FASHION LAW


By Stephen Sidkin H


eads of Terms, Memoranda of Understanding, Letters of Intent, Heads of Agreement – the interchangeability of the names used is largely


irrelevant. Brands and distributors and principals and agents sometimes agree Heads of Terms to formalise an intention to begin negotiation of a formal agreement and sometimes both parties proceed acting on those terms. But uncertainty can arise as to the terms that govern the relationship between the parties when the relationship breaks down before a formal agreement is put in place.


This issue was highlighted in a recent High Court judgment. Heads of Terms had been drawn up to move the relationship of the two


parties forward and away from an original Partnering Agreement. At trial the agent sought to rely on these Heads of Terms as a new contract which governed the relationship with the principal. In contrast the principal contended that the Heads of Terms had no legal effect and that the relationship was still governed by the Partnering Agreement.


For many principals and agents the facts of this case will not come


as a surprise. The parties had entered into a Partnering Agreement which commenced in May 2015. Following the success of this agreement the parties sought to create a new contract to solidify and carry the relationship forward.


In order to commence this process the principal sent the agent draft


Heads of Terms. They set out a general outline of what would be included in the formal agreement. The Heads of Terms were then negotiated between the two parties. During this time both parties began to rely on the provisions contained in the Heads of Terms. For example, the agent started to invoice the principal in line with the new pricing structure which was then paid by the principal. The Heads of Terms were signed by both parties on the 29 June 2016 after which there was a celebratory party!


Importantly in this case the Heads of Terms set out:


1. that a formal contract would be agreed within 90 days of commencement of the Heads of Terms;


2. a commencement date. But in the final version this was left blank. The judge considered this was in order for the parties to insert a date on the day the Heads of Terms were signed;


3. that the contract would be for a fixed term of 3 years with 6 monthly reviews;


4. that there would be standard termination rights for material breach by the agent or on remediable breach if the breach was not remedied in 10 days. Moreover, the principal was also able to terminate the agreement if after the 6 monthly reviews it notified the agent of a breach and that breach was not remedied in 14 days.


5. that the agent would exclusively provide its services to the principal for a set number of postcodes for which the agent would be remunerated on a weekly basis;


6. detailed performance targets which the agent would be required to meet; and


7. compliance standards that any agents working for the agent would need to meet.


The judge decided that the Heads of Terms took effect as a valid contract


when signed on the 29 June 2016 and were relied on by the parties as the new terms governing their relationship. As a result the judge decided that


38 • FOOTWEAR TODAY • JUNE/JULY 2019


Stephen Sidkin is a partner in Fox Williams LLP and chairs its Fashion Law Group (www.fashionlaw.co.uk; www.agentlaw.co.uk)


the parties clearly saw the signing of the Heads of Terms as a major commitment to their future relationship. Furthermore the formality of the document showed that it was more than merely a guide for the lawyers to use to draw up a formal agreement. Indeed, the parties did not instruct lawyers to draw up the final agreement within the timeframe, leading to the opinion that the parties did not feel the need to seek a further agreement as what had already been agreed was sufficient for their purposes.


The judge went on to decide that whilst in the Heads of Terms not all the


terms of a contract had been agreed, the matters that had been negotiated were capable of constituting a contract. Where the Heads of Terms were lacking provisions or details which were required to complete the contract, the judge relied on the provisions created by the parties current relationship (under the Partnership Agreement) to infer terms in order for the document to be complete.


Finally the judge decided that both parties had implemented the Heads of


Terms from the date that they were signed. The parties actions showed they were working under the belief and understanding that from that point their relationship was governed by the Heads of Terms. Indeed the judge noted that the agent in correspondence with the principal had relied on the on the termination provisions in the Heads of Terms and this reliance was not corrected by the principal.


The difficulties in which the parties found themselves highlights that


principals and agents and brands and distributors will invariably be in a better position relying on the certainty of an agreement rather than on Heads of Terms.


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