“Hey Joe”….How to… get your point across in negotiation.

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Ok, so I didn’t want to give away this secret BUT this blog is about helping you in the legal world, so I can’t keep this from you! I’m about to tell you the secret of the best lawyers for how to really get your point across at the negotiation table. Now, when I tell you, some of you may laugh and say “but of course!” or “durr, that’s so obvious” but it is amazing how many lawyers just don’t do this and so never really get their client’s points across. You can take this tip and apply it to your day to day negotiation.

The best lawyers start formally but as soon as things heat up, they recognise that it’s time to drop the barriers and get right up and close to the people on the other side of the table. How do they do this? It’s really simple and I feel guilty that I’ve built this up so much but hey, I want you to read this! The best lawyers say “Hey Joe”,  “Hey Sarah”, “Hey Mick”… they switch to a first name basis. Lawyers are renowned for being stuffy and posher than the Queen of England, but the really good ones know that sealing the deal is about getting through to the opposition on a personal level, and the quickest way to do this is to use their name. Not from the outset – we start off with “Our client  is concerned about” or “Our position is that” – but as soon as we see that flicker of mutual understanding we transition to “look Phil, between you and I, they [not client] just want to get this done and they think that [name of company that you are negotiating with] is the best to do it”.

I remember some time ago, it was the run up to Christmas and work was crazy. I was representing a client in a claim against a very stubborn defendant. They didn’t want to agree a Court extension which meant that we would all be working over the Christmas holidays. My client was furious with how unreasonable they were being. Tired of sending letters by email to and fro, I simply picked up the phone and called the Defendant’s lawyer. The conversation went as follows:

Me: Oh hi Barry this is Emma here, how are you doing?

Barry: Fine thanks, crazily busy as I’m sure you are too.

Me: Yup, crazily busy, which leads me to the matter of this Court extension on X case.

Barry: Oh yes, my client’s position is very clear on that.

Me: Well Barry, off the record, Joe Bloggs LTD, doesn’t want the extension to secretly build an even stronger claim, they just want a break this Christmas! They literally want to go offline for at least a week. If we don’t agree this extension, we’ll all be working unnecessarily at one of the best times of the year.  I don’t know about you but I’d quite like to catch up on Suits.

Barry: [laughter]. Yes, I know what you mean, well I’ll see what I can do and get back to you.

Me: That’s great, thanks Barry and good luck with the last minute shopping.

Barry: How did you know? [laughter]

End of call

We ended up agreeing the Court extension and it was a sweet Christmas break! There is power in just getting a little personal and a little real! Try it!

Ps. I have not used real names in this post.

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The bigger picture – selling your business.

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Ok, so it’s great that you’ve got your own business and that you’re doing so well. BUT, the question is do you want to be doing this forever? I don’t think so. If your business isn’t getting passed on to another generation then you’re probably looking to, one day, sell it and make a hefty profit! This post is a heads up about the things you need to be doing NOW, in order to build a product (yes, your business is your product) that sells quickly and at the best price possible. Here are my top tips!

Keep it clean – Your business must not have skeletons in its closet. I’ve said this before. Either you eradicate those skeletons or you confess to them, preferably the former. If you have unpaid bills, taxes or ongoing litigation, your business will not sell or it may sell BUT at a DISCOUNTED price. This is because instead of purchasing a nice shiny product, the buyer is purchasing a whole lot of risk. Risk is financial uncertainty and in business we despise financial uncertainty. We are constantly mitigating against it. So, clean up your business and keep it clean. Carry out your due diligence REGULARLY. Do not neglect complaints from clients or scary regulatory letters. The buyer of your business will carry out its own due diligence and it will be thorough. Would you buy a car without a test drive or seeing under the bonnet? Nope, I didn’t think so.

Show them the money – If you want to sell your business you have to be super transparent with your numbers. Start planning now to make sure that your business has a financial record to attract a good buyer. Maintain a healthy working capital, renegotiate supply contracts and make sure that you are getting the best deals for your business. Also, get on top of your debt. Pay off as many of your loans as possible. Think about what is actually costing your business money. If your business requires a lot of machinery, are you using all of that machinery? Can you sell some of it? Don’t forget your forecasts – get them ready and back them up with evidence.

Create and implement a business manual – It is amazing how many of my clients do not have systems and procedures for the simplest of things to do with the day to day operation of their business. If you sell products worldwide, you should not be selling those products on ad hoc procedures. You should have a clear process that the buyer of your business can step into tomorrow and operate. You should have systems in place for every aspect of your business. You should have formalised documents. Get your lawyer to draft standard form employee contracts, terms and conditions, disclaimers, policies etc. Also, is the structure and ownership of the company clear? Make the ownership as clear and as transparent as possible.

Show them your A team – Behind every great business is a strong and passionate management team. Your management team is a big part of your business’ valuation. It is therefore crucial that you consider if your business can retain good employees – this may require considered incentives. The buyer of your business will want all your key people to be a part of the sale. It will also want the assurance that your business is not a DIY job; show off your professional support. Your lawyer, your accountant, your consultant all make an impression. Those relationships matter because they instil confidence in the buyer that everything to do with your business has been done properly. Also seek advice from your A team. What do they think? Get your lawyer to review your business structure and advise you as to whether you need to change it in order for it to be an attractive purchase. Your lawyer will take you through the whole process and organise all of the legal paperwork to ensure that there are no unnecessary complications before and after the sale. You really need everyone on board advising. I have worked on an international acquisition where the whole deal was restructured because of tax. It was cheaper to do it another way! Three days before closing we had to change everything!

You may be far off from selling your business at this point in time, but if you want a big pay out someday, you should start doing all of the above now!

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BREXIT explained.

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Before you read this, just in case you didn’t know, BREXIT refers to the possibility of Great Britain (aka the United Kingdom) leaving the European Union after the referendum in June 2016. It’s a play on the words Britain and Exit. In this post, I am going to try and explain the Brexit debate, however, please know that thelegalknow is wholly against BREXIT. I will therefore TRY to be as neutral as possible in this post.

What is a referendum?

A referendum is a general vote by the electorate on a single political question which has been referred to them for a direct decision. In the UK, David  Cameron, the current Prime Minister has approved a referendum asking the British public whether or not it thinks that Britain should remain in the European Union. The big day is Thursday 23 June 2016.

The exact question will be “Should the UK remain a member of the EU or leave the EU”?

What is the European Union?

Five years after World War II ended, France and Germany came up with a plan to ensure that their two countries would never go to war against each other again. The result was a deal signed by six nations to pool their coal and steel resources in 1950. Seven years later a treaty signed in Rome created the European Economic Community (EEC) – the foundations of today’s European Union. The UK was one of three new members to join in the first wave of expansion in 1973. Today the EU has 28 member states with a total population of more than 500 million.

At the heart of the EU are laws designed to allow most goods, services, money and people to move freely within EU member states.

The four key institutions which work together to run the EU are as follows:

  • the European Commission – the EU’s administrative arm – is responsible for proposing and drafting EU legislation;
  • the European Parliament – represents EU citizens – is responsible for approving draft proposals, together with the European Council, from the European Commission and making them law;
  • the European Council – represents member states – is responsible for approving draft proposals, together with the European Parliament, from the European Commission and making them law; and
  • the European Court of Justice – is responsible for upholding EU law in member states to make sure EU law is applied in the same way in all EU member states. It also settles legal disputes between national governments and EU institutions. Member states are required to comply with the court’s rulings and may be fined if they do not do so. This is completely separate from the European Court of Human Rights in Strasbourg, which interprets the European Convention on Human Rights, the EU has its own Charter of Fundamental Rights.

Each member state effectively appoints representatives to each of these institutions.

Why is there a referendum?

The British government promised to hold a referendum on EU membership before the end of 2017. There have been growing calls for a vote on whether to stay or leave the union, as it has allegedly become more powerful and expensive. The BREXIT campaign worries that the UK is paying more in membership fees but gaining little in return other than increasing immigration.

Why does Brexit matter?

The Brexit campaign maintains that by breaking free from the EU, the UK could reduce taxes for its citizens and reduce the burden of immigration. However, those campaigning to stay in the EU contend that if the UK should decide to go off on its own, the move could create widespread job losses and economic uncertainty. Currently, the EU is the UK’s largest trading partner. If enterprises in the new EU are reluctant to do business with British companies, British companies could face substantial setbacks.

Additionally, if Brexit occurs, the UK, just like Norway and Switzerland, will still have to comply with EU rules without having any influence over them. The UK’s exports would be subject to EU export tariffs and they would have to meet EU production standards. It could be even more costly for UK exporters if they face EU legal arguments against UK standards – there could be a lot more court cases (LAWYERS will get richer, YAY). There is therefore a feeling that the UK is always likely to be better positioned to secure beneficial trade deals as a member of the EU than as an individual and isolated player.

What will be the impact on the EU if Brexit occurs?

The potential implications of Brexit are complex, as they hinge largely on what economic actions the UK takes after splitting off from the rest of the EU and how the rest of the world reacts to such a move. The impact would be widespread and drawn-out. The actual process of the UK leaving the partnership and establishing new agreements with remaining EU countries would take years. Many businesses would face immense uncertainty during this time.

In order to reduce this uncertainty, Brexit advocates are weighing potential options. They’re considering either supporting a second referendum on which model to pursue or making an effort to create a consensus behind what the UK’s trade deals would look like after the nation’s exit. Sounds like a political mess to me!

So there you have it. BREXIT in a nutshell. You should hopefully now have a vague idea of what’s going on. I tried to stay neutral but I love and care about business and the arguments to STAY in the EU make economic sense to me. The pennies we would save in domestic tax pail in comparison to the billions we could lose in trade with the EU and the world (President Obama made America’s view very clear). If you are a UK business owner/entrepreneur reading this, please make sure that you VOTE and vote for what you think will be GOOD for UK BUSINESS not UK AESTHETICS.

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Do you need a break?

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When you’re running an up and coming business, costs are always on your mind. The less costs you have, the more profit you can make. So what do you do? You look for savings, HOWEVER, one of the biggest overheads of any business, often gets overlooked; RENT. In the UK most businesses rent their premises from a landlord as tenants under a lease. When the market was booming (pre-credit crunch) landlords had the upper hand setting high rents and long leases however in today’s challenging economic climate, landlords and tenants have found that long leases and high rents are no longer sustainable; there needs to be a compromise. This is why most commercial leases contain a BREAK clause which enables either the landlord or the tenant or BOTH to end the lease early and seek better terms elsewhere.

How does it work?

Say for example, you own a restaurant. You have a three year lease. In year one, business is booming however in year two, it’s not doing so well because the government has got rid of a big housing estate next door causing footfall to significantly decrease. You still have to pay your rent which in year one, was a piece of cake but now in year two, is a massive burden. You review your lease agreement but ALAS you’re locked in until the end of year 3. You go to the bank to apply for a loan. Whilst doing this you spot a great  empty space in a shopping centre round the corner. You know that your business would thrive there. You review your lease again, alas,  NOTHING HAS CHANGED, you’re STILL locked in until the end of year 3.

In the above scenario, not having a break clause in your lease prohibits you from getting out of a high rent deal in a poor area for your business. Your overheads increase and your profits decrease. Let’s look at this scenario WITH a break clause.

You have a three year lease. As soon as business starts to fail in year two you begin to review your options. You look closely at your lease agreement and to your joy you see that you have a break clause that kicks in after 18 months. You serve a notice to your landlord in accordance with the lease agreement, notifying him that you want to end your lease early. Your landlord accepts and at 18 months you move out of the premises and into the space that you spotted in the shopping centre. HAPPY DAYS.

Can you see the benefits for your business in having a break clause? It gives you some leeway to reassess one of your business’ biggest expenditures. In some circumstances where the location and premises still suit your business needs but the rent is just too high notifying your landlord that you are thinking of sending a notice to activate your break clause could help to bring your landlord to the negotiation table and agree a more sustainable rent. Landlords are business people too and what they value more than anything else is reliable tenants. However, as with everything in law (and that’s why you need a lawyer) there is more to it than just having a break clause and sending a notice. Here are a few considerations to bear in mind:

  1. Form and Service of Notice – You must comply exactly with method and form of service of a notice to exercise a break clause. Also once the notice has been served, it cannot be withdrawn. If the notice complies, you WILL be moving out so consider it seriously.
  2. Timing – It is important when drafting and negotiating the break clause that it is clear when the break date is and what the required notice period is. A break clause may occur on one or more specified dates or be exercisable after a specific period of time has elapsed. Your lawyer can help you work out what works for your business. Landlords usually never want to lose a tenant so they will hold you to strict compliance with the break clause notice provisions; the best thing is to diarise them so that you always have them on your radar and  consider them well in advance.
  3. Break conditions – These conditions must be strictly adhered to. If these pre-conditions are not complied with, your break notice may not be accepted. The most common pre-condition is that all rents due under the lease must have been paid. You must make sure that your lawyer negotiates this condition carefully. A lot of money is wasted in court where it is not clear whether a tenant has to pay a full quarter’s rent or just the apportioned rent up to the date of the break clause. There have been instances where a tenant has had to pay the full rent with no refund. Another pre-condition is that the tenant must give up vacant possession meaning the premises should be EMPTY. Take all your stuff and go.

So do you need a break? Yes! Make sure that you are always giving your business options and do NOT forget to use them.

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Do you really care about your business? 

Sounds like a silly question right? But do you? You DO. Oh that’s great. Perfect. Then you must have a lawyer! At this point some of you are saying yes and some of you are saying no but in my opinion you should all be saying YES!!

Getting a lawyer at the outset does three magic things:

  1. Prevents catastrophic errors happening – for example signing contracts that are cleverly designed to steal your product, intellectual property or your profits, and ensuring that your business is compliant. The truth is that when you have an amazing business, everybody will want to be involved in it. When you’re just starting out, whether you like it or not, you are easy prey. The bigger businesses, the more experienced investors WILL try and get much more for their money. A lawyer will identify this and protect YOU. And what about non-compliance? Well non-compliance is costing Volkswagen a potential $17billion. They only set aside $6billion to deal with this. This is a perfect example of the consequences for breach of the laws and regulations in your industry. The law will collect payment for breach and it doesn’t care if it kills your business in doing so. A lawyer will highlight these risks to you.
  2. Speeds up the growth of your business – yes having a lawyer actually speeds up the growth of your business because you are letting the pros do what the pros do best allowing you to FOCUS on enhancing your business in the way that you know best! Everything that you need in order to be legally functioning, just happens without YOU spending precious management time trying to do it yourself. NOW you are probably thinking, hey, you always say BE LEGALLY SMART.. yes I do and a part of being legally smart is NOT trying to be a lawyer. Legally smart is about being informed so that you can give clever, well thought out instructions to your lawyer so that you do not suffer at the hand of the billable hour… “Yes the fee is high because I had to look into  X and Y and Z” compared with “No problem, I can do that for you…how long? I can get a draft to you by close of business today”.
  3. Gets you a great bargain in the long term – the client/lawyer relationship is a precious one. It is one of trust and mutual respect. What most clients ought to realise however is that lawyers take the work of their clients PERSONALLY. Once you have given a few instructions, growing THEIR business, lawyers respond in kind, prioritising YOUR business, offering free services, offering discounted rates. Looking out for you without being prompted. This is the ultimate goal for any business, to have an established relationship with a law firm because that’s when the fees get cheaper!

Ok, so some of you will literally just be starting out and you cannot afford a lawyer, in that instance there are many things you can do. If you are confident in your product/service, approach a law firm you like the look of and that you envisage you should be able to afford in about 6 months’ time and ask them if they would be interested in assisting you with a few starter contracts/services pro bono (meaning free). Pitch your business to them, explain that you like their work and can see a genuine client/lawyer relationship developing. Some law firms will show you the door but others, and I’d be one of them, would be intrigued and would do you that favour. Alternatively there are lots of firms that offer start up packages and individual standard form contracts that you can purchase and adapt. This is the next best thing to having a lawyer as such contracts are usually drafted to include key provisions. However this option should not be a long term circumstance. If you are serious about your business, your goal should always be to have a lawyer, eventually a team of lawyers protecting and enhancing your business albeit guided by YOU, the LEGALLY SMART one.

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Before you sign: Jurisdiction and Governing Law

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There are a number of things that you should check out before you sign ANY contract however what I’m about to tell you is arguably one of the most important. When your business is doing well and the profits are booming, it’s hard to think about what happens if things go wrong between you and your client or you and your supplier. Well, regardless, lawyers go straight to the back of a contract to look at WHERE the parties battle it out if a lawsuit arises and WHICH LAW governs that battle. This is captured in each of the jurisdiction (WHERE) and governing law (WHICH) clauses. This post considers a UK law perspective however, jurisdiction and governing law are universal concepts (pretty much) so please look up your country’s equivalent.

Jurisdiction determines which country’s courts will hear any claim that is brought under the contract.  Governing law is the law that will be applied by the courts to interpret each party’s rights and obligations under the contract.  The two do not have to match, so for example the English courts could hear a dispute arising from a contract and apply French law to determine the outcome of the dispute. However, whilst the English courts are experienced in applying foreign laws, the French law must be PROVEN as a fact, usually by witness evidence from a qualified French lawyer. You can see how the costs can easily wrack up, witness evidence from a lawyer! Oh the fees! This is why lawyers tend to recommend that the jurisdiction and the governing law are the SAME to avoid uncertainty and to avoid the unnecessary costs of hiring lawyers as expert witnesses on top of hiring lawyers to actually represent you at court!

The jurisdiction and governing law clauses should be considered and agreed from the outset. You do not want to get to the point of suing or being sued only to learn that despite your business being domiciled and operating in the UK, you are having to fly all the way to Singapore because the other side snuck in a jurisdiction clause that the contract would be subject to the courts of Singapore and a governing law clause that the contract would be interpreted in accordance with Singapore Law. NIGHTMARE.

It is possible to draft one joint jurisdiction and governing law clause however contracts that want to be easily understood (hint hint) set the clauses out separately.

Here is an example of a governing law clause:

This agreement and any dispute or claim arising out of or in connection with it or its subject matter or formation (including non-contractual disputes or claims) shall be governed by and construed in accordance with the law of England and Wales.

Here is an example of a jurisdiction clause:

Each party irrevocably agrees that the courts of England and Wales shall have [exclusive/non-exclusive] jurisdiction to settle any dispute or claim arising out of or in connection with this agreement or its subject matter or formation (including non-contractual disputes or claims). Note: You can choose to submit the contract to just one country’s courts (exclusive jurisdiction) OR you can choose to allow the parties to commence proceedings in another country’s courts DESPITE stating a particular country in the contract (non-exclusive jurisdiction, this is very confusing and is usually only used in special circumstances).

I must tell you that jurisdiction can either be given to a country’s national courts (as above) OR to arbitration proceedings in an arbitration clause. Arbitration is similar to court proceedings but it is less formal and the parties effectively decide the rules that govern the process. It is also confidential (good for keeping high profile disputes out of the public). If you choose to use arbitration instead of court proceedings, governing law is still required. Arbitration is definitely a topic for another post, in fact many other posts, but for now just know that the option is there. So, with this knowledge, go review your contracts and ask your lawyers questions!

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Be smart but don’t cheat…

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There is a reason why mega successful businesses spend thousands, sometimes millions of pounds/dollars on legal advice. I cannot tell you the number of times that I have almost cried because a client has brought me a problem that could have easily been avoided IF legal advice had been sought in the first place. In the long term, getting proper legal advice could save you so much MONEY and isn’t that what it’s all about – MONEY? You know that saying, what’s worth doing at all is worth doing well…it’s said for a reason! I don’t feel good billing you for my time when it’s for an issue that really shouldn’t have ever become an issue!

Think of it this way, when you have a tooth ache you go to a dentist -you don’t pull out the tooth yourself. When you feel sick you go to a doctor you don’t diagnose yourself. SO, if you need a contract drafted, guess what, you DON’T do it yourself. You go to your lawyer! You should be focusing all your energy into your product/service/idea not struggling to draft a 30 page contract or represent yourself at Court.

So what am I saying? I’m saying be smart BUT don’t cheat.

I am a lawyer and it took me 6 years of training to qualify to be one (a 3 year degree, a 1 year professional practice qualification and a 2 year training contract at an international law firm in the City). You cannot read this blog and become a lawyer BUT you CAN read this blog and become legally smart so that when you seek proper legal advice you are not doing so blindly. You are firing out questions and demanding the best service possible!

It’s quite simple, do things properly at the outset and you will reap the rewards later.

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