By Kristoff Lajoie, Kabo Lawyers
If you own or manage a business, obtaining a lawyer’s assistance is an inevitability, or, the very least, a very high probability. Rarely a business will operate with length and success, without a couple of hiccups on the way – hiccups that may be avoided or at least abated by the assistance of a legal expert. Despite the fact that such assistance may be sought with great reluctance, ‘your’ lawyer, should be considered an important part of your team, alongside with your accountant, your equipment provider and your cleaner – all of whom provide an outsourced and essential contribution to permit you to run your business effectively and profitably.
By way of example, a matter recently came across to me where my client was being sued as a second defendant in relation to a partially completed contract to purchase equipment from the first defendant – of whom the plaintiffs claimed a debt against. The plaintiffs sought that the contract be enforced, requiring payment to be made by my client to the first defendant, to which such payment could be used to recover the debt by the plaintiffs.
The amount of the sale in dispute was in the realm of over a quarter of a million dollars.
The plaintiffs alleged that the contract was part-completed and enforceable.
The second defendant denied the formation of an enforceable contract.
(The first defendant did not file any appearance nor any other documents.)
Essentially, the second defendant’s claim was that it had entered into informal discussions in relation to the sale. No formal documentation had been drawn up, although there had been some invoices drawn upon request by a financial advisor which were claimed to be drafts and only created for the purpose of satisfying an application for finance to fund the purchase.
The ambiguity of the documentation lead to a reasonable suspicion that there may be an enforceable contract in existence, which was enough to satisfy a judge of the County Court to grant an injunction to freeze the assets and require payment of the invoices by the second defendant. Needless to say, the second defendants were greatly surprised with this Court Order.
While, ultimately, the whole matter may resolve with the second defendants been proven right, they would have incurred significant inconvenience and legal costs. And, even if they also get an order to have their legal costs paid, a costs order rarely covers the full costs paid by the client to its lawyers.
So how could this whole episode have been avoided?
If they had sought the assistance of a lawyer at the inception of the dealing, the parties could have drawn up a Heads of Agreement – a document that outlines the basis of the transaction, but does not necessarily bind them to follow through, subject to completion of certain terms and conditions.
A lawyer could have been able to advise on the effect of the creation of the invoices by the financial advisors and cautioned them on the possible risk they may have presented.
In hindsight, it may have been obvious that a sale worth around a quarter million dollars would have warranted more than a handshake and a few emails. In comparison, even a fairly rigorous and comprehensive due diligence exercise and drafting of documents by a lawyer would be (generally speaking) much cheaper than litigation preparation and court attendances.
If you are managing business deals, large equipment sales and / or purchases or other substantial business conduct, it is never too early to get your lawyer involved, and many will offer a special retainer service, where your lawyer will be effectively available to you ‘on call’.
In the same way that your accountant will save you from a big bill from the ATO, your lawyer should work by your side to protect your business from legal liability.
Kristoff Lajoie is an associate solicitor with Kabo Lawyers and manages all matters relating to commercial and corporate law as well as litigation extending to criminal, family law and other matters.
For more information about small, medium or large business law including corporate advisory, document preparation and / or review, sale or purchases or disputes or litigation, contact Kristoff Lajoie at Kabo Lawyers on 03 9663 3337 or at [email protected]