Avoiding Contract Disputes
Disputes over contracts can happen for many reasons, but so often they blow up because those involved have a different opinion on what they had agreed. You know the situation – you’ve had some work done or purchased a piece of equipment and you’re not happy with what you’ve received. You scrabble around for the paperwork but…:
- There is no paperwork OR
- The paperwork does not record what you thought had been agreed OR
- There is a reference to standard terms and conditions that you have never seen
It is commercial reality that everyone is so busy clinching the deal that they fail to keep the paperwork in order. Businesses regularly fail to record the pre contract negotiations and fail to record the full terms of the agreement reached.
So what is the position where the written agreement/contract says one thing, but you believe that you agreed something different?
You could be in trouble, unless a clear mistake is seen in the written terms. It is very important to say what you mean and mean what you say. The House of Lords, the highest appeal court, has recently confirmed that pre contract negotiations cannot be relied on if the written terms are clear and unambiguous. But if the written contract lacks commercial sense, so it is easy to see that a common mistake has been made, the pre contract negotiations can be looked for background information to help the courts decide the common intention.
So the moral must be to ensure that pre contract negotiations are fully recorded and the agreement reached reflected in the final contract documentation, and that the documents mean what you think them to mean. Our advice is to confirm everything you discuss in writing, an email is fine, but get it down. Not only does this cover you if things go wrong but it also allows for the other party to spot a misunderstanding and put it right.
Even if you have a contract you’re not out of the woods yet. All too often we see examples of the following which create their own problems:
- Standard terms and conditions are on the back of an invoice
- There is an exclusion clause preventing or limiting a claim
- A term falls foul of the law on unfair contract terms
Exclusion clauses limiting or excluding liability for breach of contract pose their own difficulties. Most are subject to the unfair contract terms laws, with more stringent regulations for contracts with consumers than business to business contracts. Again you must take care that any clause you include to protect you from claims does exactly that, and that it is fair in the circumstances. In a recent case a contractor terminated the contact early, where they had no right to do so. The High Court decided that whilst it was perfectly permissible for contractors to exclude liability for a complete failure to perform a contract, compared to some defective performance, very clear words must be used to establish that the parties intended that result. A termination without right and reason cannot be excluded from liability without strong words in the contract covering that position. A case where strong language is not only allowed but demanded!
Standard terms and conditions also pose problems. They must not be on the back of an invoice otherwise they can only be relied upon if there has been previous trading with the particular customer on those terms. Such Standard Terms and Conditions must be produced to the contracting party at the time the contract is entered into, not when the goods or services are invoiced.
And it is no good using complex legal jargon and hiding the nasties in some deep, dark corner. With consumers in particular, this will be a waste of time. The High Court recently found against a firm of estate agents, deciding that parts of their standard terms were unfair and unenforceable. The agents not only tried to provide that they would be entitled to commission where they played no active part in a transaction, but they buried the term in small print and did not draw it to the attention of the consumer. This fell foul of the law on unfair contract terms.
Get the Paperwork Right
Many disputes can be avoided by getting the paperwork right in the first place, and making sure that everyone has a common understanding of what is expected of them and what will happen if things go wrong. But if, for whatever reason, you find a dispute brewing, it is best to get early advice on your legal rights, so that you know where you stand when dealing with your opposite number. This should help you negotiate a quick settlement of the dispute. Any problem left to its own devices will only get bigger and more expensive to solve.
So a few points on how to avoid contract disputes:
- Make sure that agreement has been reached on all the important contract clauses.
- Record all pre contract negotiations
- Make sure that the contract states exactly what is understood to have been agreed
- Negotiate exclusion clauses and make sure that they are fair and enforceable
- Agree on any standard terms and conditions to be used and that they comply with the unfair contract terms law
- Provide any standard terms and conditions with the contract paperwork, not on the back of invoices
- Get advice on your contract documentation and repeat the process regularly to make sure that it has kept up with the law.
For advice on contract drafting and business disputes contact solicitor Nigel Musgrove on 01285 847 001.
Article added: 14 September 2009 © Cousins Business Law
This article is not intended to constitute legal advice, nor is it intended to be a complete and authoritative statement of the law, and what we say might be out of date by the time you read it. You should always seek legal advice to confirm whether or how any information in this article applies to your particular situation. We offer a free telephone consultation to discuss your particular circumstances.
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