”How to avoid contractual disputes”

15 August 2018

Parties often find themselves in contractual disputes with customers or third parties. Whilst to some degree this is unavoidable, there are a number of tips that can be used to either minimise the possibility of a contractual dispute arising or to ensure that you are best placed to deal with any disputes that arise with third parties. These are as follows:

1. To ensure that all relevant terms are written down.

Frequently parties will rely on trust, a shake of the hand or a ''gentleman's agreement'' with another party. That will work for a proportion of contractual arrangements but in situations where there is going to be a dispute, it is then helpful if all the relevant terms were written down clearly and simply and that both parties accepted that those were the terms that governed their contractual relationship. These situations are always better viewed in hindsight but there is rarely a circumstance in a contract where a client's situation would not be improved by having a clear and complete set of written terms that applied to the contractual relationship between the two parties.

2. That both parties are clear on their contractual commitments.

Not only should the written document be prepared, it should be exchanged with the other party so that both parties are aware of what is expected of them. This can relate to the delivery of material, payment for the material or performance of an obligation. It is easier if this is set down in the form of an email, letter or text message. It is easier to enforce a contract if its terms are clearly set out initially. In additional if there are applicable time limits, these should also be set out in writing at the outset.

3. Expectations of the parties with regard to quality.

If material is delivered under the terms of a contact it has to be delivered at a certain standard and it should be clear at the outset what that standard is so that both parties are aware of their obligations. This might include providing a right to inspect material in advance so that if there are any problems you are aware at an early stage and can take effective initial action.

4. A right for early termination of the contract.

Contracts can also provide a right for early termination in certain circumstances which will enable a party to provide notice. If that is going to be relied upon by one party it is easier to make that case if an initial document exchanged between the parties provides for an early termination right and sets out the circumstances in which it can arise and it can clearly be shown on the available evidence that those circumstances have now occurred. That is the sort of pre-planning that will avoid lengthy contractual disputes at a later stage.

5. Keeping records is important.

It is also helpful to ensure that all written correspondence between the parties is kept whilst the contract is being performed and for a reasonable period thereafter (bearing in mind the relevant limitation period is likely to be 6 years) to ensure that if a contractual dispute arises you are in the best position possible to either advance your claims or defend a claim made by a third party or the contractual partner against you.

6. To take legal advice.

This can either be at the initial stage when the contractual relationship between the parties is being set in place to ensure that the client's position has been protected or once a dispute has arisen so that the client can obtain realistic legal advice as to their options and alternatives.

7. Alternative Dispute Resolution

This is always a factor. Disputes are inevitable and rather than proceeding into costly and time consuming litigation between the parties, the option exists for Alternative Dispute Resolution to be employed. This could cover mediation, arbitration, expert determination or a hybrid of these. It means that there should be a quick and cost effective alternative to have a dispute resolved quickly, potentially by an expert in that field and at a fraction of the cost that would otherwise be incurred in legal proceedings. It is always worth considering the alternatives before disputes escalate into Court action.

If you require any further guidance on these matters, please feel free to contact our Dispute Resolution department.

This is not legal advice; it is intended to provide information of general interest about current legal issues.