Embed Size (px)
DESCRIPTION
Presentation by Steven Brown on use of warranties and indemnities in drafting contractings
Citation preview
www.etiennelaw.com
Warranties and Indemnities- Contract Considerations Steve Brown
www.etiennelaw.com
Warranties and Indemnities - Contract Considerations
IntroductionWe have the knowledge of terms warranties
and indemnities Do we use it in a practical way
www.etiennelaw.com
What is a contract?
All contracts are agreements
but
not all agreements are contracts
I’ll pick you up for dinner at 8 o’clock
www.etiennelaw.com
The Difference Between Agreements and Contracts?
Contracts are ALWAYS Legally enforceable
Courts will enforce as the law dictates
www.etiennelaw.com
Contracts – what are they?Contracts – what are they?
Legal Analysis –Enforceable forms of agreements that: comprise promises to performThe breach of which courts will give remedies
www.etiennelaw.com
Formalities and terms
Terms of a contract
conditionsWarrantiesindemnities
www.etiennelaw.com
Formalities and termsTest for a term being a condition or warranty:"the test of essentiality is whether it appears from the general nature of the contract considered as a whole, or from some particular term or terms, that the promise is of such importance to the promisee that he would not have entered into the contract unless he hadbeen assured of a strict or substantial performance of the promise, as the case may be, and this ought to have been apparent to the promisor."
Tramways Advertising Pty Ltd v Luna Park (N.S.W) Ltd (1938) (SR) (NSW) 632 at 641-642 per Jordan CJ
www.etiennelaw.com
Formalities and termsWarrantiescontractual terms that act as an assurance. Damages for breach not termination of contract.
EG ‘The statutory books of the company are not up to date.’
www.etiennelaw.com
Formalities and termsWarrantiescontractual terms that act as an assurance. Damages for breach not termination of contract.
EG ‘The statutory books of the company are not up to date.’
www.etiennelaw.com
Formalities and termsIndemnitiesAre contractual terms whereby a party undertakes expressly to make good a loss that arises from a stated set of events
www.etiennelaw.com
Formalities and termsIndemnities EG‘In consideration of payment by the buyer of the consideration, the seller shall indemnify, defend and hold harmless the buyer against any liability, damage, loss or expenses (including legal fees and expenses of litigation) incurred byor imposed on it in connection with any claims, suits, actions, demands or judgments (including, but not limited to, actions in the form of tort, warranty or strict liability) arising directly or indirectly from or in connection with bringing the statutory books up to date and in accordance with all applicable legal requirements.’
www.etiennelaw.com
Difference Between
Warranties Damages only Must prove loss Only damages if party
can show warranty breached resulted in reduction of value of asset acquired (loss)
Onus on party asserting loss
Duty to mitigate loss
Indemnities Provide guaranteed
compensation where a breach of warranty might not give rise to damages
Compensation could be damages or some other remedy
No clear duty to mitigate
www.etiennelaw.com
Difference Between In the example warranty assuming NO disclosure
had been made, the buyer claiming under the warranty would have to showThat the statutory books were not up to date;
ANDThe value of the business was reduced as a
result of this Whereas with the example indemnity the buyer
would simply demand repayment of its costs in updating the statutory books
www.etiennelaw.com
Risk and (Expected) Return
NegotiationTo get obtain
bargain by minimizing risk of non performance
Because risk inherent in all commercial transactions
www.etiennelaw.com
Because “..in an ideal world the risk pendulum would lie perfectly balanced..
However, in reality the position depends upon the bargaining position of the two sides.”
www.etiennelaw.com
Examples of Inherent Risk
WR Ruffler Pty Ltd v Idohold Pty Ltd
Codelfa Constructions Pty Ltd v State Rail Authority of New South Wales
www.etiennelaw.com
Lawyers Role In Practice
Assist in the negotiation to Identify the inherent risksAssist in negotiation the sharing of the risksThereby minimizing the risks occurring
by drafting clauses that are simple and human for the parties to read and use as management tools not to be hidden away in a drawer.
www.etiennelaw.com
Contracts – what are they?Contracts – what are they?
Practical Analysis – Contracts are:1. Risk Minimization tools2. Checklists or Rule Books Attempting to ensure performance
Contracts – as risk management tools Contracts – as risk management tools Buying an apple To construct a project
www.etiennelaw.com
www.etiennelaw.com
Contracts - As Checklists or Rule BooksContracts - As Checklists or Rule Books
Who is to do what? - That is what has to be performed.
When are the services\goods to be supplied– when are they to be paid for?
How are the services\goods to be supplied.
Consequences of good or poor performance.
www.etiennelaw.com
Why have a Contract instead of an Agreement Why have a Contract instead of an Agreement
least formal to most formal form form of Agreement oral contract of written
contract
Risk
Formality &Legality
www.etiennelaw.com
Why we need to understand how courts interpret contracts
Maple Flack Co Ltd v Universal Furniture Products (Wembley) Ltd
16th installment of 200 defective not enough to terminate contract for failure to perform
www.etiennelaw.com
How courts interpret contractsHow courts interpret contracts
Courts use rules of construction as pointers to discover the presumed intention of the parties to a contract.
The rules are not slavishly applied. The rules are used to produce as
reasonable and just result as possible.
www.etiennelaw.com
Rules of Contract ConstructionRules of Contract Construction The object of construing a contract is to ascertain what the mutual
intentions of the parties were as to who is to do what, how and when from the words they used to express the obligations each assumed by entering into the contract.
The intention of the parties is the meaning of the words they have used. There is at common law no intention independent of that meaning.
The intention of the parties must be ascertained from the words used, in light of the surrounding circumstances and the object of the contract, in so far as the object has been agreed or proved.
Courts construe the objective intention of the parties not the parties actual intention.
www.etiennelaw.com
Evaluated list of legal requirements compared to business units functions
Cl 4.6
AS 4360 - Risk Evaluation
Riskacceptable Accept
Yes
No
ReduceLikelihood
ReduceConsequence
Transfer infull or in part
Avoid
Consider feasibility, costs and benefits, and levels of risk
Recommend Treatment Strategy
Choose treatment strategy
ReduceLikelihood
ReduceConsequence
Transfer infull or in part
Avoid
Riskacceptable ?
RetainYes
Unacceptableresidual risk
Prepare systems to embed plans to reduce, transfer, avoid risk
Implementtreatmentplans cl 4.5.4
cl 4.5.3
Assesstreatmentoptionscl 4.5.2
Identifytreatmentoptionscl 4.5.1
www.etiennelaw.com
Drafting for Performance
1. Understand the legal aspects.
2. Identify potential risks by drafting a contract as a checklist .
3. Take practical steps to eliminate/minimise those risks.
By taking these actions you can then draft to: Reduce the likelihood of an event; Reduce the consequences of an event; Transfer in full or in part the consequences of an
event (Negotiate a price to accept the risk); and/or Avoid the event.
www.etiennelaw.com
Drafting for Performance
Reduce the likelihood of the event of non- performance.
Due Diligence
www.etiennelaw.com
Drafting for Performance
Reduce the consequences of an event [of non- performance] by drafting the following clause: Warranties Indemnities Liquidated Damages Restraints of Trade Post employment of key personnel Exclusion clauses
www.etiennelaw.com
Drafting for Performance
Firm Price A price which is not variable for any reason
Fixed Price A price, the final value of which is fixed by reference to some variable parameter such as inflation, currency exchange rate, or maintainable profits of the businesses
Earnout/Workout Price
A price based on the post acquisition profits of the business so that the seller shares in the on going growth of the businesses
Transfer in full or in part the consequences of an event
www.etiennelaw.com
Drafting for Performance
Avoid the event [of non performance]
Don’t proceed with the contract if the terms cannot be agreed upon
www.etiennelaw.com
Drafting for Performance
Use standard forms and established precedents where possible
Always ascertain if what the parties are seeking to achieve is achievable
List the items to be performed (draft a checklist)
Obtaining performance is the key
www.etiennelaw.com
Drafting for Performance
Know what the parties want; Do their calculations; Think long term; think strategically; Recognise the risks of both action and inaction; Be prepared to constantly measure performance
against the established bench marks; Review the process to ensure continual improvement; Invest the time and the resources to do it right and Analyze the risks of non performance eg use of
AS4360
www.etiennelaw.com
Questions?Questions?
![ORAL EXPRESS WARRANTIES: HOW TO CONVINCE A COURT TO … · 2016. 8. 23. · 2016] Oral Express Warranties 841 discussed in this Article. First, this Article pertains to contracts](https://img.pdfslide.us/doc/110x75/5fbd06eb7e1ecc41e659414d/oral-express-warranties-how-to-convince-a-court-to-2016-8-23-2016-oral-express.jpg)
