this publication useful and that it provides a reference of key commercial contract provisions in different jurisdictions. It remains important to seek the advice of local counsel in each jurisdiction to take into account the specific circumstances of a contract and to incorporate any industry-specific requirements.