1st Apr 2021

How to avoid common contract conflicts

There are some common mistakes you can make when contracting, and to be fair, if you aren't a lawyer then you wouldn't be expected in most cases to know about these risks. You might not even have wondered about how contracts can go wrong, or how you might accidentally enter into a contract (if you even knew that was possible without signing something - which is another common misconception).

Whilst the facts will always dictate your circumstances, you can take certain steps generally to try and protect yourself from these situations arising.

And obviously (at least I hope it's obvious by now that you can't rely on legal advice from your webmaster….) where you have concerns you should raise them with a solicitor as soon as possible so that they can hopefully pick apart or undo (or prevent) unintended consequences that can be damaging for your business.

 

We only agreed it orally, I never signed anything

Most people are surprised when you tell them that oral contracts are just as legally enforceable as 100 page written contracts. Whilst it's true that it might be easier to enforce an agreement with clear agreed terms, that doesn’t make it any more “legal” than an unclear agreement (presuming it is capable of forming a contract at the very least). Bear in mind though that an unclear agreement is a litigator’s dream….

He said she said. I couldn't tell you what was said, I wasn't there. You can make a contract with anyone, and there is no legal reason why it has to be in writing (except for a few things like land/houses). Never assume your oral promises won't be legally used against you, and in particular where the other person (or you) are looking at spending money or incurring some kind of loss or taking on a risk, by doing that thing they might be able to enforce their rights against you to recover that loss or make you do the thing you promised to do.

 

Email subject: We are all on the same page now right?

Subject to contract! You can trip yourself up by not making it clear that you still have things left to agree. If you are dealing with multiple rounds of negotiations or sending proposals back and forth or negotiating a price list (or more likely, sending over a provisional discount price list, that you intend to negotiate further). Whilst you don't have to use the precise words "subject to contract", and you are free to use whatever statement you like, these words have a clear legal meaning to most lawyers (and judges, if it comes to it) and so they could save you having to backpedal out of a bad situation.

The thing you want to avoid here is creating an "intention to create legal relations" as lawyers say. Simply sending over a few documents bundled together (T&Cs plus Price list plus draft Order Form) can in some instances be deemed to be an offer which could then be capable of immediate acceptance by the customer on the other end of t'interweb. Now imagine doing this as part of a mass marketing campaign and consider how you'd manage fulfilling every single contract you might have just created.


The parties will agree to agree a reasonable thing later, when they figure out what it is.

In English law at least, you can't agree to agree something in the future. Sure, you can have conditions precedent, where you say "if these things happen first, then I'll then do this thing" and that might form a contract term, but, much like most parents’ get out of jail free cards, "I'll think about it" - it doesn’t actually mean anything when you put pen to paper, even if you get ten people from both sides to sign the contract, it just doesn’t work. If you agree something, it needs to fulfil the basic formalities required of a contract, one of which is certainty, which you certainly don't have when you agree to make it clear at some later point in time.

  

Should we ask them to clarify this clause in their contract, or shall we leave it as-is?

There used to be a thing called Contra-Proferentem (and it’s continued existence or non-existence is the subject of some debate amongst lawyers) which is Latin for "against the one who profers". In contracts this relates to ambiguity in contracts generally being interpreted in favour of the person who didn’t write the contract. Seems counterintuitive at first, but this is designed to protect people from signing up to terms and conditions that were drafted in a way that is vague or misleading, in the event that the person to wrote them decides to enforce them in a way that wasn't very clear from the drafting. This rule, by itself, extols the virtues of clear and plain English drafting (with examples - even better).

But don't think that you can always rely on this in your favour if you're the customer, far from it, if you're a business then just by signing a contract (or potentially acting in a way that implies you  accept its terms) you can (and probably will) be deemed to have read and agreed to everything in that document. If you are a consumer, there are different rules and more protection, but never assume that you have the correct interpretation of something if it isn't exactly clear.

 

"Just don't sign it" - if you get this advice, step back and really think about it.

 Sometimes in business, you need to take a risk. You have to be in it to win it. Contracts are often the last step in establishing a new business relationship. The last thing you want is for the lawyers to get into a fight and put all your hard business development work at risk because they can't agree on a liability cap or some particular indemnity obligation, but sometimes walking away might be the best call. If your proposed new business partner is arguing about terms, what does that say about the future potential relationship….?

 

What?! You ask, but then how would I ever earn any money?

It might seem crazy, but sometimes doing business can be bad for you. If the lawyer you've known for years is suddenly more argumentative (than normal) or even downright outraged by lawyers on the customer’s side, then something is probably up and you might want to consider taking the discussion offline and asking your lawyers what's going on, rather than following the obvious temptation to play "good cop" and try to check yourself as you feel the urge to proclaim to everyone on the call that "despite the risks you're asking us to accept, we want to work with you and so we will agree to what you ask as a gesture of goodwill". Those 5% of contracts you end up turning down might save you losing 20% of your revenue, or more.

 

Claiming Service Credits - fake gold?

You should know what SLAs are by now, Service Level Agreements setting out the Uptime/Availability/Response times for a service. You agree a certain level, time, percentage or whatever, and if the services fall below that level, you might be entitled to a partial refund in the form of Service Credits. Sounds great right? Well, cue classic lawyer answer: "it depends".

The British Army once asked Capita to recruit soldiers for them, Capita didn’t do so well and ended up paying out the maximum (over a long period of time) on their Service Level Agreement service credits, but that did nothing to improve Capita's performance. This is a great example of getting contracts wrong on a large scale, you'd think that having enough soldiers was kind of a big deal, but is "money back" really worth being left underdefended as a nation, or less secure in any context where physical security threats are present? Probably not unless you're already in a cage fight, which is unlikely in most businesses.

The hidden problem with service credits is that they are often expressed as an "exhaustive remedy" - which means that you get the credits but nothing else. You can't complain, you can't terminate, you can't claim for some other loss you've suffered, because you agreed that the Service Credits would be good enough for you in the event there was something wrong with the service or product.


Always check that you have a way of getting out of a bad agreement, or that you really would be happy to receive the maximum service credits and nothing else in the event the services were very poor or unreliable.

Better still, don’t enter into a bad agreement!


Sam Crich is a member of Berwins' commercial law team and specilises in advising clients on contracts. 

Be sociable. Share!

Get Social

Connect with us on LinkedIn

LinkedIn
  • L500 60 Px
  • Chambers 60
  • Lexcel Accredited
  • Investors In People Silver 2
  • Conveyancing Quality
  • Ce Badge 60 Px
  • Carers Charter Logo 60 Px