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MacDonald: Legal Contracts

The Hidden Dangers

The first thing we do, let’s kill all the lawyers!” This famous line in Shakespeare’s Henry VI often comes to mind when people have a legal problem. As a lawyer, I appreciate the irony of this line. As a pilot, I appreciate the emotion behind it.
 
Most people contact a lawyer after something has happened. Not usually a pleasant experience, and often an expensive one. The better option is to have a lawyer involved before something happens. Consider this from a Contract, or Lease/Purchase Agreement perspective.
 
Ideally, a contract should be simple, straightforward, and easily understood. One party will do, or deliver something to another party at a specific time, for a set price. In reality however, contracts are rarely this simple. There are clauses to protect you if the “thing” does not get delivered on time, or if it is the wrong “thing,” or if the other party does not pay on time. As a result, contracts tend to get wordy and unreadable, due to a large content of “legalese.” Having reviewed contracts, I have found a number of areas where you can unknowingly and unwittingly find yourself getting into trouble; there are clauses that mean something to one party, but mean something quite different to the other. Whose interpretation will prevail? A clause might seem quite benign, but have far greater implications, and cause greater hardship for someone in court. Here are some real-life examples of hidden dangers.
 
Consider a Restriction to Merger clause in a lease/purchase contract for a helicopter. The lessor wants to ensure the contract remains enforceable with the lessee, and also wants to make sure the business remains viable, so the following clause is included:
“Lessee shall not reincorporate, reorganize or merge with any other corporation, or sell, transfer or lease, all or substantially all of its assets during the term of this lease.”

While it appears to simply protect the lessor from the lessee skipping out on the contract, it also may have the effect of stifling your business for several years. No one would willingly give up control of their business to another party, but this clause, potentially, does just that. You may be unable to reorganize your business, or take advantage of market conditions because of the limitations imposed by the contract.

Another example is a Jurisdiction of Law clause. The two aspects of this clause to consider are: 1) whose law applies; and, 2) in whose jurisdiction will the hearing or arbitration (as the case may be) be heard? The world is small when it comes to business.  An operator on the West Coast of Canada could buy a helicopter from a vendor in Europe, and work that helicopter in South America.  Consider the following two partial clauses:

“This agreement shall be governed by the laws of British Columbia,” and, “Any disagreements with respect to this contract shall be heard in British Columbia.”

Both appear to say much the same thing, yet the second clause simply dictates the venue, and not whose law will apply. Absent a clearly defined clause, you could find yourself in a hearing in B.C., applying the laws of another jurisdiction, while needing to retain counsel from both places!
 
It might be wise to negotiate to have the jurisdiction and law of your home province apply, especially if you have operations there. Your bank and insurance company may be local as well, so it serves no purpose to have two or three parties heading to Europe to present an issue before their court rather than have one party come here.

A final example concerns Acceleration Clauses, where a party is required to pay the remaining contract fees in full, plus an interest rate penalty, if they are late with a payment. These clauses will be scrutinized by the courts to determine the actual loss incurred.  Excessive amounts may be ignored. We should always protect our interests, but not take advantage of another party, or attempt to receive a windfall from another’s misfortune. We may wish to do business with them in the future!

I have touched on a few points to consider when entering into a contract. This is not intended to be a legal opinion, but rather simply general information to discuss with your legal counsel – before something happens! Having done that, rather than thinking about the original Shakespearian quote, you may consider the modified version I recently discovered: “The first thing we do, let’s kiss all the lawyers!”

Your feedback on this or any other topic is always welcome. Please contact the editor at dmccarthy@annexweb.com or go to www.helicoptersmagazine.com to post a comment in our blog section.

Neil MacDonald is a lawyer with Harper Grey LLP, practising in Aviation Law. He holds an ATPL-H, and flies part-time as an Air Ambulance Captain. nmacdonald@harpergrey.com.

This is not a legal opinion. Readers should not act on the basis of this article without first consulting a lawyer for analysis and advice on a specific matter.