BUSINESS CONTRACTS

Content in this section has been generously provided by Middletons Lawyers.

Important disclaimer:  This information is intended only as a general summary of the legal issues Australian fashion businesses should consider when entering into commercial transactions. The Council of Textile & Fashion Industries of Australia,  Australian Fashion Council and Middletons Lawyers do not invite reliance upon this summary or take any responsibility for any omissions or inaccuracies contained within it. If you have any specific legal issues affecting you, you should always seek independent legal advice.

1.  INTRODUCTION
It is important to have well structured agreements in place with each of your suppliers, manufacturers, and retail customers in order to protect your business.

Any agreements should clearly set out the terms of your relationship with the other party and should ensure that your business is covered in a range of circumstances. For example, when dealing with manufacturers you need to make sure the manufacturer is required under the agreement to have in place the appropriate insurances and to comply with the relevant laws, awards, and codes of practice. It is important that your agreement is clear and precise so that all rights and obligations are set out and understood by each respective party.

2.  SUGGESTED CLAUSES FOR AGREEMENTS
In order to properly protect, your agreements should take into account and/or incorporate a number of important clauses. Some of the issues you should consider are detailed below...

2.1  Ordering Process
It is important that your agreement clearly sets out the process by which orders are placed with suppliers and then subsequently accepted by the supplier. Each time a new order is placed and the terms of this order are accepted, a contract is formed - so it is imperative that the steps in this process are clearly outlined in your agreement and that the agreement is formed on your trading terms. The simplest way to achieve this is to develop standard order forms which specify:

* the proposed cost of manufacture/supply etc;
* the items which are the subject of the order;
* the time frame in which any contractual obligations (for example the manufacture of garments) are to be completed.

If the other party agrees with your terms in relation to the above matters, it can provide you with a written confirmation within a particular period of time - eg. 7 days - at which point an agreement with respect to that particular order is formed.

2.2  Warranties, Acknowledgements and Indemnities
In order to protect you from a range of potential legal issues, all your agreements should include warranties to the effect that:
(a) the other party will pay damages in the event that it fails to meet agreed delivery dates and acknowledgements that you are not obliged to take the goods if the goods are not delivered by the agreed date;
(b) the other party acknowledges that ownership of part-finished goods is yours in the event that you supplied the material for the making up and it is unable to complete manufacture and delivery;
(c) the other party has the capacity and expertise to fulfil its obligations under the contract;
(d) the other party satisfies all applicable legal and governmental requirements including the holding of all requisite licenses, permits and authorisations connected with entering and performing the agreement;
(e) the other party, in performing its contractual obligations, will comply with all applicable laws and legal requirements including (in the case of manufacturers) the Clothing Trades Award 1999 (the Award) and (where applicable) the Home Workers Code of Practice (the Code of Practice);
(f) the other party has in place all appropriate insurances.

We also recommend that when dealing with manufacturers, your agreements require that the manufacturer provide an indemnity for all liabilities incurred which relate to its compliance with the applicable laws and legal requirements including the Award and the Code of Practice. As a result, should the manufacturer be found to have failed to comply with any of these requirements and you are subject to fines or damages, then by having an indemnity provision, the manufacturer will be required to pay any fines or damage which may be incurred by you as a result of the manufacturer's breach.

2.3  Intellectual Property Protection
It is important that any agreements have strong intellectual property (IP) provisions that clearly protect your interests in your designs and other IP. This is important in dealings between designers, manufacturers, graphic artists, and fabric suppliers. Such provisions should:

(a) ensure that all IP rights relating to your original designs and garments (including designs, copyright works and trade marks) are retained by you;
(b) require the other party not to reproduce or make the designs or substantial reproductions of the designs for a third party;(c) clearly and narrowly define any license to use your IP - for example, the license granted should be  limited to a non-exclusive license to use the IP for a specified purpose and prohibit use of the IP for any other purpose including for manufacturing garments for any other parties etc;
(d) set out your rights with respect to any alterations or improvements the other party may make to any of your IP. The agreement should require the other party to disclose any such improvements and provide that all rights to any improvements reside with you (and not the other party);
(e) require the other party to provide reasonable cooperation and assistance with respect to any potential infringement of your IP or any infringement proceedings that may arise;
(f) impose an adequate confidentiality obligation upon the other party in relation to your IP. Such confidentiality obligations may extend beyond your IP to protect other commercially sensitive aspects of your business.

The above issues are equally important matters to take into account when dealing with employees and contractors. Any employment agreements or agreements with contactors should address all of the issues outlined above.

2.4  Requirements for Delivery and Inspection
Agreements should contain clauses which clearly set out the time for and means of delivery of the finished manufactured garments or accessories. It may also be appropriate to include penalty provisions should delivery be late. It might  also include  a  provision that if the goods are not delivered within 28 days of the agreed delivery date then you are able to cancel your order and be paid an agreed amount in order to cover any loss which you have suffered in failing to provide the finished garments to retailers etc.

When dealing with manufacturers, the agreement should also contain provision allowing for the reasonable inspection of the garments, and provision for you to be able to inspect the manufacturer's premises to ensure performance of the agreement and compliance with legal requirements including the Award and the Code of Practice.

2.5  Termination Clauses
Any agreement should also contain a termination clause, which allows either party to terminate the agreement upon a reasonable period of notice. What is considered to be 'reasonable' may depend on your relationship with that particular party and the function they perform.

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Please note that this list is not an exhaustive list of clauses that should be included in a manufacturing agreement and it is intended only as a guide to assist you in ensuring that you have an adequate agreement in place.

AFC members can access the AFC Standard Agreements by emailing the AFC directly at info@australianfashioncouncil.com.  If you are not an AFC member you should consult your lawyer in order to draft the appropriate agreements to suit your business needs. We recommend Middletons or TressCox Lawyers.