Summary
- Most commercial contract disputes trace back to a small number of causes: an unwritten or informal contract, ambiguous drafting, a breach of an obligation, a contract that does not accommodate how the business will change, and misrepresentation during negotiations.
- Oral contracts bind in England and Wales, but proving what was agreed is far harder, and some contracts must be in writing or evidenced in writing to take effect at all.
- An entire agreement clause does not by itself exclude liability for a misrepresentation that induced the contract, and any clause that does exclude it must satisfy the reasonableness test under section 3 of the Misrepresentation Act 1967.
- LegalVision, a commercial law firm, helps businesses draft contracts that hold up and resolve disputes when they arise.
- Businesses that record their negotiations and define their terms precisely remove most of the ground a dispute would otherwise stand on.
Tips for Businesses
Put every commercial agreement in writing, and define the terms that carry weight rather than leaving them to industry usage. Keep a record of what each side said during negotiations and fold anything you are relying on into the contract itself. Check that your term and termination provisions still suit where the business is heading. If you need help with a commercial contract, our experienced commercial contracts solicitors can assist.
Commercial disputes rarely begin with bad faith. They begin with a sentence nobody defined, a promise made on a call, or a contract written for the business as it was three years ago. That is useful, because it means most disputes are preventable at the drafting stage rather than winnable at the litigation stage. The causes repeat across industries. An agreement nobody ever wrote down properly. Terms open to more than one reading. An obligation missed or performed late. A contract that cannot accommodate where the business is going. And something said during negotiations that turned out not to be true. Knowing which of these you are exposed to tells you where to spend your effort. This article explains what a contractual commercial dispute is and sets out the common causes, covering contract format, poor drafting, breach, contracts that do not future-proof the business, and misrepresentation.
What are Contractual Commercial Disputes?
A contractual dispute is when the parties to a contract dispute something relating to it. Therefore, they may disagree on a contractual term within it. Alternatively, they may have a dispute over a party not carrying out their contractual obligations or not carrying them out precisely as they should according to the commercial contract.
Commercial contracts are legal agreements, so contractual terms must be complied with.
What are Common Causes of Contractual Commercial Disputes?
Understanding the common causes of contractual commercial disputes is essential to avoid them.
Below, we list some of the common causes of contractual commercial disputes.
Contract Format
Not all commercial contracts are written contracts. Instead, some commercial contracts are oral, which can be a common cause of a contractual dispute.
Contractual disputes can occur in terms of whether or not the contract exists in the first place. They can also arise because agreeing on the contract’s terms can be challenging. The format of a contract can also be conducted through correspondence. These can also cause contractual commercial disputes.
Poorly Drafted Contracts
Another typical cause of contractual commercial disputes is when the contract is poorly drafted. Your business contracts must be well-drafted to ensure accuracy within the agreement between the commercial parties. This enables parties to understand their contractual obligations.
A clearly defined contract will also clarify the meaning of definitions in the agreement, such as industry norms, legal terms, and jargon. It is also essential to carefully document negotiations leading to the formation of a contract to reduce the possibility of contractual commercial disputes.
Ensuring that everyone in your business understands the contractual terms is essential. You do not want them to cause a contractual breach, which you then have to deal with. This can apply, for example, to your:
- employees;
- contactors; and
- freelance workers.
Commercial Contract Breaches and Disputes
A contractual breach is a common cause of contractual commercial disputes. A contractual breach is where one or more parties to the commercial contract do not carry out their contractual obligations or do so as they should.
In business, a party to a commercial contract may breach it, for example, where:
- they deliver faulty goods to customers;
- the buyer has not paid for services in time; or
- where a seller provides goods or services late.
Non-Future Proof Contracts
You should consider the future of your business when drafting commercial contracts. Not doing so can be a common cause of contractual commercial disputes.
It is essential to think about your business’s future, as you do not want your commercial contracts to hinder this or not provide for it.
This fact sheet outlines how your business can manage a dispute.
For example, you may wish a commercial activity to continue for a specific time, so the contract should record this. However, you may want to avoid being tied to the contract for too long as you may change the direction of your business.
Misrepresentation
Misrepresentation occurs where one party makes a false statement of fact that induces the other party to enter into the contract. In a commercial context, this might include a supplier overstating the capabilities of their product, a business partner providing inaccurate financial information during negotiations, or a seller misrepresenting the condition of goods.
Misrepresentation can be fraudulent, negligent, or innocent, and each carries different legal consequences. Where it is established, the affected party may be entitled to rescind the contract and, in some cases, claim damages. Even an honest misrepresentation can give rise to a dispute if the other party relied on it when agreeing to the contract.
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Key Takeaways
While running your business, you will commonly form contracts with others, so you could run into a contractual commercial dispute. A contract is a legally binding agreement, and a contractual dispute occurs when parties to the contract disagree on a part of it. There are many common causes of contractual disputes, and understanding these can help avoid one. For example, the format of a contract, such as an oral contract, can cause a contractual dispute.
Poorly worded contracts with unclear terms can also cause a contractual dispute. Other common causes include a commercial contract that is not future-proof and does not account for your business’s future plans. A contractual dispute can also occur where parties to the contract breach the commercial contract.
If you need help understanding common causes of contractual and commercial disputes in the UK, LegalVision’s experienced disputes and litigation solicitors can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. So call us today on 0808 196 8584 or visit our membership page.
Frequently Asked Questions
Can a verbal agreement lead to a contractual dispute in the same way a written contract can?
Yes, and more often. Oral contracts bind in England and Wales, but proving what was agreed without written evidence is difficult, so disputes about whether a contract exists at all, and about its terms, are far more common. Some contracts must also be in writing to take effect.
What is the most effective way to avoid a commercial contract dispute?
A well-drafted written contract. Use unambiguous language, define the terms that carry weight, record accurately what the parties agreed during negotiations, and provide for how the business may change. Most disputes arise where a contract is vague, incomplete, or not understood by the people performing it.
Does an entire agreement clause protect me from what was said in negotiations?
Only partly. An entire agreement clause confirms the written document is the whole bargain, which addresses alleged collateral terms. It does not by itself exclude liability for a misrepresentation that induced the contract. For that, you need express wording, usually alongside a non-reliance clause.
How long do I have to bring a contract claim?
Six years from the date of the breach for a simple contract, and twelve years for a contract executed as a deed, under the Limitation Act 1980. The clock runs from the breach rather than from when you discovered it, so act as soon as you suspect a problem.
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