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Paper trails - the key to many things....

I recently gave a talk to a group of owner / managers of about 30 companies involved in the fashion sector. The talk was entitled “some tips for start-ups and growing companies“, but I think it has a much wider applicability, to companies big and small, individuals , charities and other organisations - so, slightly amended, here is the first section...

“If you take only one piece of legal and common sense (and common sense often, but not always, goes a long way) advice from my talk it is this. Each time you agree to do, or agree not to do something, make a note / keep a record. If you agree to buy, sell, rent, hire, fire, enter into any sort of arrangement, change or cancel an arrangement, write it down. So easy to say and do, but so many of us don't. Why am I suggesting this? Because a very large number of legal problems which might well cost you a lot in time / money and aggravation could so easily be avoided if you do as I suggest. It is sometimes even the case that while you and I think we have done a deal, what we have actually done is agreed entirely different things; yet each of us thinks we know, quite clearly, what we have 'agreed'.

There are so many examples of why you should make notes/keep a record. I could spend the rest of the session discussing them; here are three for you to think about-- all true. Company X lent Company Y £1 million, but there are no documents evidencing the loan, none. So, nothing was written down regarding the arrangements for the loan, except how much inter- est is payable (but not when). What is the other big gap? When is the loan itself to be re-paid- - over a reasonable period, or on demand? There are a whole range of other matters which common sense, as well as the law, suggests the parties might have wanted to record......... Whoops.

Next one. A and B each owned half of the shares in a very small start-up company which was involved in manufacturing in the fashion industry. They fell out big time, they each wanted the name of the brand (which ultimately turned out to be pretty valuable). At that very early stage however, the “value" of the company, excluding the brand name, was less than £10,000. There was nothing to show who should take the name as well as what they should do, if they fell out. In the end after about six months of fruitless argument between the two of them, the matter went to mediation and the mediator was so annoyed with the pettiness of the dispute, he wouldn't leave until they had done a deal. Whoops again.

At the other extreme it seems to me the recent court case between two Russian oligarchs, partly turned, in very simple terms, on whether one had agreed to pay the other for structur- ing and assisting him in various business arrangements. However, with no written documents, apparently, it was hard to prove. It all turned on oral agreements, and the judge made it clear that she believed the evidence of Mr A rather than that of Mr B. In that case the legal bill was said to be well over £50 million. I note that the two sides used a combined total of 15 barristers to guide them.

So, scribble a note, put something down on your iPad or phone, or if it is really important get someone to prepare a simple agreement. If time is too short to do so, write something down yourself and ask someone else to look at it for you. If possible, get some sort of acknowledgement from the other party as to what you have agreed. Remember as well that an exchange of e-mails can, in certain circumstances create a binding contract. As I was told by a very experienced litigating solicitor, if it comes down to evidence at a trial, then all other things being equal (and I understand they aren’t always) the judge may well be likely to believe the person who made as near contemporaneous notes of what was agreed or discussed, than believe someone relying on memory only."

General Update by Nick Gould, Partner at Aria Grace Law 26.01.2021

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