BREXIT explained.

b7b7e3dc7a1a013ef85b7ee02e45add9

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.

Please like and please share. Comment below if you disagree! I’m happy to be educated.

HOW TO … chase debts!

gray-owl-mouse_65519_990x742

The most important thing when you own your own business is ensuring that you get PAID. Late payments and outstanding debts disrupt cash flow which can literally kill a business. This post is all about a) preventing late payment and b) chasing up late payment. The goal should always be to never have clients owing you BUT if they do, as they occasionally will, it’s all about getting that debt settled as amicably as possible.

Prevention

Ideally you do not want to be chasing up a late payment therefore prevention is better than cure. You can protect your cash flow by making it extremely difficult for a client to make a late payment. You basically need to be honest and upfront at the outset, so that there can be no doubt as to what you are expecting to be paid and by when.  Take note of the following tips:

  1. Make sure that your clients know and understand your payment terms. Display your terms clearly in every invoice and explain how (“payment can be made by BACS transfer/SWIFT/Paypal etc”) and when (“payment is due by X date”) payment should be made. The idea is to make it as EASY as possible for your clients to pay you. You should also include information as to any late payment penalties i.e. “if your payment is more than one day late we will charge interest at a daily rate of X%”. If I know you are going to charge me interest at a daily rate of X%, I’m most likely to pay you on time. The invoice should be a one stop shop of how and when to pay, and the consequences for late payment. This is the basic starting point to getting paid and preventing client debt. If your invoices do not do this, REVISE them.
  2. Double check the details.  Your invoice details should be perfect, quoting all the information the customer needs to identify it. Include your reference code and THEIR reference code. Give a good description of the work/product that the invoice relates to. You do not want a late payment to be YOUR fault so just make sure that all the details are correct.
  3. Send your invoices out promptly. If you want your clients to pay you on time, you better invoice them on time. If you invoice me a day or week late, I’ll take that to mean that I can pay you a day or week late and then some!
  4. Do some credit checks. You should credit check all new significant clients as part of your due diligence (due what? read this), but proceed with caution. A client may be new and have no credit history, or they might have done really well in the past five years but are now on the verge of going bust. Carry out your general due diligence and use your judgment – is it likely that this company/person can afford my services/product?
  5. Make them pay a deposit. The deposit method of payment is great for damage limitation with late paying clients. If you are going to ask for deposits, make the booking of your product or services conditional upon receipt of the deposit payment up front. No deposit, no deal. After a certain point in time make that deposit non-refundable too.  The deposit provisions should be stated in the actual contractual agreement between the parties as the deposit happens at the start BEFORE the invoice which is issued after the provision of the services or product.

Chasing for payment

No business is perfect. Even your best clients can let invoices become overdue. Chasing and securing payment of an overdue invoice is a fine art in the world of business as you never want to offend a client. However, your company is entitled to the money, so don’t shy away from collecting what is due to you. Even charities hound their loyal supporters for donations!  At this point, it is all about having a uniform procedure based on a series of gradually more urgent reminders, followed by putting the matter in the hands of a debt-collector or solicitor if all else fails (absolute last resort). Here are some tips:

  1. Know when your invoices are overdue and act immediately. In some industries it is easier and more acceptable to just pick up the phone and ask “hey where’s my money?”. However if you are dealing with a new client or are operating within a more formal industry, you should write a letter of reminder stating (politely but firmly) that your invoice is now overdue and please make immediate payment. You should send this letter by email or fax followed by a hard copy in the post. This way you get the reminder to the forgetful client asap whilst providing them with a hard copy for their records. I would recommend a  letter of reminder regardless of industry norms because I’m a cautious lawyer and I believe in leaving paper trails in instances like this. In order for your reminder to have an impact, it needs to be prompt so keep a calendar of all invoice due dates and keep an eye on them. Send your reminder the day after late payment or your company’s grace period. Allow seven days for a reply.
  2. If there is no reply within seven days, send the invoice again. Send it by recorded delivery to ensure it has been received and keep your receipt as evidence that you sent it.
  3. If you still do not receive a response, make a phone call to find out what the problem is. Your client may have accounting issues or queries that it needs help with. Find out the reason for the non-payment and help them out. Negotiate if you have to and try to extract a promise of payment.  ALSO use this phone call to find out if the customer has a regular weekly or monthly pay run and find out the day on which this is done. Keep calling until you receive payment, especially two or three days before the pay run. This is where chasing payment becomes a fine art. You need to tread a fine line between harassing the client too much and keeping the pressure up. It’s best to keep up a persistent chase! “Hey Bob How are you? Pay me please”, “Hey Sheila, I’m great thanks. Spoke to Bob the other day…pay me please”.
  4. If the pay run date passes and you still do not receive payment, consider turning up in person to collect it. Of course this is not desirable and it is not even possible in some instances. This is the last resort before the ABSOLUTE last resort.
  5. If you have tried all of the above steps and you have still not received payment, you need to consult your lawyer. There is nothing like a letter from a lawyer to scare the crap out of a client. The letter should threaten to take legal action to recover the debt or to start bankruptcy or winding-up proceedings (depending on how much you are owed, in the UK, you can end a company if they haven’t paid you – read this). The letter could also threaten to use a debt collection agency. Keep a copy of all correspondence and accept that if you are at this stage, you have lost that client forever. Not so bad as a client is only worth it if they value you and they show that they value you when they PAY you.

The legal/debt collector route is your absolute last resort, but don’t be afraid to use it. However if you get to this stage, ask your solicitor’s advice and evaluate how far you should sensibly go to collect the debt before cutting your losses.

Please like and please share!

Before you sign: Dispute Resolution


Contrary to what the majority of people believe, when you have a contractual bust up with the other side litigation or arbitration should be the last resort. THE LAST RESORT. Taking a dispute to court is extremely expensive in any country and it should only ever really be done when you can’t do anything else. This is why good lawyers review the dispute resolution clause before signing to ensure that a dispute between the parties can be RESOLVED by cheaper alternative methods and is not just fast tracked to formal litigation or arbitration. These other ways are known as alternative dispute resolution (ADR) and it is becoming more and more common for dispute resolution clauses to build in some of these alternative forms of dispute resolution as a precursor to any formal proceedings.

The forms of ADR are abundant. ADR can be anything from SIMPLE NEGOTIATION between senior members of either party to MEDIATION whereby an independent third party (called a mediator) helps you and the other parties to talk things through and guides you to a settlement agreement (a document setting out the agreement reached between the parties). ADR is less confrontational and is more likely to encourage business relationships to continue. HOWEVER essentially ADR is NOT binding in the same way as a JUDGMENT given at court or an AWARD (which is basically a judgment) given in arbitral proceedings (small caveat here, arbitral awards are binding so long as international treaties are in place in the relevant countries, such as the New York Convention…this is a topic for another post). This means that you CAN’T actually make the other side COMPLY with whatever you have agreed with them as a result of the ADR. For example if the other side failed to act in accordance with the settlement agreement you would have to sue them for breach of the settlement agreement. CONSEQUENTLY, if the other side is being obstructive and uncooperative in the ADR procedures take that as a warning that A BINDING judgment is required and that maybe formal legal proceedings are necessary.

So how can you incorporate these more friendly and way cheaper ADR forums into your dispute resolution clause? Well the ways are infinite and you NEED a lawyer to ensure that this clause is carefully drafted. HOWEVER, generally, dispute resolution clauses are either multi-tiered or drafted as carve out clauses.

Multi–tiered dispute resolution clauses require the parties to engage in tiers (stages) of ADR and only when a stage fails can the parties progress to the next stage with the last stage being formal court or arbitral proceedings. If the dispute is truly and obviously irreconcilable (you hate each other) it would of course be possible to waive the tiered obligations by mutual consent and skip straight to the expensive bust up. Here is an example of a tiered dispute resolution clause:

“If any dispute arises out of or in connection with this agreement or its formation, directors or other senior representatives of the parties with authority to settle the dispute will, within [ ] days of a written request from one party to the other, meet in a good faith effort to resolve the dispute. If the dispute is not wholly resolved at that meeting, the parties will attempt to settle it by mediation in accordance with the CEDR Model Mediation Procedure. Unless otherwise agreed between the parties within [ ] days of notice of the dispute, the mediator will be nominated by CEDR. To initiate the mediation a party must give notice in writing (“ADR notice”) to the other party(ies) to the dispute requesting mediation. A copy of the request should be sent to CEDR. Unless otherwise agreed, the mediation will start not later than [ ] days after the date of the ADR notice. If the dispute is not settled by mediation within [ ] days of commencement of the mediation or within such further period as the parties may agree in writing, the dispute shall be referred to and finally resolved by arbitration.”

As mentioned above, dispute resolution clauses can also be carve-out clauses. Carve out clauses allow for some disputes to be resolved through arbitration/litigation and other disputes relating to other aspects of the parties’ relationship to be referred to a form of ADR. For example a dispute relating to the quality of a product (a computer) supplied to a purchaser might be referred to an expert in that field (a computer engineer – this is called expert determination), and all other disputes relating to the contract (for example exclusivity or payment terms) might be referred to litigation or arbitration.

The point of this post is to encourage you to GIVE yourself OPTIONS when it comes to resolving the disputes under your contracts. You don’t have to go straight to court or arbitration (did I mention these forums are EXPENSIVE). You can take a breather and try to settle things amicably (and CHEAPLY) first. ALSO please do not use the example clause in this post in your contracts – it is an EXAMPLE. There are several other factors that MUST be considered when drafting dispute resolution clauses and this is why you really need a lawyer’s drafting skills here. Some dispute resolution clauses have been deemed by the English courts to be unenforceable or not part of the contract at all because of bad drafting. So never sign a contract without considering this clause and thinking about the best ways to resolve disputes for your business HOWEVER this is not A DIY clause by any means.

Please like and please share!

Before you sign: Jurisdiction and Governing Law

jurisdiction

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!

Please like and please share!