Contract Disputes

For those who own a business, it is essential that it runs as smoothly as possible.

Legal disputes can slow trade down, divert attention from management time, or even stop work in its tracks. Whatever the cause and effect, any argument with customers or clients is a bad thing. And contract disputes are amongst the most potentially intractable.

People who run companies, trades, services, retail outlets tend to be expert at their own work, but not necessarily so good at the backroom skills and knowledge that all businesses need. 

To run an effective, profitable or even safe business, owners and leaders should do two fundamental things. One is to learn as much as they can about the bureaucratic, administrative and legal underpinning of what they are running. The buck stops with them, and, as in life, ignorance of the law is no excuse. If using contracts to tie in customers or suppliers, make sure you know what the full wording of the contract means, and be aware of (and then close) any loopholes or gaps. 

The second is to ensure you have the right advisers. Some may be in-house, like accounts managers, salespeople, or IT managers perhaps. Others may be external – solicitors, auditors, cleaners, health and safety consultants. Or vice versa – but the point is you need to have knowledgeable professionals to cover those areas of the trade in which you are not expert. Think of them as your prevention, rather than the cure.

Some essential points in the area of contracts:

  • Never allow business to take place without formal sign-up to your terms, or to the other party’s terms (after you have studied them). Materials are delivered, construction takes place, and you find late in the day that the timber supplied is the wrong quality. If there isn’t a detailed order or contract document signed off in ink or electronically, then it may be impossible to prove what was said when the order was made in an informal phone call or site visit. 
  • Staff training, in the terms of your contract and also the procedures around its use, must be done and repeated/refreshed from time to time. The business is responsible in law (vicarious liability) for what its employees do in the normal course of work, so if you cannot be everywhere, then have everyone know the rules.
  • Ensure your contract has an arbitration or Alternative Dispute Resolution (ADR) clause. So if something goes wrong there is a mechanism to resolve things without having to go straight to lawyers and court. Any court action involves thousands of pounds in costs for whoever loses or settles. ADR in the contract may be referral of the dispute to a trade body representative, an independent surveyor – or even an online mediation service.
  • The contract should be reviewed from time to time and if necessary updated for changes in the market or in the law. This should be an annual diarised exercise and not kicked into the long grass of the to-do list. Look at the new short-term lets law now in force in Scotland, change in the National Living Wage. Has your client contract changed since Data Protection rules were changed with the onset of GDPR? Don’t sleepwalk into trouble.
  • Most businesses do some kind of advertising, and many have a website. Although the information on the site may not be contractual, you can multiply your contract problems by saying one thing in the small print of an order form and something completely different in your advertising - perhaps an aspirational statement that you will not be undercut by competitors. What happens when a client comes in with his bill and a rival’s advertisement quoting half the price you have charged? Make sure your website is accurate and also kept up to date.
  • Ideally, your contract documents will have been professionally prepared or checked before you embark on the business. Make sure you have a good connection with your solicitor, so that if a dispute arises, you can get rapid advice from someone who knows the documentation intimately.

There is not a standard or ideal contract that can fend off all possible arguments or problems. And you have to factor in that some, hopefully only a few, customers and clients are out for trouble or just completely mistaken about the facts or requirements of a particular purchase or deal. 

Customer relations (sometimes not much more or less than good emotional intelligence) is a key skill for anyone engaging with the commercial world. Law is the fallback when all the personal efforts and compromises fail. But not only do you need the law on your side, it is essential to have a solid, dependable contractual basis for operations, one which will vindicate your firm in court if the worst comes to the worst.

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