Contract Disputes

What is a Contract Dispute?

Business relationships are like all relationships – they have their ups and downs, and disagreements/disputes are common.

In order to have a valid and binding contract, there must be:

• an offer to contract
• acceptance of that offer
• some kind of consideration
• intention to create a legally binding contract

At each of these stages, disputes can arise. Disputes are also common once the contractual relationship has been established. Types of disputes include allegations of breach of contract; disagreement over the terms or the meaning of terms within the contract;  or parties to a contract simply not fulfilling their duties.

How can I avoid a contract dispute?

Every dispute will be different and have its own varying circumstances and underlying facts. However, there are some simple tips that can help avoid problems becoming disputes, or in the event that litigation becomes necessary, hopefully put you on a stronger footing in proving your case or limiting liability:

• Write it down – A contract does not need to be in writing to be binding; as long as there is an agreement between you and the other party in exchange for money or something else of value – even if that agreement was made orally or by virtue of your conduct – you have entered into a binding contract. However, it is much harder to enforce a contract which is not in writing. Having a contract in writing means both parties are aware of its terms, and if any dispute arises there is documentary evidence to show what was agreed.
• Adequate drafting – it is always tempting to avoid the cost and time involved in getting a professionally drawn up contract, but doing so can save you a lot of stress and money further down the line if disputes arise; particularly knowing that the contract will give you adequate protection.
• Set payment terms – At the outset make it clear when you will issue invoices, how long your customer has to pay after you issue them with an invoice, and how much interest will be charged for late payment. Clearly state if you will be issuing more than one invoice, for example for a long-term service contract, and if possible, state how frequently you will issue invoices. You should also consider including a term stating that you will not carry out any further work or supply any more goods to your customer whilst they have outstanding invoices.
• Keep a written record – if possible, keep a record of any communication between you and the other party, whether that be emails, letters or attendance notes of conversations.
• Seek professional advice early on – this will avoid disputes escalating and help you be certain of your legal rights and position. It will also help you work out a strategy for dealing with the dispute and consider alternative methods for resolving it.
• Include Alternative Dispute Resolution (ADR) methods in the contract –  these might include mediation, arbitration or negotiation and will provide the parties with alternative options they could use to help resolve disagreements.

How can I resolve a contract dispute?

Litigation and the court route is only one way of resolving a dispute. Other alternative methods can offer a more flexible, quicker and cheaper approach depending on what the respective parties hope to achieve. ADR might be the best option if maintaining a business relationship is important.

There are various ADR options, including but not limited to:

• Negotiation/ meetings between parties and their solicitors:

These are usually classed as ‘without prejudice’ which means that whatever is discussed in the meetings cannot be relied on or referred to in Court. It offers the parties a way of discussing the issues openly and often results in settlement.

• Mediation:

This is similar to a without prejudice meeting as the aim here is also to reach a settlement between the parties, but an independent mediator will be present to steer the conversations and act as a go-between amongst the parties.

• Arbitration:

The parties will select an impartial third party, arbitrator, whose decision will be legally binding on both sides.

Contract disputes can be costly, time-consuming and very harmful to your business and business relationships. Whatever the situation, advice should be sought as soon as possible to ensure the best possible outcome.

If you need any advice on contract disputes, please contact a member of our commercial disputes team in confidence here or on 02920 829 100 for a free initial call to see how they can help.