Newbury Business Today

Is you documentation in order?

11th March 2010

Email: richard.maynard@newburynews.co.uk

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Paul Trincas, a commercial litigation specialist with law firm Charles Lucas & Marshall, explains how businesses can avoid contractual disputes

Whether you are a sole trader, partnership or limited company, the last thing you want is having a contractual dispute which has arisen because the initial contractual terms are unclear, vague or open to interpretation.
Getting involved in a contractual dispute can be very costly because of legal costs, lost management time, anxiety and stress.
Think ahead
Inevitably, when parties enter into an initial agreement, they do so in good faith, believing that nothing will go wrong. They often  therefore give little thought as to how they may be protected if events subsequently turn sour.
No matter how rosy things may seem at that start, when entering into a contract, you should realise from day one, that all contracts have the 'potential' to lead to disputes and you should be prepared to cater for that eventuality, no matter how small the risk may at first appear.
Reduce any agreement to writing
Apart from contracts eg for the sale of land, the transfer of shares or assignment of intellectual property rights, which must be evidenced in writing to be legally binding, a contract or agreement can be verbal, written or a combination of both.
Some people do not realise that a verbal contract is as valid and as enforceable as a written contract.
However, if a contract is purely verbal, and a dispute arises as to whether a contract has been formed in the first place, then, in the absence of any independent witnesses to verify one way or the other, it is simply one person’s word against the other. This is a recipe for potential disaster.
The golden rule is to ensure that, in the first place, any contract or agreement is reduced into writing. This will avoid any subsequent dispute that may arise between the parties over whether any contract had been entered into.
Whether a formal contractual document needs to be drawn up will depend on the wishes of the parties and the nature of the contract.
Formal contractual documentation is more likely in more substantial cases. Simply entering into an exchange of correspondence is a means of agreeing to the contract. Indeed, a single sheet of paper, reflecting the agreement, signed by the parties, will suffice.
Make sure terms agreed are recorded in writing and signed
Entering into a contract is one thing, but many contracts do not accurately reflect the terms agreed.
While there may be no dispute that a contract has been entered into, a dispute very often arises over the actual terms.
Common areas of disputes involve the date the contract was made, the correct identity of the parties, the duration of the contract, pricings, terms of payment.
Accurately recording in writing the specific terms agreed will assist in avoiding any subsequent dispute arising as to the precise terms.
Although it seems obvious, make sure the contract is signed by the parties concerned. Too often, parties, while going to great lengths to agree a contract document, forget to sign the document. In the absence of such a signature, in the event of a subsequent dispute, there is no evidence that one party agreed to enter into a contract or its terms.
Resolving contractual disputes
In any contractual dispute, the starting point must be to look at how the contract was formulated and then to look at the terms of what was agreed.
No matter how acrimonious such disputes can become, experience has shown that the key to resolving contractual disputes lies in consideration of what was agreed at day one.
If there is a written contract, containing the agreed terms and signed by the relevant parties, then this will avoid potential for any subsequent dispute.
For further information contact Paul Trincas on (01635) 521212, or email paul.trincas@clmlaw.co.uk

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