Five ways to avoid a contract dispute

24th March 2014

Jagdip Bains, a solicitor with the Ansons dispute resolution team highlights the five most common problem areas that she comes across when dealing with contractual disputes.

If you are negotiating a business contract, you should always be clear about the terms on which the agreement is to be made and if in double take legal advice.  

  • Contract formation – a contract can be created in writing or agreed verbally. However, if a dispute arises later it is often difficult to prove the terms of a verbal contract, and if it ends up in court without a witness it will be a case of one party’s word against another. A contract does not need to be signed and in writing to be binding. A business can enter into a binding contract over the phone or by e-mail. Starting to perform aspects of the contract may also indicate acceptance of the last terms offered. Until the terms have been agreed and both parties are satisfied they are clear about each party’s obligations then all emails and correspondence should be marked ‘subject to contract’. It is much better to seek to record your contract in writing, and in particular the key aspects which each party is expected to perform.
  • Battle of the forms – whose terms and conditions are incorporated into the contract? If you have standard terms and conditions it is important to incorporate them into your contract. For example, if you have agreed to supply goods to a customer via an exchange of emails, it is good practice to have a clause stating that “[your name] terms and conditions will apply, a copy of which is attached’. Your standard terms and conditions should be attached to your quotations, purchase orders, acknowledgements, delivery notes and invoice.
  • Description of goods or services – the majority of contractual disputes relate to the quality or nature of services supplied or goods delivered. It is important to describe the goods or services accurately. If the goods or services are technical it is good practice to get designs or CAD drawings signed by both parties. Important issues and assumptions should be set out in writing, as it can be difficult and costly to prove verbal assurances.
  • Price – the price is usually the most important factor in contracts. If it is fixed price contract, when is payment required? If the price is linked to variable factors, these should be clearly set out. Is the price exclusive or inclusive of Value Added Tax (VAT) (a tax on supplies of goods and services made by a taxable person in the course or furtherance of a business.) If the contract is silent regarding to VAT, then where the price for the supply of goods or services is quoted by a supplier, the price is deemed to be inclusive of VAT. This means that it is in the interests of a seller to have the price exclusive of VAT, whilst the buyer will prefer to have the price stated inclusive of VAT.
  • Plan for the worst – Usually parties are in good spirits when entering into contracts and disputes are not foreseen by parties. It is important to consider what could go wrong with the deal and what loss your business could suffer as a result. If you are buying goods or services under a contract, try to ensure that the seller is responsible for all possible losses and that liability is not limited in any way. If you are selling goods or services, try to limit liability to a fixed sum.  

Jagdip Bains specialises in advising businesses on contractual disputes, and this includes the supply of goods and services. If you foresee a dispute arising, it is important to obtain legal advice early. We can advise and may be able to assist you resolve the dispute without getting involved, this can sometimes assist commercial relationships.