Whilst technology can make business arrangements simpler and faster, it can also override some of our natural caution. Ultimately, entering into a contract is only worth it if (a) the contract is performed, or (b) if it is breached, you have a suitable remedy to compensate you … but how often do you consider the parties with whom you are contracting from the point of view of enforcement? Do you know where they reside, what language you would have to sue them in, or whether they have any assets to be recovered?
This is a cautionary tale, built of recent experience in a number of cases, where our clients’ contracts have been breached, and remedies have been much harder to enforce, and costlier, than the client originally anticipated. We hope the tips below will help you avoid these problems.
1. Identity: Have you identified all the contracting parties? And the individuals that you deal with on a day to day basis? More importantly, if you’re entering into a guarantee with an investor or director, have you thought about their identity? Do you have sufficient contact details for those individuals, and how are you going to check (periodically) that they are still there? If the guarantor ceases to have any relationship with the company, or moves overseas, the effect of your security is radically diminished.
Likewise, have you considered whether they have any assets, or sufficient assets, to fulfil the guarantee they are offering? You should consider how those assets are identified, and how they can be protected, such that you can recover them in due course, if necessary.
2. Language: English is often the language in which negotiations are conducted, but interestingly, the law makes no automatic assumption that because you negotiated using English, you can sue in English.
- You need to consider the nationality and known residence of any individuals you are doing business with. If they live abroad and need to be served abroad (see further below), then you may find you need costly translations of court documents and witness statements in order to be able to sue on the contract.
- You should also ensure that the contract is governed by English courts and English law – so that there can be no question at a later date of the law or courts within the defendant’s own jurisdiction applying. Alternatively, you could consider resolution methods other than litigation, for example, by including an arbitration clause in your original contract.
3. Delay: Similarly, if the individual in question is resident in another jurisdiction, and if you cannot prove that there is a good address for service within England and Wales, you will need to serve court papers in that jurisdiction. This can lead to further delay, because the court timetable is automatically adapted and extended when serving in other jurisdictions. This is also likely to involve the expense of process servers – as many jurisdictions do not allow the posting of papers to an address unless the individual is registered there, and many prohibit the delivery of papers to a property (rather than a person) altogether. Specifying an address within the contract, for service within England and Wales, or a provision for service by email, would overcome these difficulties.
4. Enforcement of judgment - location: Perhaps most importantly, you need to consider your remedies from the outset – will you be able to recover your losses in practice? You may have the right to sue in England, and may be awarded judgment, but where are the defendant’s assets, and how will you recover them?
- When entering the contract, you should consider what assets the defendant has, and where these are located – as well as the ease of enforcing against them (eg it may be easier to enforce against real property, which changes hands less frequently and is generally registered within each jurisdiction).
- However, assets can only be recovered from other jurisdictions by formal enforcement of either an English, or a local court, Order. English judgments are not automatically enforceable in other jurisdictions, but must be registered within the jurisdiction - the precise mechanism varies, but most will require separate (albeit shorter) proceedings.
- In England, it is possible to obtain a default judgment where the defendant does not respond to the proceedings; whilst quicker and cheaper than a full trial, these can be harder to register in other jurisdictions, because there has been no trial or judicial consideration of the case.
5. Enforcement of judgment - remedies: Lastly, the same remedies are not available in other jurisdictions as they would be within the English court system. For example, some jurisdictions do not allow ‘without notice’ applications – meaning that the defendant can be tipped off that you are applying to enforce against their assets. Others lack interim remedies, such as HM Land Registry cautions – which in this country would prevent disposal of an asset whilst the case was determined. Therefore, once you have determined the defendant’s whereabouts and before you sign the contract, it would be wise to seek basic legal advice as to enforceability in that jurisdiction.