2 BIG MISTAKES MADE BY ENTREPRENEURS AT GLOBAL DEAL TABLES

1. Contract by Email

Contract by Email occurs in two ways:  (a) an exchange of email between parties occurs which email set out the commercial and legal relationship between those parties or (b) terms of a particular email contravene terms in a previously signed written contract.

Contract by Email has several commercial and legal risks: (a) it rarely provides a complete documented point of reference for the parties to fully understand their contractual commitments and the legal implications of the same; (b) it is usually followed by further email that may run the risk of altering the contractual terms and legal position of the parties even further; (c) it is difficult to prove who the author of a particular email is and whether they had the legal capacity to enter into the contractual relationship; and (d) rarely do business insurance policies cover ‘unclear’ ‘undocumented’ business risk.

In order to avoid (or at least minimize) the risk of Contract by Email, entrepreneurs may want to: (a) establish standard written terms and conditions, whether they are a service or product based business (trading from a physical office and/or over the Internet) and create 2 versions of the standard terms and conditions – a short version that can be placed on the back of an invoice (or click wrapped on your website) and a longer more detailed version of terms and conditions that can be signed up formerly by customers, and third party suppliers and business partners; (b) establish a checklist of business risks against which any third party agreement should be evaluated; and (c) where appropriate, seek professional advice from an expert in the field.

2. Picking Fights With Deep Pockets

Most entrepreneurs sign agreements and contracts with the expectation that only good things lie ahead for the contract and the parties associated with the contract.  What happens, when the parties do not achieve the commercial outcomes under the contract that they originally set out to do?  What happens when one party decides it is the other parties fault and wants to be compensated for business loss?  What happens when one party wants out of the relationship, and wants to take the work product and the IP developed under the contract and enter into a relationship with another party (maybe even a competitor)?

Generally what happens is the entrepreneurs dusts off the joint venture agreement, exclusive license agreement, joint collaboration agreement etc. (you get the picture) only to find out that the only recourse is protracted litigation in an Australian court, or an equivalent court in a foreign country.

The mistake is that most contracts signed do not include a structure for allowing the parties alternative means of dispute resolution, such as mediation, arbitration or independent expert decision making to break deadlocks.

To put it in perspective, if you found yourself in a cross border dispute over IP, contractual rights, joint collaborative work product from a research relationship gone wrong etc. and the other party was from the US, and the contract indicated that California law governs and California courts have jurisdiction, you are more than likely in for an unpleasant and expensive 36 months of your life, inclusive of formal US litigation, appeals where necessary, depositions, evidence and endless lawyer bills…

If you don’t believe me, print out any court list, anywhere in the world.  You will find that at least 80% of the matters before the court are based on business relationships gone wrong; which means, that these parties at some stage had an opportunity to sit down and define the terms of the contract, including dispute resolution mechanisms for resolving deadlocks.  Don’t get me wrong, a 3 month arbitration is a pain and not cheap, but, it far outstrips a 3 year litigation derailment of your business with endless legal costs.

1. Contract by Email

 

Contract by Email occurs in two ways: (a) an exchange of email between parties occurs which email set out the commercial and legal relationship between those parties or (b) terms of a particular email contravene terms in a previously signed written contract.

 

Contract by Email has several commercial and legal risks: (a) it rarely provides a complete documented point of reference for the parties to fully understand their contractual commitments and the legal implications of the same; (b) it is usually followed by further email that may run the risk of altering the contractual terms and legal position of the parties even further; (c) it is difficult to prove who the author of a particular email is and whether they had the legal capacity to enter into the contractual relationship; and (d) rarely do business insurance policies cover ‘unclear’ ‘undocumented’ business risk.

 

In order to avoid (or at least minimize) the risk of Contract by Email, entrepreneurs may want to: (a) establish standard written terms and conditions, whether they are a service or product based business (trading from a physical office and/or over the Internet) and create 2 versions of the standard terms and conditions – a short version that can be placed on the back of an invoice (or click wrapped on your website) and a longer more detailed version of terms and conditions that can be signed up formerly by customers, and third party suppliers and business partners; (b) establish a checklist of business risks against which any third party agreement should be evaluated; and (c) where appropriate, seek professional advice from an expert in the field.

 

  1. Picking Fights With Deep Pockets

 

Most entrepreneurs sign agreements and contracts with the expectation that only good things lie ahead for the contract and the parties associated with the contract. What happens, when the parties do not achieve the commercial outcomes under the contract that they originally set out to do? What happens when one party decides it is the other parties fault and wants to be compensated for business loss? What happens when one party wants out of the relationship, and wants to take the work product and the IP developed under the contract and enter into a relationship with another party (maybe even a competitor)?

 

Generally what happens is the entrepreneurs dusts off the joint venture agreement, exclusive license agreement, joint collaboration agreement etc. (you get the picture) only to find out that the only recourse is protracted litigation in an Australian court, or an equivalent court in a foreign country.

 

The mistake is that most contracts signed do not include a structure for allowing the parties alternative means of dispute resolution, such as mediation, arbitration or independent expert decision making to break deadlocks.

 

To put it in perspective, if you found yourself in a cross border dispute over IP, contractual rights, joint collaborative work product from a research relationship gone wrong etc. and the other party was from the US, and the contract indicated that California law governs and California courts have jurisdiction, you are more than likely in for an unpleasant and expensive 36 months of your life, inclusive of formal US litigation, appeals where necessary, depositions, evidence and endless lawyer bills…

 

If you don’t believe me, print out any court list, anywhere in the world. You will find that at least 80% of the matters before the court are based on business relationships gone wrong; which means, that these parties at some stage had an opportunity to sit down and define the terms of the contract, including dispute resolution mechanisms for resolving deadlocks. Don’t get me wrong, a 3 month arbitration is a pain and not cheap, but, it far outstrips a 3 year litigation derailment of your business with endless legal costs.

 

HOW MUCH ARE YOU PAYING TO ARCHIVE INFORMATION YOU ALREADY OWN?

Growth of Business Data and Documents

Quite often, it is easier to reach for the archive box than to decide what business information really needs to be archived and what can be destroyed.  Unfortunately, the archive box usually mixes important business information with information of negligible value, and once it leaves the building ‘who cares anyway?’.

It is commonly understood that data not subject to legal or regulatory requirement and without any business value should be disposed, and doing so is getting more important every day:

  • More than 40% of corporate data and documents are not subject to a specific legal duty and has negligible long term value;
  • Corporate data and document volumes grew by about 50% in the Financial Year ending 30 June 2010; and
  • Experts predict business data and documents will grow by a factor of 44 in the next 10 years.

So where do most business data and documents reside when they leave the building?

In document archive boxes and warehouses, accumulating dust and archive bills.

Reality of Document Archiving

  • Did you know that the average starting point for a document and records management account is now $25 per week for 160 archive boxes^ (ie. $1,300 per annum), just to store them?   Now, multiply that times your actual number of archive boxes, and you will get a considerable and constant operational cost that should not exist.

^The average archive box fits 10 standard size files, so 160 archive boxes on average translates to 1600 files.

  • Did you also know that (in most cases) 90% of archived information is searched for and re-used, and that there exists numerous categories of costs every time you want to use the archived information, such as: (1) carton/file action charges (including file pull, re-file, computer searches, database searches fees etc.), (2) shredding/destruction charges, (3) labour charges for transporting the physical documents and boxes, and (4) office/warehouse charges and merchandise charges (including boxes, cartons etc)?
  • It’s no wonder businesses are spending a minimum of $2000 per annum (and in extreme cases, up to $50,000+ per annum) to manage the storage, accessing and usage of the boxes of documents that they have archived; documents and information that the business already owns!!

Try My Online Archive™.  We did.  We love it!  It helped us reduce our archiving costs by 75%, and automate our business records and files at the same time. Click here for a My Online Archive flyer.

   

DO U.S. COMPANIES HAVE PRIVACY RIGHTS?

The U.S. Supreme Court is set to determine whether U.S. companies have a constitutional privacy right.

The privacy case Federal Communications Commission v. AT&T, Inc., No. 09-1279, will consider whether U.S. corporations have privacy protection under provisions of the Freedom of Information Act, similar to personal privacy protection under U.S. law.

AT&T is seeking to invoke privacy provisions to block an attempt by the F.C.C. to obtain private, confidential business data and documents, related to a federal investigation currently being conducted by the F.C.C. into telecommunication fee overcharging allegations.

This case will likely have significant impact on the protection of sensitive corporate data and documents for U.S. companies and companies trading in the U.S. (ie. companies that sell products and services to U.S. consumers).

Stay tuned…
   

FAILED U.S. LEGISLATION TO REDUCE OUTSOURCING OVERSEAS

A recent U.S. Senate jobs bill, designed to address the 9.6% unemployment rate in the U.S., failed to get up this week at a U.S. Senate vote.

Those in favor of the draft jobs bill, such as Senate Majority Leader Harry M. Reid (D-Nev.) believe the bill will facilitate the keeping of “American jobs” in America.  Proponents of the bill believe American tax payers are being shorted by companies that operate in the U.S. for tax purposes, but, in reality offshore manufacturing jobs, to the detriment of U.S. workers.

Opponents of the bill believe it is a ‘political’ stunt, designed to appeal to the constituents of U.S. Senators who are about to enter into November midterm elections, and will do nothing but damage the U.S. reputation in the global business world.

Some of the contentious elements of the draft bill included provisions to:

•    end tax deductions for expenses incurred when companies close or reduce U.S. operations and shift the work overseas;

•    impose a new tax on products once made in the U.S., but, now are made outside the U.S.; and

•    offer a 2 year payroll tax pardon to companies that re-patriate jobs from other countries back into the U.S..

Where ever you fall in the debate, it cannot be disputed that the issues of retaining American jobs in America and “offshoring” jobs from America are hot topics for all businesses trading in the U.S., and will likely be the focus of U.S. legislation for the next 12 months whilst the US economy seeks to strengthen itself following the Global Financial Crisis.
FAILED U.S. LEGISLATION TO REDUCE OUTSOURCING OVERSEAS
   

Succession Plan in Place?

KPMG conducted a Private Company Survey for 2010 and from a legal perspective we were surprised to find that only 25% of businesses have a succession plan in place covering owners, directors and key executives.

A succession plan includes business strategies and legal contracts to cover business issues that usually include in a partnership deed and a company shareholders deed in the event of:
  • death
  • divorce
  • separation of partners
  • sale of the company
If you are part of the 75% who don’t have a succession plan you may leave your business exposed to company dissolution or adverse financial consequences and your family exposed to unnecessary legal battles.

The other statistics in the survey that were related to succession plans were that;
  • 75% of businesses were planning new investments over the next twelve months,
  • 66% of businesses are interested in offshore expansion,
  • and on the other end of the spectrum, 30% of businesses were considering an exit strategy over the next three years, selling to partners, independents or competitors.
How can we help?

We provide clients with succession plans, assistance with international expansion as well as advice on mergers and acquisitions, sales contracts or partnership restructuring.

All of these situations need legal consultation and incorporation into contractual agreements to protect you and your company.

If you would like strategic or legal advice in any of these areas please contact Jarmal Richard at Tel: (03) 9614 4111 or on email at This e-mail address is being protected from spambots. You need JavaScript enabled to view it .
   

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