In the thick of contract negotiations the process required to get to end game can be messy, convoluted and frustrating.
The negotiation positions of managers and lawyers must be considered. Their required new clauses put in, old clauses taken out or changed. Track changes and comments in Word can help, sometimes.
It helps even more to have a big picture perspective of the process. This article sets out our business law framework for legal risk management.
The topic is not taught in law school. It’s taught in very rare legal seminars. It’s what you pay a lawyer to do, though it can be set out as we’ve done here.
On completing IT contract negotiations for a client this week, I was reminded of our framework of six approaches as set out below.
We begin with three bullet points on business law legal risks and their minimisation:
- if a ground for liability exists in the law, a person or organisation (such as a company) can be legally liable for its actions or inaction;
- office holders, such as directors and other officers of a company, can sometimes also be held liable; and
- legal risk minimisation methods help define and treat legal risks. The methods often involve creating a paper trail in advance of issues arising.
Six ways to manage legal risks
Let’s now expand on that paper trail. Key methods for legal risk minimisation include:
- use of written contracts to minimise contract law claims, the contracts may share or transfer risk to others with clauses which specify express warranties, liability limitation or exclusion, acknowledgements, force majeure and composition of agreement provisions;
- use of security mechanisms such as guarantees, charges, caveats, mortgages, liens, performance bonds, indemnities and pledges; some of these can be in the contract, others are separate documents;
- use of manuals, policies and procedures designed to minimise negligence law claims such as safety procedures, process testing and trials and surveys;
- use of ethics policies involving definitions of procedures, statements of corporate values and codes of conduct to minimise equity law claims;
- use of specific processes to minimise specific statute claims such as under the Trade Practices Act 1974 (Cth), Corporations Act 2001 (Cth) or Privacy Act 1988 (Cth); and
- for any remaining legal exposure, minimise legal risks by using insurance, document retention and project management.