Scott:
Welcome, everyone. Thank you for joining the webinar today. We’ve got an exciting one with myself, Scott, one of the Legal Solutions Consultants here at LegalVision. We also have Jessica Anderson, one of our senior lawyers from the Commercial Contracts team.
As part of attending this webinar, you’ll receive a complimentary consultation when you finish. So feel free to look out for that.
A few housekeeping points: You will all receive a recording of this webinar afterwards, along with all the slides. They’ll be emailed to you after the session. You’re also welcome to submit any questions via the Q&A box at the bottom of your screen. If you can’t see it, click on the three dots and go to ‘More.’ We encourage you to send through any questions you have, and we’ll aim to answer them towards the end.
Also, as mentioned, after the webinar, you’ll receive a survey, and we welcome your feedback. We run a lot of these webinars, so we’re always looking to improve and ensure they hit the mark. In the survey, you’ll also be able to request a complimentary session with myself or one of my colleagues to discuss all things LegalVision and how we can support your business.
Now, I’ll pass over to Jess to get started.
Jessica:
Thanks, Scott. I’m excited to be here with you all today, virtually. We have a lot to cover, so let’s dive in.
Today, we’ll be looking at why it’s important to get your contract terms right before signing. We’ll discuss the juicy topic of indemnities, liabilities and when they can be excluded. I’ll cover intellectual property ownership, commercial obligations—things like scope, price, and deliverables—unfair contract terms, and when they are void. I’ll also touch on insurance, as it’s a very common question we get from clients.
After that, we’ll have time for the Q&A, and thank you for submitting questions already. I’ve seen lots come through, so feel free to submit more throughout, and I’ll try to answer as many as possible.
Jessica:
Okay, so why is it important to get your contract terms right? I think my colleagues in LegalVision’s Dispute Resolution team would tell you that reviewing and, if necessary, amending a contract before you sign is one of the most important things you can do to protect your business and avoid disputes.
It helps ensure that the contract aligns with both parties’ expectations—not just the party issuing the contract. This can prevent misunderstandings later on. It also gives you an opportunity to confirm that the contract and the other party will comply with relevant laws and regulations.
You’ll also want to confirm how flexible and scalable the contract is, especially if you’re looking to grow your business. Can this contract grow with you? Can you adjust it if needed? What happens if unforeseen circumstances arise?
Importantly, it lets you confirm all the commercial details: scope, price, deliverables, timeframes, deadlines. Confirming these are realistic and achievable can help reduce stress around performance issues. A well-negotiated contract can also help limit your liability, whether you’re the customer or the supplier. Remember, it’s not just suppliers who can reduce their liability or responsibility.
I’m going to take you through some of the key clauses you should look at when signing a contract. And by signing, I mean not just physically signing it, but also ticking a box to accept the terms. Keep in mind that when deciding whether to accept or reject a clause, you need to balance how much risk you’re willing to take on, how much you’re spending, and how important the contract is to your business. It’s important for you to understand these factors, and of course, your lawyer can guide you through them too.
Jessica:
Let’s dive into indemnities. These clauses are often glossed over due to confusion. They’re not always tested in practice, but they’re common. You’ll often see phrases like “pay on demand,” “hold harmless,” or “compensate for,” which signal you’re looking at an indemnity clause. Indemnities are nuanced, and I don’t have hours to cover them today, but basically, they outline how one party agrees to compensate the other for financial harm suffered.
An indemnity is a direct obligation to pay for loss suffered by a party. I’ll quickly explain the differences between liability and indemnity clauses, as this is a common question from clients.
Liability clauses limit or exclude responsibility under the contract. For example, “our total liability under this contract is limited to $1,000,” or “we’re not liable for lost profits.” An indemnity, however, comes into play when a third party gets involved or when there are ripple effects beyond the direct contractual relationship.
So, a liability clause might cap the supplier’s liability to $50,000 if they breach the contract, but an indemnity could require the supplier to pay potentially unlimited amounts if a third party sues the customer due to the supplier’s defective product. The cap of $50,000 might not apply.
For example, if you’re the customer buying products from a supplier to resell, and those products are defective and injure your customer, an indemnity clause might require the supplier to cover the claim against you. We most commonly see suppliers indemnifying customers because suppliers typically bear more risk and control over the goods and services. But customers can also indemnify suppliers, especially concerning data or content.
Broad indemnities are something to watch out for. Ideally, customers shouldn’t agree to very broad indemnities.
Jessica:
So, what’s the risk of accepting an indemnity? They’re considered high risk because they can expose you to potentially unlimited financial liability. If the indemnity is broad, like requiring you to indemnify the other party for any breach of the contract, these clauses can become unfair and void.
If indemnities are in your contract and you can’t remove them, they can often be amended. You can limit your exposure by setting a maximum financial cap for indemnities. You can also check with your insurer to see if they’ll cover you if you have to pay out under an indemnity. Insurance brokers are usually happy to answer these questions.
Another option is to add a clause that reduces the loss based on the contributions from the other party, so neither party bears full responsibility for something both contributed to.
Jessica:
Moving on to exclusions of liability. Unfortunately, you can’t exclude liability for absolutely everything—that would be unreasonable and might be an unfair contract term. However, there are some things you can exclude, and this is usually where suppliers want to limit their responsibility.
For example, a common exclusion is for consequential loss, such as loss of profits or reputational damage. These are indirect losses, and suppliers often want to exclude them. If you’re the customer, you should check if these exclusions are in place. For instance, if a supplier’s marketing insights don’t achieve the promised results, that might result in a loss of profits, which the supplier might want to exclude from liability.
Another example is the loss of data. If you’re the customer, you’ll want to ensure the supplier takes responsibility for any loss of data, particularly if it’s critical to the deal. Similarly, if the services of a third party are involved, the supplier may want to exclude responsibility for those third-party inputs.
As a customer, you should ensure that the supplier’s exclusions are reasonable and that they are responsible for any third-party issues that arise within the contract.
Jessica:
Let’s now look at intellectual property ownership. This is a big one. IP can include patents, trademarks, copyrights, and trade secrets. Before entering a contract, make sure you understand which IP is important for the deal.
The contract should clearly define what IP is involved, whether it’s background IP, new IP, or jointly created IP. It’s crucial to define who owns the IP and outline both parties’ rights and responsibilities.
If you’re sharing existing IP, make sure the contract states that you retain ownership of that IP. For example, if you’re sharing design specifications, the contract should prevent the supplier from using those designs to manufacture similar products for other customers.
Jessica:
You also need to consider who owns new IP created during the project. For example, if the supplier creates biodegradable packaging to your specifications, you’ll want to ensure that any new designs, prototypes, or documentation created during the project is owned by you, the customer.
Similarly, ensure you cover any third-party IP that may be incorporated into the services or deliverables. If you’re the supplier, it’s important to clarify the responsibility for any third-party IP you incorporate.
Jessica:
Now, let’s talk about commercial obligations. Be as specific as possible about the scope of the services being offered and any deliverables. This helps limit the risk of scope creep. For multi-year contracts, check if the supplier can increase fees automatically or if they need to notify you first.
If you’re the supplier, ensure that the agreement sets out what information you need from the customer to provide the services. If the customer fails to provide that information or provides incorrect details, you should not be held responsible for any delays or errors.
Jessica:
Lastly, pay attention to the payment structure. What are the fees? When are they due? Check if there are any interest charges for overdue invoices and how debt recovery works. If the customer fails to pay, the supplier may have the right to terminate the contract.
Jessica:
Finally, termination clauses. Know how long the agreement lasts and how you can exit it. It’s common to see automatic renewals, so ensure you understand how to terminate the contract if needed. Many businesses overlook these clauses until it’s too late.
Jessica:
I’ll touch on unfair contract terms (UCTs) now. A contract term is likely to be unfair if it creates a one-sided advantage that isn’t necessary to protect legitimate business interests and could harm the customer. UCTs are often found in standard form contracts, like “take it or leave it” agreements.
If a contract contains UCTs, the clause could be unenforceable, and the party imposing the clause could be fined. If you receive a contract with a UCT, assess its impact on your business. If it’s detrimental, try to negotiate its removal.
Jessica:
Now, moving on to insurance. Insurance goes hand in hand with liability and indemnity clauses. It’s important to understand the types of insurance you need as either a customer or supplier. Talk to your insurance broker to ensure your policy covers you for the indemnities and liabilities in your contracts.
Scott:
Thanks, Jess. If you’re interested, we recommend downloading the Commercial Contracts Checklist via the QR code.
We’ve got another exciting webinar on December 4th at 11:00 a.m. about corporate immigration risks. You can register via this link or on our website.
Scott:
Now, we’re going to move on to the Q&A. If you have any questions, please submit them in the Q&A box. But while you’re doing that, I want to tell you a bit about LegalVision’s membership.
By becoming a LegalVision member, you get access to unlimited legal support through our specialist lawyers, covering all your business’s legal needs, including commercial contracts, document drafting, and intellectual property protection. We also provide full employment and HR support.
Scott:
That’s all for today. You’ll receive a survey after the webinar, and please feel free to share any additional questions. Thanks for joining us today, and we look forward to seeing you at the next webinar. Cheers.
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