The common causes of contractual disputes
Contractual disputes have the potential to be difficult, protracted and costly. Although avoiding disputes is never guaranteed, being prepared is essential to limit the impact of disputes on your business or, ideally, to avoid them altogether. Disputes can be caused by a wide variety of factors and not all will be avoidable but there are some common areas which are worth considering at the outset of any contractual relationship.
It has become increasingly common for businesses to negotiate and conclude contracts either orally, by conduct or through a combination of the two. In the current environment, where the use of emails and internet trading is widespread, we are often faced with contracts which have developed through correspondence. If disputes arise, instead of reviewing a written agreement, we are forced to examine correspondence to determine when a contract came into existence, the parties involved and the rights and obligations which were agreed.
Battle of the forms
Where two contracting parties have standard terms and conditions of business, issues can arise where it is unclear whose terms apply. The general rule is that the last terms which were sent before acceptance prevail. However, matters can be complicated where it is difficult to establish unequivocal acceptance or there are issues of construction.
Where there is ambiguity in a contract, it is necessary to use established principles to aid interpretation. First, we must look at what the contract says. Any intention should be assessed objectively and read in accordance with common sense. It may be necessary to assess reasonableness and in cases of ambiguous terms, to construe the contract as a whole which can include consideration of industry practices.
The principal remedy in breach of contract claims is damages. The general rule is for damages to compensate the injured party for losses suffered. Recovery of losses can be limited where the injured party has failed to mitigate their loss; an intervening act has broken the chain of events; or the loss is unforeseen.
The warning signs are often visible from the beginning of negotiations and fortunately most contracts will be successfully concluded without dispute. However, where disputes do arise they have the potential to cause uncertainty and destroy client relationships.
As with any area of business it is always advisable to be prepared. Understanding the potential pitfalls is vital, particularly in today’s ever-changing commercial environment.
For more information please contact the Dispute Resolution team on 01622 690691.