© Winston & Strawn London 2008. These notes are provided free of charge as a convenience to attendees of the
Bootlaw series of seminars. They relate to the laws of England and Wales only. They do not purport to offer
advice, or to be fit for any particular purpose. For this reason, they are supplied with no warranty, express or
implied, of any type. We accept no liability for their use and you should obtain independent legal advice in
connection with the issues discussed. We hope you understand why we cannot accept liability for the use of
these notes when we are not aware of the circumstances of their use. Please contact Barry Vitou if you have
any questions about their use and application. You are granted a limited licence to copy the documents for
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Courtroom Dramas
Barry Vitou
Speaking Notes
17 February 2010
You might think that there is very little you can do to avoid a dispute. How can you stop
someone from breaking your agreements. Tonight. We’re going to dispel that myth.
What Are the Most Likely Causes Of Disputes?
The key here is to learn from others mistakes. Focus on the accident blackspots and sign up
to a detailed agreement which deals with the issues in advance.
And why sign up to an agreement? Catalyst for discussion of the key points and evidences the
agreement you’ve reached. Makes life a lot easier if you then have a dispute.
So where are the most likely areas for a dispute that we see?
First up I’m going to focus on some basic housekeeping tips before moving on to areas of
common disputes:
Is It Legal?
We have seen examples of great ideas for businesses which are problematic.
Examples include websites to crowd fund finance for start up shares which don’t comply with
FSA rules.
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If your business relies on content from third party sites then build into the model the payment
of licence fees to owner of the content. The Pirate Bay is an extreme example of what
happens if you don’t.
Always worth checking that your product or service complies with local law. For example,
online gambling businesses, lawful in the UK unlawful in the US.
Common Sense
Have a procedure for agreeing contracts:
Be aware of the so-called battle of the forms. You may have supply terms, but if you sign the
customers purchase order with their terms on the back of the form their terms will apply.
Make sure that someone in a supervisory capacity gets to sign off on all deals in the office.
Make it a rule that any agreement or an amendment to an agreement is in writing.
Ensure your contract is incorporated:
What does this mean? Make sure that customers have to agree to your terms and conditions
(which by the way you should have) when they buy something from you online.
File stuff:
Make sure all relevant documents (including contracts and acceptance notes) and complaints
are properly filed and retained. Executed contract AND amendments to it are kept. More
often than not when we are asked to become involved in a dispute we have to play Sherlock
Holmes and piece together what happened.
Monitor agreements:
Check renewals, keep performance and timing under review – keep records so you have a
clear audit trail to put yourself in best possible position if you do have a dispute. We were
involved in one dispute where because the contract was not monitored, nor rights (for
appointment of a board director or financial information) exercised created an opportunity for
the agreement to be breached with resulting years of litigation.
Have a clear document retention policy: ensure “leavers” don’t wipe laptops, hand over
account notes, don’t lose the audit trail.
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Co-operation clauses in Contracts of Employment so leaving employees have to co-
operate after the event but be prepared to pay them.
And disputes you don’t want to be on the receiving end of:
Anything HMC&E. Which translates into pay your tax.
Employment claims (time consuming and expensive far beyond the value of the claim with
the possibility of terrible press) adopt good empoloyee policy,
Health & safety (don’t compromise, get H&S audit done to keep you up ot date).
Now turning to deals that go wrong:
1. Investment and Shareholder Agreements:
Disputes between shareholders.
What happens to someone’s shares if someone leaves or how to remove a shareholder who
isn’t pulling their weight.
Can their shares be transferred to others? If so and for how much?
If you don’t have a clear agreement which deals with what happens up front then it is much
harder to do a deal later.
We’ve seen examples of investments conditioned on the remaining Founders doing a deal to
buy a departed founders shares before any investment is made. If you haven’t agreed
something to deal with this up front this can take a lot of unnecessary time and energy.
2. Sale and Purchase Agreements (for shares or assets):
What are the most frequent claims in a sale and purchase transaction? Probably a claim by the
buyer that the business has problems that he was not aware of when he agreed to buy it.
If you’ve agreed payment by instalments then as seller you’ll be suing for the remainder of
the payments.
If you’ve paid all the money up front as the buyer, you’ll be suing for a refund of the price
you’ve paid.
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Make sure if you are selling a business or shares on arms length terms that you have a lawyer
help you and include some liability limitations.
3. Know Your Customer who and where are they?
Are they well established? Do they have a litigious reputation? What/Where are their assets?
If they are off shore, can you get at their assets and how easy is it to enforce (choice of
forum).
4. Large Supply/Licensing Contract:
The biggest scope for dispute here relates to the specification, what have you promised to
deliver?
The specification should be clearly set out in advance or if this is not possible it must be clear
that the first step of the engagement is to agree the specification.
If you have a long term contract, have stepped milestones, with clear deliverables per
milestone. And ensure that if one milestone is late in delivery due to issues, that the whole
project cannot fail.
And be careful what you promise before you sign the contract.
A great example of a contract which went spectacularly wrong this reported in the last
couple of weeks involved an IT supply contract between two giants in the industry Sky v.
EDS which revolved around promises made by the salesman who sold the product. In short,
EDS were contracted to provide a CRM solution to Sky for £48 million. Things went
wrong. Sky terminated the contract, finished the job itself for £265m and sued EDS for
damages. EDS argued that a £30m liability cap applied. Sky argued that a pre-contractual
misrepresentation should not be subject to the cap. Broadly, the judge agreed. Its reported
that EDS has already been ordered to pay £200 million as an interim damages payment with
potentially a further sum to pay. Sky is claiming over £700 million.
Its clearly an important legal decision in the software industry. But lawyers have also
focused on another pivotal issue. The credibility of a witness.
During the proceedings, it was alleged that a managing director at EDS, had a dodgy MBA,
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apparently from a college in the Virgin Islands, but actually obtained through the internet.
The point was nicely made by the QC for Sky who obtained a similar degree from the same
college for his pet dog Lulu.
As the judge noted: "Without any difficulty the dog was able to obtain a degree
certificate and transcripts which were in identical form to those later produced by Joe
Galloway - but with marks which, in fact, were better than those given to him".
(You can read the whole judgment here – it’s only 2350 paragraphs long, but the judge
considers the evidence of Galloway at paragraphs 174-196)
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