When small- and medium-sized enterprises (SMEs), or start-ups, run into legal problems, the burden of expenses has the potential to ruin them.
That is why companies should be careful with legalities right from the start, that is from signing a contract, advised Raymond Chak, the founder and principal of Chak and Associates. He was the speaker at a seminar organised by Bridges Executive Centre to give advice and assistance to the companies and start-ups using Bridges' serviced offices.
Legally binding agreements can be either written or verbal.
However, Chak said a "verbal contract is not advisable".
In the case of negotiating a written contract, people may find at the end of the negotiations that they were talking to a middle-man and not to the party who will sign the contract. Alternatively, it can also happen that the middleman signs the contract, but "on behalf of" another company.
This will complicate any court case, as the court has to look into every circumstance: who is really buying, the agent or the other company, and what the relationship is between them, whether the agent is a reseller, or works for commission, before they can decide whose responsibility it is to pay.
Sometimes the parties don't have a contract, but they sign a memorandum. "In some transactions, they sign a memorandum that runs to 10 pages," Chak noted. The memorandum is legally binding, unless it explicitly states that it is not.
"Another often recurring problem is that people do not pay enough attention to the terms and conditions," Chak warned. This can include standards of service, payment terms, schedule of payment and insurance details.
When you need to take legal action against an overseas company, you have to choose the jurisdiction well. "My advice is, choose the location of the opposite party," said Chak, explaining that a Hong Kong judgment cannot be enforced in another country, unless the other side is a treaty country.
Chak said he did not see any advantage in going to arbitration rather than court, as it would not save money or time. "Sometimes arbitration is even more expensive," he said.
Mediation is obligatory before going to court and, in Chak's opinion, it can save time and money if the two parties can agree on a settlement.