White SW Computer Law
Intellectual Property, Information Technology & Telecommunications Lawyers
Melbourne Office - PO Box 452, COLLINS STREET WEST Victoria 8007 Australia
Sydney Office - GPO Box 2506, SYDNEY New South Wales 2001 Australia
Telephone: Melbourne Office - +61 3 9629 3709 Sydney Office - +61 2 9233 2600
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Email: wcl@computerlaw.com.au Internet: http://www.computerlaw.com.au

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quickcontracts

CONTRACTS IN A HURRY

A project suddenly takes off and you have not finalised the contracts. What can you do to best protect your position? This article looks at possible solutions and their advantages and disadvantages. Remember, it is unusual for parties to work together successfully if litigation is seen as the answer to a dispute or problem. However, if you are properly prepared most disputes can be avoided or resolved well before you arrive at Court.

The possible scenarios include:

  • no contract at all
  • an oral contract
  • an oral contract supported in part by cross letters/order form
  • signed letters
  • brief formal contract or deed
  • formal contract or deed

In order for you to be able to enforce a contract there must be:

  • two or more parties
  • offer
  • acceptance
  • certainty
  • an intention to create a legal relationship
  • consideration (A deed does not require consideration but it may require stamp duty.)

ORAL AGREEMENTS

This is the quickest and most informal of contract types and so, the hardest to enforce. Remember that it is the obligation of the party asserting the right to prove on the balance of probabilities that there was an agreement, the obligation was a term of the agreement and that there was a breach of that term giving rise to loss and damage which was foreseeable or a specifically enforceable right to other relief. How would you prove this in Court? Can you prove that, for example, a particular software feature was to be included in a development project or that certain software products would work together?

Make sure you write down as much as possible including who attended meetings, what was discussed, where and when the meetings were held. It seems a basic step, but so many people find out just how difficult it is to reconstruct the process of a protracted negotiation procedure from diary notes and memory recall rather than taking the pro-active step of recording everything as negotiations proceed. It is a lot easier to throw out unnecessary notes at the conclusion of successful negotiations than to prepare them in the case of an unsuccessful conclusion.

If possible, have minutes taken at all meetings and have all those present at the meeting sign these minutes to verify their accuracy. During negotiations, always keep in mind how you intend to prove what happened actually happened? At all times you must plan that the other parties to the transaction may completely deny the conversation or event occurred.

It is important to note that some contracts must be in writing to be enforceable, for example copyright assignment and guarantees.

ORAL AGREEMENTS SUPPORTED BY LETTERS

If an oral agreement is entered into and each stage confirmed in writing by way of a letter, there is at least a sequential written record of the alleged negotiations which the other party had a chance to dispute. A claim under the Trade Practices Act 1974 (Cth) for misleading and deceptive conduct (Section 52 or Section 53) is greatly assisted when you have a written representation made to you upon which you rely.

SHORT WRITTEN AGREEMENTS

A written agreement, even if not formally structured, which is signed by the parties to the agreement is at least an undisputed record of the agreement. A bad written agreement at least gives a starting point to apply some implied warranties under the Trade Practices Act, the Fair Trading Act 1984 (Vic) or the Goods Acts (Vic) 1958 or possibly some express oral terms which appear, although not ideally expressed, in the agreement.

Parties often sign a “heads of agreement” document prior to a formal agreement being prepared and agreed upon. Such an agreement can be binding unless expressly stated not to be so. However, the language used in such documents must be carefully considered. In The Reark Group Pty Ltd & Anor v Data Connection Pty Ltd a “heads of agreement”document was signed between Reark and Data Connection prior to final negotiations. After the heads of agreement was executed, Reark sought to sell part of its research business to a third party and Data Connection sought to rely on a clause in the heads of agreement which it claimed gave it the first right of refusal of such a sale. The Court found that the heads of agreement was enforceable, however, the rights of first refusal only related to the Data Connection's laser printing and mail house activities and not the research business.

Accordingly, if you are entering into a pre-contractual agreement, ensure that the scope of the agreement is sufficient to protect your interests. It should be remembered that such an agreement is written with the intention of being replaced with a formal contract and cannot be relied upon to give the same protection that a formal contract provides.

FORMAL AGREEMENT

A formal agreement which outlines the responsibilities of the parties is obviously the best way to proceed. However, the disadvantages are the time delay, costs and the friction that may be caused between the parties. All of these disadvantages can be minimised by selecting an appropriate legal practitioner who is skilled in the area and familiar with the technology.

There are some terms which should be considered when preparing a contract or letters of engagement for a software development project.

  • Intellectual Property
    • Copyright** - works, geographic locations, future works
    • Licence* - exclusive, permitted use and copying, backup, site(s), modification, sub-licence, term, irrevocable
  • Confidentiality
  • Payment - Quantum, when, how, expenses
  • Specifications - Software, Documentation, Input, Milestones (Deliverable), Output, Standards
  • Pre-requisite Hardware and Software
  • Consequences of a failure to achieve milestone
  • Variation of Specification
  • Acceptance of the Software (linked to payment and maintenance obligations)
  • Installation and Migration (non-trivial)
  • Training
  • Warranty of Software for design and code
  • Maintenance Obligations - term, time (windows), scope, failure, exclusions, compulsory software and hardware upgrades, off site
  • Insurance*
  • Personal Guarantees for development obligations**
  • Performance Bonds**
  • Warranties
    • Software Design and Code
    • Ownership of Software
  • Indemnities*
    • IP infringement for materials supplied by both parties
    • Loss and Damage to parties and third parties
    • Statutory Requirements and professional advice
  • Limitation of Liability*
  • Escrow*

** Must be in writing Section 196 of the Copyright Act 1968 (Cth), Section 126 of the Instruments Act (Vic)
* Very difficult to establish unless in writing

In the next issue we will look at each of these requirements in detail.

CONCLUSION

When entering into contractual negotiations, evaluate the risk and choose a method which will achieve your objectives. Investing time and money in documentation at the commencement of an agreement can save a great deal of time, money, loss and damage in the future should your agreement fall into dispute.

STEVE WHITE
WHITE SW COMPUTER LAW
JUNE 1997

www.computerlaw.com.au © White SW Computer Law 1997 This article is a guide only and should not be used as a substitute for proper legal advice, readers should make their own enquiries and seek appropriate legal advice.


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