On the dotted line

With late payments a major issue for events companies, how can they protect themselves
Bird & Bird, Events Law, Therightslawyers, UAE Law, Analysis, Live Events

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As the events season begins in the Middle East, professionals from various parts of the industry are doing their best to collaborate efficiently and ensure that the months ahead are a success.

However, with all the buzz and excitement comes a lot of chaos as well, especially when it comes to the payment of services provided. One way of avoiding the confusion and negating any potentially bad situation is by ensuring that the right contractual terms and conditions are in place.

According to Mark Hill, managing partner at therightslawyers, disputes arise quite often and in many different contexts in the events industry. The first is in the context of client and supplier, while the other key area is where services are being provided through sub-contractors, either through freelance or otherwise.

“If you go back 10 years or so, there was a tendency to seek to avoid disputes in the industry. However, that has changed a little bit these days, primarily because the market is tighter, both in terms of what the economy is like and what the competition in the market is like. I also think because of these two reasons, the region is more ready to resolve issues through dispute than before,” says Hill.

Providing an on-ground perspective, Lee Charteris, president of the ILEA’s Middle East chapter agrees that things have changed over the years. Having been in the UAE since 2007, he says that while people did debate over preferential payment terms, companies were sensitive towards timely payments. However, the situation is relatively different at the moment.

“Ultimately, it all came down to a 50% deposit on the confirmation of a job and the remaining 50% on the conclusion of it. Over the course of the years, we really prided ourselves on being prompt payers and worked with suppliers to develop payment terms that worked not only for the payee but also the supplier. In fact, the norm in the last few years has been 30 days.

“Sadly, as the president of the ILEA, I've recently encountered and had lots of conversations with suppliers who have seen a slip back into the deposit process whereby they need to get paid.”

Rob Kinder, an associate at Bird & Bird, however, says that in his experience, disputes in the events industry are relatively rare. In fact, because court litigation is extremely expensive and unpredictable in this region, as a general rule, disputes rarely reach the courts.

But why are these disputes occurring in the first place and what are the various causes for it?

In Hill’s view, non-payment, late payment, cancellation of a job that results in non-payment and arguments over acceptable delivery are the primary causes.

“Finance departments have become very particular in terms of cash flow issues, particularly since the difficulties in 2008, and part of that has been due to delayed payments. Non-payment is also an issue. You used to get an automatic 10% deduction on any job being done but I'm not so sure if that’s still the case anymore. I think it’s more to do with how small or mid-sized providers can cope with the cash flow requirements of the job,” Hill explains.

“They may be faced with anything from putting a performance guarantee down to hitting milestones or whatever has been agreed on. Having a delay at any part of the process effectively means that they are funding on mobilisation or delivery on the job themselves rather than the client, and these difficulties are quite big for a small or mid-sized company.”

Cancellation of a job is another issue wherein mobilisation risks have been taken on by a supplier and work is being done but not pre-paid.

“If the gig doesn't take place, it becomes a problem,” Hill says. “Very often the client may seek to avoid paying for something that hasn't happened or isn’t going to happen, even though the supplier already has been exposed to time and costs of a variety of nature. This is problematic across event production and other related industries.”

Kinder adds that besides disputes over payment, the re-occurring points of conflict are usually parties not fulfilling their contractual obligations and disputes over intellectual property rights.

So how can event companies contractually safeguard themselves from situations like these?

“If you are the party receiving fees under the contract, make sure you have upfront payment for a percentage of the overall fees or a deposit,” advises Kinder. “Clear terms that indicate what are the events or deliverables that trigger payment are needed; limited rights must be included for the payer to set-off or deduct any sums from the fees payable; contractual consequences for late or non-payment (for example interest or penalty fees, or the temporary suspension of services) must be stated as well.”

It’s important to remember that in this region the contract is king. To put it in simpler terms, Hill says that any contract in the events industry has to state who is doing what, when, for how much, and then as a ‘tag-on’ – what happens to the intellectual property rights if it is relevant in the context.

“I'm often asked - What do we do? We've done the contract, we've had the tender, we've negotiated it and it’s just taking us time to get it signed and out of the procurement department.

“If it’s process driven then follow the process. It is advisable, for example, to act as per any contract terms that you have negotiated even if your contract hasn't been signed yet,” he advises.

Other elements in the contract that need attention are law and jurisdiction clauses. Hill explains that the governing law usually depends on which law of the land is going to control the contractual relationship for the project. "Is it the UAE law? Is it the law in force in Dubai? It’s essential to look at what is proposed for the event contract you are involved in,” he says.

“Where are parties based is another thing to check on. On a case that's decided in one jurisdiction, if the company you're going to win against has no assets or money to pay you there, the judgement you get won’t get you very far! So there are all kinds of important issues on law and jurisdiction that people rarely think about.”

It’s also important to decide in the contract on how disputes must be resolved if they occur. In fact, Hill notes that there are many mechanisms to do this and it should ideally depend on the contract amount.

“On the smaller sub-delivery level where you've got smaller contract terms, using the small claims court in the UAE through DIFC is a great one to put in. It's cost efficient and time efficient to be able to drive a recovery action through DIFC's small claims court.

“If it’s a large technical-based project for delivery, then you perhaps should be considering arbitration as opposed to going to court. People just don't seem to have that facility in their contracts. If it’s not there then you can't do it, it’s that simple,” Hill declares.

There are also a couple of mistakes that need to be avoided as well while entering into a contract.

From a legal perspective, Kinder says that one should try to use some form of heads of terms or term sheet. It does not have to be legally binding and it focuses the parties on the key issues and risks that will need to be dealt with in the contract.

In Hill’s view, the common errors that are frequently made are not having contract terms that fit the company or the project; not having standard terms in the events industry; and not having the mechanism to go through a commercial review when you’re reliant on a third party contract.

“If you’re acting for a client and they give you their standard contract, not reviewing it, even at a high commercial level, is a mistake in my view,” he says. “It all depends on what the project value is, I suppose, but even if the project is worth only a small amount, spending AED 3,000 to review a contract is worthwhile. And if you get your process in place along with a standard contract which is a one-off cost in effect and make sure that your contracting people know how to use them, that can go a very long way.”

Sharing their final bits of advice when it comes to ‘good housekeeping practises’ in terms of events contracts, Kinder says, “It is worth investing in a good template services contract or general terms of conditions. This should be written or reviewed by a lawyer but drafted so that it can be used by non-lawyers from deal to deal, in the sense, the commercial terms schedule can be easily amended while the legal terms stay largely fixed.”

Hill reiterates his previous comments about having the contract documentation in place and being clear on who's doing what, when, for how much.

Summing it all up in simple terms, Charteris says that it’s important to enter into a contract with your eyes open. “You need to do your homework about the people that you are going to work for. If you pick up a new client, enquire with people who have worked for them before to find out more about them," he advises.

"Do your homework basically and make sure that if you’re going to put your neck on the line for someone, they are going to put their neck on the line for you as well.”

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