We asked dispute resolution specialist Alisatair Stewart of Loney Stewart Holland to to avoid a contract dispute

The short answer is: get specialist help when agreeing contracts.  Invariably, prevention is cheaper and less painful than cure.  But we’ll explain in more detail why…

Contracts are crucial to all businesses.  Every business has customers who will buy their goods or services and every business has suppliers from which it buys what it needs to operate their business. 

Contract disputes are our most common field of work.  Why do they wrong?  Lots of reason but a key root cause is having no proper contract in place at all or, possibly worse, an inappropriate contract (eg lifted from AI, the internet or some unrelated prior agreement). 

There are common themes.

No written terms at all

A common misconception is that, if a formal agreement hasn’t been signed, there is no contract.  That’s often incorrect.  There is no requirement for a written agreement and if businesses behave as though they have a contract (supply goods or services and/or pay money in return) then there almost certainly is a contract. 

But the problem is that there will be a lack of clarity over what the terms are. The law has evolved different mechanisms to try to deal with this (such as common implied terms on certain business agreements) but this often leaves huge potential for disagreement and for lawyers to need to pour over email exchanges and speak to possible witnesses to try to glean what the parties actually agreed.  In short, it can often make a bad situation far, far worse.

Unclear obligations around the sale of goods or supply of services 

The law implies general terms into goods and services agreements (for example standards of service, quality of goods and time for delivery) but these are blunt instruments and often not appropriate for the situation at hand. Poorly drafted express terms cause a similar problem. 

If you are supplying to a customer, this can mean that you are held to a higher standard that you ever intended (and have reflected in the price you charge).  If you are buying goods or services, you can be left with an inadequate solution but with a contractual framework that doesn’t match your expectations and can leave you without a remedy.

Disconnect between the advertising ‘puff’ and the terms of the contract

This is a common scenario and IT contracts are the paradigm example of when a contract dispute can arise.  Businesses can often be led to think they are buying an off the shelf ‘plug and play’ solution, whereas in fact what is needed is significant work to configure a solution to business’ specific needs, involving time and internal resource alongside the cost of software. 

Indicative (and perhaps optimistic) timeframes can be relied upon by a business when the reality might be that such expectations cannot necessarily be met and indeed there is no obligation to do so.  If you sell software, this can inevitably cause problems with customers through the implementation process and afterwards.  If you are buying, critical systems not working can have a serious potential impact on revenue and expenditure.  A firm like Farringford Legal can help you understand whether the terms of an agreement reflect what you think you are buying.

Limitation/exclusion clauses

Classic ‘small print’ clauses in standard terms can limit or exclude the types of losses a party can recover if something goes wrong. And is classic contract dispute territory. There are strict legal restrictions on certain exclusions, particularly when selling to consumers but also when selling to business on standard terms.  If you are the selling party, it is important to get these right if you want them to be effective and also to understand what limitations imply won’t work (so you can make decisions about pricing and insurance).  If you are the buying party, you may want to renegotiate these terms to ensure you have adequate redress if a key contract fails. 

Outdated terms

As a final point, outdated standard terms present their own problems for clients.  Goods and services evolve over time and the terms of what you are selling need to change too.  Also, legal obligations – for example around data protection and client’s own insurance requirements – change and these need to be adequately addressed.  It is not an expensive job to review standard terms to make any tweaks and this should be looked at annually and could avoid costly contract dispute.

The reality is that if you are buying an important service or goods critical to your business, you’ll want to make sure the contract gives you adequate protection if it goes wrong… which it will from time to time!  For a relatively low cost (certainly compared to the fall-out if things go wrong), a firm like Farringford Legal can help you renegotiate unhelpful contract terms or, if that proves impossible, at least help you understand risk and make the right business decision about whether to proceed.

The same goes for contracts with your customers.  Customers may not pay you and the you need to ensure you have a quick and easy contractual route to recover funds and be adequately compensated for being out of pocket.  Equally, you’ll want to clearly define what it is you are selling and what you are promising (or not promising) to do.  A clear set of standard terms, with playbook to help internal staff make bespoke changes, will minimise the chance of things going wrong, derisking your business and avoiding potentially significant expenditure with litigators like us if things go wrong.

Contract Dispute Case study

Our client invested heavily in factory machines to automate and increase production rates.  These were replacing increasingly unreliable machinery so, not only would they have improved profitability, they were also needed to address ongoing business orders. The pre-sales brochures and the contract advertised specified production rates for the machines. Suggestions were also made that installation could take place within a couple of months.

These promises were reflected in the signed contract.  There were significant delays in implementation, causing problems with servicing existing orders and damaging relations with key customers.  Also, once the machines were installed they performed at significantly lower rates than advertised.

Matters were complicated as the contract required that any defects were to be reported within a specified period. Failure to report within this period purported to exempt the seller from any liability arising from defects, including the machines’ failure to meet the advertised production rates. Because of extensive testing, the notification period had already lapsed by the time the client became aware of the issues.

The outcome

Our client sought advice as regards their legal rights and the enforceability of the limitation of liability clause.

By not reviewing the terms of the agreement, the client had unfortunately agreed a number of unhelpful provisions, which placed them on the back foot.  We were able to present arguments to muddy the waters and impose risk on the supplier.  This ultimately helped our client reach a solution whereby some compensation was paid and the supplier agreed to carry out works to improve performance.  It did not fully compensate the client but it did stabilise the position and enable them to move on with their business.

However, the client would have been in a much stronger position had they taken advice on the contract in the first place.  They would either have negotiated terms to ensure they got what they thought they were buying or to have a clear route of redress if things had gone wrong.

Introducing Loney Stewart Holland

We are Loney Stewart Holland, a specialist law firm with a sole focus: resolving commercial disputes.

Clients come to us when something has gone wrong and, very often, they need urgent help.  We are a legal 999 call for businesses.  It might be because a contractual problem has arisen with a customer or supplier (for example leading to critical systems not working or a threat of a claim against the business), a competitor is taking unlawful advantage of intellectual property or confidential information, or a problem has broken out between the directors, shareholders or partners that run the business.  Any of these problems can have a huge impact on a business, often posing an existential threat.

We are here to help. We understand that any unexpected legal issue is a distraction from day-to-day business and are focused on finding solutions to problems.  Our team is very experienced and personable they apply their expertise to the problem at hand.

Not a traditional law firm

We have ripped up the traditional law firm model, that often involves stacking teams of lawyers on a case, and instead have built a team of highly experienced litigators, who can understand the commercial context, get to the root of the problem quickly and devise inventive and practical solutions to problems.  We utilise technology and AI where appropriate to supplement our services and operate a lean business model that helps keep fees well below our traditional law firm competitors. 

We are always happy to chat to potential clients without any obligation and, if there is a quick and easy option to try, we’ll share our thoughts.

Because we are a ‘distress purchase’ and most clients hope never to need us, we work very closely with other specialist law firms, such as Farringford Legal, who are the trusted advisors who assist clients with their day to day legal requirements.  The reality is that clients who use a firm like Farringford Legal are far less likely to need to speak to someone like us or, if they do, they have the contractual frameworks in place to make it easier to resolve a dispute quickly and cost effectively.  Also, having Farringford Legal in the background means that we can quickly get up to speed with the business and get to the heart of the issue right away without starting from scratch.

Experience tells us that those businesses that have someone like Farringford Legal on their side will be better run and have far less potential for expensive, crippling contract disputes allowing the business owners to focus on what they do best.