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 PocketsMost 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.
- 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.