Commercial Contracts: Innovative Ways to Maximise your Position. October 2013

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2 Commercial Contracts: Innovative Ways to Maximise your Position October 2013

3 Welcome & Introductions Colin Hutton Partner & Head of Dispute Resolution T: +44 (0) E:

4 Let's review

5 A Contract Lawyer's View

6 Agenda Background It's not just 'all about the Contract' What practical things I've learned re contract disputes pitfalls to avoid Summary

7 Background Contracts Lawyer First point of contact from business in event of dispute Give Initial View, Analysis and Options Resolve issue without litigation (where possible)? BUT Need to advise generally on litigation options Not prejudice the litigation options if these become necessary Pass the dispute to litigators if and when necessary Provide on-going background or specialist advice (IT/IP/other?)

8 It's not just 'all about the Contract' Many things to consider think about before you can give even an initial view Emotions may be running high "Terminate the contract!" "Sue them!" "Don t pay them!" For example

9 Client v. IT Supplier Client entered into an IT Supplier's standard contract for a large IT project. Had paid c. 2m on a T&M basis to IT Supplier. Project was over-running, dissatisfied with the performance of IT Supplier. Client (Procurement) had sent a Termination Notice for 'material breach'. Counterclaim, repudiatory breach by client, retained materials, no-one else could access and use IPR, TUPE risk too. Client ended up paying IT Supplier lots of money!

10 First Things First Is client/business area considering (or is possibly subject to risk of) interlocutory / interdict / injunction proceedings? If so, get litigators involved immediately and they will advise on counsel too. In Scotland, check caveats are in place.

11 Outline of the Dispute Get this from business area in outline Consider the "privilege" position before setting hares running / producing documents / internal investigations See later Get a copy of the signed contract Flag the Change Control / Variation / Supplemental Agreement issue get them to pull these together Flag the phone call / exchange amendment Flag the "factual matrix" issue Collateral Contract?

12 Clean Hands? Bearing in mind the 'privilege' and 'disclosure' position, find out if your organisation has 'clean hands': Likely it will not have! This will colour how you approach matters Assess risk of counterclaim / 'mutuality' issues

13 Commercial Context / Leverage / Conflict (1) Check the Group position Is a contract about to be awarded elsewhere in Group? Can you use this? Could your approach affect strategic relationship? Inform relevant stakeholders Check Insurance May be insurers need to be informed Insurers may need to take control of action If you don t you could find the insured risk becomes un-insured!

14 Commercial Context / Leverage / Conflict (2) Exit Availability of another supplier Transition Co-operation of outgoing supplier crucial If supplier is regulated then may be FCA/PRA comfort If supplier is a member of a trade association look to this too Exit disputes common

15 Analyse the Contract (The Legal Bit!) (1) Law and Jurisdiction Are these effective choices? Dispute Resolution Provisions Obliged to follow contractually? Timescales Arbitration obligatory? Check law Adjudication? Overriding Laws?

16 Analyse the Contract (The Legal Bit!) (2) Other remedies Self-help remedies Non-payment / etc. Dispute Resolution Procedure Collateral Contract? Tort / Delict Action? Misrepresentation / reduction of contract for fraudulent misrepresentation? Have procedures been followed re notices etc.? Timescales / mode / time periods?

17 It's not just 'all about the Contract' Many things to consider think about before you can give even an initial view Emotions may be running high "Terminate the contract!" "Sue them!" "Don t pay them!" BUT

18 Useful reminders to client/business area Be robust and confident in position with the other side BUT Be realistic about options with your business time and cost of litigation management time / bad publicity risk of unknown "smoking gun" something unexpected in litigation Litigation may be the only option But negotiation is much better if at all possible

19 Pitfalls (1) Avoid reliance on 'material breach' / 'repudiatory breach' very difficult to prove subject to a counterclaim? No exit assistance? Do your liability caps still apply? Do your TUPE indemnities stand? Terminate for specific contractual rights if you can Beware termination "for any breach" clauses In English Law, deemed to be 'material breach'

20 Pitfalls (2) Follow the Notice provisions Consider 'open' or 'without prejudice' status of negotiations / correspondence If you are a Scots Lawyer English Procedure is very different See later Be careful not to fall into 'privilege' and 'disclosure' traps Be careful about extent of English Courts' ability to consider things other than the contract itself (although Scots Courts are catching up)

21 Recommendations Be frank and realistic with business area you cannot guarantee outcome of a court case! your views can only be an initial view and may change if/when full facts are known Try negotiation to settle / agree way forward Make sure the business area does not do anything precipitous Be in a position to move to litigation quickly tactical move by other side Litigators may need your expertise on the contract they know the processes, you will know the law and background need to work together!

22 Contact Us Allan Wardhaugh Partner T: +44 (0) E:

23 Managing Information in a Dispute

24 The issue "Every two days we create as much information as we did from the dawn of civilization up until 2003". Eric Schmidt, Google's CEO, 2010

25 What will we cover? The role of the in-house lawyer in managing information when disputes arise General obligations in relation to disclosure and the duties of the in-house team Practical tips

26 The in-house lawyer and information management In-house legal team is uniquely placed at the hub of information flows and (hopefully) first to be consulted when there is a dispute. How organisations typically deal with Information Management: my experience. The in-house lawyer as a manager of legal risk: Risk from uncertainty due to legal actions or uncertainty in the applicability or interpretation of contracts, laws or regulations.

27 Business information: your obligations You have a duty to ensure that obligations in relation to disclosure are brought to the attention of the business as soon as possible: "Too many litigants (not least corporate litigants) have lost their appreciation of the scope of discovery solicitors (must) take positive steps to ensure that their clients appreciate at an early stage of the litigation not only the duty of discovery and its width but also the importance of not destroying documents which might by any possibility have to be disclosed. This burden extends to ensuring that in any corporate organisation knowledge of this burden is passed onto any who may be affected by this." Rockwell Machine Tools [1968] 2 [AER] 97 per Megarry J

28 Case study Earles v Barclays Bank plc [2009] EWHC 2500 v none of the Bank, its legal department, the claimant or his solicitors took the obvious steps of preserving the contemporaneous phone and records One expects a major high street Bank in this day and age of electronic records and communication with an in house litigation department to have an efficient and effective information management system in place to provide identification, preservation, collection, processing, review analysis and production of its ESI in the disclosure process in litigation and regulation the failure to disclose such critical information to assist the Court is surprising and to be deplored

29 Case study Although bank was successful, the judge cut the costs by half. In-house lawyers and external legal team were criticised: those practising in civil courts are expected to know the rules and practise them; it is gross incompetence not to

30 Litigation readiness What do you need to do? Legal and IT teams should determine: what information you need to preserve; how to implement preservation; and how to monitor compliance with preservation protocols. Regulatory and compliance drivers in addition to commercial drivers. ESI policy is embedded in a number of in-house policies and is a requirement when involved in OFT and HMRC dawn raids.

31 Practical tips: day to day Have an effective information management policy which includes preparation for disputes - and keep it up to date. Understand what documents you hold and where you hold them. Create summary/map of where documents and information are/may be kept, in what format, who is responsible for looking after them and what policies apply. Have a team in place who understand your organisation's obligations to disclose information and can implement a legal response plan. Keep details of what happens to leavers' documents.

32 Practical tips: preparing for disputes Have a questionnaire you can use to find out fast who are the key players and what information they hold. What other documents may be relevant to dispute take wide approach to relevance. Create a template legal hold notice you can circulate quickly to ensure preservation of documents. Make sure your document destruction policy has a pause option for documents relating to disputes.

33 Practical tips: preparing for disputes Ensure that staff communicate potential disputes at an early stage so that you can stop destruction. Remind staff that everything they communicate may be scrutinised in court, so they should think about what they put on paper. If you want to keep documents out of disclosure think about whether they can be created in a privileged format. Be prepared - disclosure may be a costly exercise.

34 Case study: Digicel Digicel v Cable & Wireless [2008] EWHC 2522 (Ch) 1,140,000 documents provided on individual DVDs or CDs and hard drives Titles of electronic sub-folders were manually reviewed to screen out irrelevant subfolders, reducing the potentially relevant electronic documents to about 625,000 Using a key word search reduced that number to about 370,000. An automatic de-duplication process removed copies of identical documents - leaving about 197,000 documents. which were returned to the Defendants solicitors for manual review which produced 5,212 documents which were disclosed.

35 Case study: Digicel "I understand these documents comprise some 28,983 pages and fill some 83 level arch files. The exercise described above cost the Defendants some 2 million in fees together with disbursements of 175,000. The process took some 6,700 man hours of lawyers time "

36 The future and things to think about now The rise of specialist ediscovery and LPO providers What can they do? How can you use them most effectively?

37 Contact Us David Lytton Senior Associate T: +44 (0) E:

38 Questions & Discussion