BUSINESS CONTRACTS

The definition of each term used in the Contract is important in order to avoid any misunderstanding between the parties in the interpretation of the Contract.

The more words and disambiguations are made in the Definition clause, the less the possibility of a misunderstanding between the parties on the interpretation of the clauses of the agreement.

The correct formulation of the Pricing Clauses in the context of long-term Contractual relationships as well as when it comes to acquisitions of companies is of paramount importance. We spend time discussing with our clients about the best practices to negotiate Pricing clauses.

Termination Clauses are also very important since they define the terms on which each party is bound by the Contract.

Particular attention must be paid to the initial Duration and the Renewal Terms as well as the Termination Procedures through which the parties can free themselves from the Contractual relationship.

Determining the limits to the Compensation for damages arising from the non-performance of the agreement as well as indicating the remedies available to the parties to force the other to perform its obligations is key in order to make sure that each party is aware of the consequences of a Contract Breach. The formulation of these clauses may be very nuanced and usually, like for Pricing, requires  negotiation.

The parties must agree on the Governing Law of a Contract and shall be fully aware of their choice.

Indeed, the Governing Law determines the legal criteria on the basis of which a dispute will be solved and in most cases also the courts that will  rule on the dispute. 
It is important that the parties choose the law that best governs their interests, taking into account that the Governing Law shall be preferably also the law that governs the enforcement of courts’ decisions. 

If national courts are naturally competent to rule on any dispute, resorting to Arbitration can be a very good option in case the parties look for a quick, reliable and confidential solution to their controversies. 

We counsel our clients on structuring suitable Arbitration and Mediation clauses, in particular with the insertion of Multi-Layer Clauses where  there is an obligation or the possibility for the parties to go through a Mediation process before commencing Arbitration or in parallel to the Arbitration proceedings.

For technical disputes, the parties may also provide for the appointment of an Expertise or Dispute board to assess the merits of their dispute. This way,  the parties may be able to find a possible agreement, before initiating the Arbitration proceedings. 

Inserting such a clause into an Acquisition Contract may protect the buying party from a significant decrease in value of the target Company.

Indeed, before the closing date, an external and unforeseeable event may have a dramatical impact on the value of the target Company, making the initial terms of the deal void from a Business point of view.

That is when the Material Adverse Change (MAC) clause comes into play, by allowing the buying party to interrupt the negotiations in order to avoid a very unprofitable deal.

It is recommended that MAC clauses include precise parameters and thresholds to quantify the impact of an event as well as its duration in order to make it clear in which cases the clause shall apply.