For the London Free Press – September 10, 2007

Read this on Canoe

Letters of intent are often used as a starting point to negotiate various arrangements. But they can be risky.

The March decision in the Ontario Superior Court of Justice of Wallace v. Allen et al considered whether a particular letter of intent bound the parties.

The case centered on two friends who had entered into a gentleman’s agreement regarding the sale of Mr. Allen’s business interests. These friends started their agreement with a letter of intent that stated “there was still much legal work to be done,” and they would eventually need to enter into a binding agreement.

These friends negotiated over the span of several months, and the buyer started working alongside the seller to learn the business and meet the clients. Ultimately an agreement was drafted, but never signed. The seller lost his faith in the deal and called it off when the buyer was out of town on the day the deal was to close.

The buyer sued his former friend to enforce the letter of intent, saying it created a binding agreement for the sale of the business. The court found, however, that because of the very clear terms in the letter of intent indicating it was only to be a preliminary document, it wasn’t binding.

The court referred to the fact the letter of intent was drafted before negotiations were completed. This turns out to be a key point: If that same letter had been drafted and accepted after negotiations were complete and after a large majority of the terms of the agreement had been decided, the judge may have found it formed a binding agreement.

What protected the would-be seller from having the letter of intent enforced was that there had never been any indication the letter was to be binding. All parties at all times were aware they still had to draft and sign an agreement, and the letter was just a starting point.

When the plaintiff buyer tried to enforce the letter of intent the court refused, finding there was no meeting of the minds. The friends had never meant for the letter to be the final agreement, and they couldn’t now claim otherwise.

The judge referred to the seller’s unfortunate temper, and his all-consuming pride. In this situation, where an agreement between friends was ready to sign, they had begun to work together and visited with each other socially, one minor delay shouldn’t have caused the whole deal to fall apart. The judge, however, couldn’t read into the letter of intent clauses or terms that were simply not there. The language was clear and unambiguous, and the court had to find there was no binding agreement for the sale of the business.

This case illustrates the importance of carefully worded documents, and making sure the parties’ true intent is reflected. A letter of intent can be a useful tool for negotiation, but should the deal sour, a poorly worded letter of intent could turn into a weapon to be used in future litigation.

For the London Free Press – August 20, 2007

Read this on Canoe

The Supreme Court of Canada recently dismissed a class action suit against Dell launched in Quebec. The case has some useful observations about e-commerce.

The issue arose from Dell’s mistaken posting of incorrect low prices on its website. Dell refused to honour those prices.

The case turned on the enforceability of Dell’s terms and conditions and in particular a section that said consumers had to use arbitration rather than class actions. The decision is now academic in some provinces, such as Ontario and Quebec, which have recently enacted legislation to make terms that deny consumer resort to class proceedings unenforceable.

Despite that and despite the case being decided under the Quebec civil code, the court made some observations that bode well for e-commerce in general.

Click wrap agreements — where one clicks “I agree” to be bound by an agreement — are binding, but there has been some question whether terms found on links on a page are binding on users.

Part of the case hinged on whether linked documents formed part of the main web pages. The court stated that: “The evidence . . . shows that the consumer could access the page of Dell’s website containing the arbitration clause directly by clicking on the highlighted hyperlink entitled Terms and Conditions of Sale. This link reappeared on every page the consumer accessed. When the consumer clicked on the link, a page containing the terms and conditions of sale, including the arbitration clause, appeared on the screen . . . (The) clause was no more difficult for the consumer to access than would have been the case had he or she been given a paper copy of the entire contract on which the terms and conditions of sale appeared on the back of the first page.”

The dissent had a similar point of view, saying, “We are dealing with a different means of doing business than has heretofore been generally considered by the courts, with terminology and concepts that may not easily, though nevertheless must be, fit within the existing body of contract law . . “(As) e-commerce increasingly gains a greater foothold within our society, courts must be mindful of advancing the goal of commercial certainty . . . (The) context demands that a certain level of computer competence be attributed to those who choose to engage in e-commerce.

“It is true . . . that the hyperlink to the Terms and Conditions of Sale was in smaller print, located at the bottom of the Configurator Page. The evidence was that Dell places a hyperlink to its Terms and Conditions of Sale at the bottom of every shopping page on its site.

“This is consistent with industry standards. In fact, this is the placement that was at the time recommended by Industry Canada’s Office of Consumer Affairs (Your Internet Business: Earning Consumer Trust — A Guide to Consumer Protection for On-line Merchants (1999), at page 10).

“It is proper to assume, then, that consumers that were engaging in e-commerce at the time would have expected to find a company’s terms and conditions at the bottom of the web page.”

For the London Free Press – July 16, 2007

Read this on Canoe

UPDATE: This post was reproduced on the ITManagers blog and received some positive comments.

When negotiating an agreement for the purchase of goods or services, some buyers try to get the vendor down to the lowest possible price. That may not be the best approach, however, because it can affect the quality of services you receive and may end up costing more.

Sometimes the saying “you get what you pay for” is true. Often getting a reasonable price is better than getting the lowest price.

This is especially true for anything requiring ongoing work. It applies to virtually any service, from office cleaning to equipment repair. Let’s use a major software installation as an example.

You enter into an agreement with a vendor to purchase a new system that might include various pieces of software, hardware, training, installation and implementation, project management and ongoing maintenance.

If you grind the price down so far that it leaves little or no margin for the vendor, the vendor will be inclined to spend as little time as possible performing the services.

To make a profit, the vendor naturally will try to limit his costs by cutting corners. He may not be attentive to project details or buyer needs. He also will be more likely to provide the bare minimum services required by the deal and strictly construe its obligations in the agreement. The vendor will be less inclined to do extra work that comes up throughout the project without insisting on a further fee.

For example, training may be cut short, not enough attention might be paid to managing the project, and response times for service might be slow. You may end up doing things the vendor perhaps should have done. The implementation may take longer and have more frustrations than it should. In the end, all these things could cost you more time, frustration — and money.

It essentially becomes difficult to motivate the vendor, which will want to do only the minimum necessary. While having a clear, well-drafted agreement setting out the vendor’s obligations is important, no agreement will help if the vendor is not motivated to perform.

It is often said that an effective negotiation is one in which neither party is 100-per-cent satisfied with the result. That may sound odd, but it is far better for each party to feel it’s getting some value out of the arrangement, including the vendor feeling it will make a fair profit.

On the flip side, if you as a vendor negotiating a sale feel you’re getting badly beaten up over price and don’t like where the deal may be headed, it is sometimes better to end the negotiation than to get into a position where there is no profit in the deal. The natural inclination to do the bare minimum possible, and the lack of motivation may lead to substandard work and damage your reputation.

That’s the title of an article in the latest Info-Tech Advisor, a regular newsletter of the Info-Tech Research Group.

Creating meaningful, measurable, and effective service levels for service provider agreements is not easy. They can, however, be very important to the success of a service arrangement.

This article has some good insight into how to create an effective SLA.

The Info-Tech Advisor is only available by paid subscription, but a pdf of this article is at the link below, with their permission.

Read the Info-Tech article

Go to Info-Tech’s web site

According to Fierce Wireless, AT&T has sued Nascar as Nascar refuses to allow AT&T to put its branding on a car that is sponsored by Cingular. Since AT&T bouught Cingular, and is slowly changing its brand to AT&T – seems logical that they should be able to re-brand the car they sponsor.

The wrinkle is that Sprint Nextel is apparently a lead Nascar sponsor, with an agreement for exclusivity among telcos. Cingular was allowed to sponsor because it was grandfathered under that agreement – but only under the Cingular name.

Goes to show how tricky/dangerous exclusivity clauses can be for the party granting the exclusivity.

Read the FierceWireless post

ITBusiness.ca has a good article entitled Fire your outsourcer! that talks about how important it is to negotiate and draft outsourcing agreements that contemplate ending the deal from the outset.

This is true for any arrangement where one contracts out a function, or hires a third party service provider, even if it is not technically outsourcing.

There are any number of reasons why one might want to end such an arrangement. The point is that it is far easier if the arrangement contains transition provisions, and if the service was set up in a way that is transition friendly. Even if one does not change, it gives more bargaining power if the service provider understands that the transition barriers are low. A modern version of not wanting to owe one’s soul to the company store.

For more detail, read the ITBusiness.ca article

David Canton – for the London Free Press – March 3, 2007

Read this on Canoe

A recent Information Week article criticized software licenses, saying they contain so many ridiculous provisions they will soon attract litigation similar to patent enforcement litigation.

That’s not likely to happen in my view, but licenses do often contain onerous or ridiculous provisions.

Almost everyone has been presented with a End User License Agreement (EULA –often pronounced YOO-lah). They are also known as click-wrap agreements. It is almost impossible to use a computer without eventually being asked to click the “I agree” button. They are a contract between the producer of software or a service and its user.

Some feel EULAs have gotten out of control. Few people read them. Even if one did not like what they read, the only choice is to not install or use the product. Some EULAs have contained language where you agree to let them install spyware on your computer, or delete any file they want on your hard-drive.

So are such provisions actually binding?The fact is that click wrap like agreements have been around forever. Every time you buy a concert ticket, park in a lot or attend a sports event you are agreeing to things you have not likely read.

These one-sided agreements are called contracts of adhesion. All of these things come with terms and conditions you accept merely by entering the stadium or putting money into the parking meter.

There is a line of “ticket cases” where the courts decided such agreements are binding, so long as reasonable efforts were made to bring them to the user’s attention and the terms are reasonable. The courts recognize this type of agreement is necessary for modern life, but, at the same time, their one-sided nature is open to abuse.

The courts and legislation in various jurisdictions have made clear the act of clicking “I agree” is sufficient to be bound by the contract, just as if one had signed it.

The courts will not, however, enforce provisions they deem to be unexpected or unusual. Provisions that purport to allow the software vendor to use your computer to send spam or where you consent to infecting your computer with a virus would clearly not be enforceable.

Courts also have found vendors liable for damages where the courts felt the vendor was incompetent, despite the usual EULA clauses saying vendors are not liable for anything.

The click-wrap agreement is under no danger or becoming the next form of nuisance lawsuit. The courts simply won’t enforce any parts of them that are unreasonable. Of course, the definition of unreasonable is always subject to interpretation.

David Canton – For the London Free Press – November 3, 2006

Read this on Canoe

An Ontario court recently refused to enforce an agreement by which the parties to the agreement had not abided.

It is important to put agreements in writing, but it also is important to follow them. If the parties jointly choose not to follow certain aspects of an agreement, one of them can’t later change its mind and enforce it.

In Jedfro Investments Ltd. versus Jacyk Estate, three investors entered into a joint-venture agreement to develop property. The investors purchased the property with cash and a promissory note and intended to make payments through the sale of lots. The real estate market plummeted and the investors were unable to meet payment obligations.

The joint-venture agreement contained provisions to deal with the situation by providing a method for one of the parties to buy another out.

Instead, one of the investors took over the note and the plaintiff gave its share of profit to the party that took over the note payments.

A foreclosure occurred, the plaintiff was out of the picture and the other two investors entered into a new arrangement to develop the property.

The plaintiff sued the other two investors seeking a share of profit from the new deal, arguing the other two investors breached the original joint-venture agreement.

While that was true, the judge was not sympathetic. The plaintiff went along with the actions of the other two parties and had ample opportunity to object at the time.

The judge stated, “Where parties act in a way that shows that they do not intend to comply with or be bound by the terms of their written agreement, one party cannot later come to court and ask to have the agreement enforced for its benefit. Enforcing the written agreement in these circumstances would be contrary to the intention of the parties, as evidenced by their conduct.”

This decision is based on the principle of detrimental reliance, when one party does something based on the acts, representations or promises of another. If someone takes steps in reliance of those, the person upon whom the actor relied is entitled to contend there was an agreement.

If the parties collectively ignore the terms of an agreement, neither party can later enforce the ignored terms against the other. You cannot ignore an agreement when it does not benefit you and ask for enforcement of the same agreement when it does.

Parties to an agreement should be aware their behaviour may affect their ability to enforce their contract. On the flip side, if one is acting contrary to an agreement and the other side is willingly going along, it would be wise to have the parties explicitly acknowledge it in writing.

Business arrangements can sometimes go sour despite the best intentions of the parties. One way to lessen the risk of problems is to put the agreement in writing. Here are ten reasons why that is a good idea.

1. An oral contract is not worth the paper its written on.
2. The person you dealt with at the other company might leave or get hit by a bus.
3. It brings clarity – no one really knows what the deal is until its in writing.
4. Corporate memory is highly over-rated.
5. Judges, regulators, and tax collectors like written agreements.
6. You are less likely to hear “That’s not how we figured the deal”.
7. The process of putting it on paper leads to a true meeting of the minds.
8. Better to kill the deal early if you can’t sort out your differences, than later after investing time and money.
9. People remember what they want to remember.
10. Combats the “but that’s not how we do things here now” retort part way through the deal.

David Canton – for the London Free Press – July 29, 2006

Read this on Canoe

Many think the value of a written agreement is to defend your position if a business relationship goes bad and ends up in litigation.

The real value of a written contract goes far beyond that. A well-drafted and negotiated agreement can prevent litigation because of the clarity it brings. It also can help the parties understand the arrangement along the way if the individuals who initially made the agreement are no longer involved. Think of it as corporate memory.

Entering into a written agreement does, however, have a much more fundamental purpose — making sure the parties are actually in agreement in the first place.

Every business lawyer can tell stories where clients say they have reached an arrangement with another party and they merely need the arrangement to be documented. Your client says there are no contentious issues.

The lawyer drafts an agreement that fits the client’s description of the arrangement. The first reaction from the other party is: “That’s not how we figured the deal.”

It’s not that either of the parties have done anything wrong or tried to take advantage of the other. It’s simply that until an agreement clearly sets out each party’s obligations, both parties may have different views of the arrangement.

It’s much better to have that happen up front than after the services or arrangement is underway. It allows the parties to sort out the issues and come to a true meeting of minds. If all else fails, the parties can part ways before they get started.

When drafting and negotiating agreements, the best long-term result is not where each party tries to beat the other into submission or extract every last concession or dollar. The best long-term result is the most mutually beneficial arrangement.

Another common contract faux pas is where the parties blindly use a precedent to document a deal without considering what the new deal is or without getting legal advice.

A precedent document can be a valuable starting point or checklist for contract issues, but we should not be slaves to them. The entire precedent should be reviewed to determine how applicable it is to the situation at hand. The best legal drafters will remove, shorten or amend to fit.

A good test to see if one is on the right track is to have someone read it who is not familiar with the arrangement. Anyone knowledgeable about the subject should be able to understand the arrangement easily. Even someone not familiar with the subject should understand the gist of the arrangement.

These principles apply to any type of business dealings, whether it is for the supply of goods or services, a joint venture, a technology licence or other arrangement.