"Business contracts need to cover every eventuality to ensure that theyre absolutely watertight."
A leading solicitor has urged businesses to review their contracts in the wake of a number of high profile contract dispute cases.
Paul Barnes, solicitor at Kirwans law firm, has issued the warning after Cyclone Promotions confirmed recently it had lodged a claim against boxer Carl Frampton in relation to what they claim to be “his breach of the promotional contract entered with Cyclone Promotions” at the High Court.
The row is the latest in a series of contract dispute-related stories to hit the headlines this year, with the NHS also confirming last month that it had settled a legal dispute with Virgin Care, part of Richard Branson’s business empire, for an undisclosed amount.
The dispute came after the company failed to win an £82m contract to provide children’s health services in Surrey. Virgin Care’s concerns over what they said were ‘serious flaws’ in the way the contract was awarded led to the company launching legal proceedings.
Now Paul is calling for firms to check over their legal contracts and amend them if necessary – or face being hit by a costly legal battle at a later date.
Paul said: “Business contracts need to cover every eventuality to ensure that they’re absolutely watertight. However, some do not take into account potential changes in circumstances, or set out what parties can expect from one another.
“Any confusion on either side over what is set out in the contract can lead to costly and bitter legal disputes.”
Here, Paul sets out eight key ways to avoid contract disputes:
1) Negotiate with purpose
Enter contractual negotiations with a clear idea of what you are seeking to achieve, but understand that your priorities are not going to be the same as those of the party with whom you are contracting. Also be aware of the areas where compromises can be made and of those where there is no scope for concessions;
2) Make clear provisions regarding performance obligations
Ensure that contractual terms accurately reflect what has been agreed and the parties’ expectations of each other. Ensure that it is stated what is included within the contract – and what is not. Also document any assumptions that have been made, to ensure both parties are on the same page;
3) Allow for change
Circumstances can change during the life of a contract, for example consumers will seek certainty regarding prices, whilst suppliers will seek scope to vary prices dependant on external factors such as market conditions. Ensure that there are provisions in place that govern how variations can be agreed and what happens when an agreement cannot be reached.
4) Make payment obligations clear
Document clearly within the contract when payments are due and the penalties for late payment. Consider that services may need to be suspended, or the agreement may need to be terminated due to non-payment. Try to agree a procedure for disputing payments and partially paying undisputed amounts.
5) Agree and limit liability
Liability for breach of contract can be limited or excluded, but only to the extent that it is reasonable to do so after consideration of all the relevant factors. Take time to consider the impact that a failure of the other party to perform its obligations might have on your business and try to include provisions to accommodate for any losses. Particularly unusual losses, even those that can be proven to be caused by another party’s breach, will not be recoverable unless expressly provided for within the contract.
6) Avoid intellectual property issues
In today’s digital world, intellectual property is regularly being created during the performance of a contract. A consumer will often wish to acquire all rights to something which they have purchased, but it is often in the providers’ best interests for certain rights to be retained. Ensure that there is no uncertainty about the rights that are transferred and those that are retained. Attempt to reach an agreement that is practical for all concerned.
7) Set out a dispute resolution procedure
It is not unusual for some issues to arise within the life of a contract. Termination is unlikely to be the most appropriate way to deal with a minor breach and it will often be in the parties’ best interests to resolve any issues and continue with the contract. Similarly, it is not uncommon to include provisions that set out procedures for the remediation of more minor breaches and for the resolution of disputes before more drastic steps are taken.
8) Provide for service withdrawal and termination
A supplier will not wish to continue to perform its obligations when a consumer is in breach of its payment obligations and vice versa, so consider express provisions documenting the circumstances in which payments and services can be withheld. There may also be circumstances where the relationship between the parties breaks down completely and termination of the contract is best for all concerned. It is sensible for a contract to have provisions for termination when there are problems such as persistent and irreparable breaches.
However, don’t be too quick to terminate. Terminating a contract in circumstances that do not fall within the scope of the termination provisions can be a breach of contract in itself.