Contracts are an important part of everyday business and individual life. Parties enter contracts for various reasons – the purchase or supply of some good or service, to protect certain specific interests, to define terms on which they would collaborate and so on. It is trite that a contract could be oral or written.
Disputes however frequently arise out of contracts with one party alleging that the other has failed to keep to the terms of the contract. To resolve, the parties then have to look to the terms of the contract to find if this is so and where there’s no clarity, could find themselves at loggerheads over what the terms of the contract mean.
In this piece, we succinctly outline 10 ways to prevent or minimize contractual disputes. While not exhaustive, these principles apply across the simplest to the most sophisticated transactions.
1. Be clear about the obligations of each of the parties to the transaction and document these responsibilities lucidly preferably in a single written contract.
2. In the contract, explain your technical terminology – A major bone of contention between parties to a contract is the meaning of its terms. It is therefore always very helpful to have an interpretation area that explains the meaning of important or technical terms.
3. Consider the inclusion of timelines in your contract where appropriate. Also think about whether either party is willing to accommodate a slight delay by the other party in fulfilling their obligations and then make provision for it. If delays cannot be accommodated under any circumstances, spell it out in your contract.
4. In your contract, provide for a remedy or compensation if one party fails to fulfil their obligation(s). This could be a fixed amount to be paid by the defaulting party to the other as compensation. It could also be in some other form, depending on the nature of the transaction.
5. Decide how you will resolve disputes by including a clear dispute resolution clause. It is quite remarkable that a frequent flashpoint when contractual relationships have broken down, is how disputes should be resolved.
While the most appropriate means of dispute resolution would almost always depend on the facts of the transaction, the use of a multi-tiered dispute resolution clauses, which allows the parties have first recourse to at least one alternative form of dispute resolution before a less friendly mode, can be helpful in saving costs and preserving relationships. Such multi-tiered clauses should also be clear and the dispute resolution tiers preferably limited.
6. Specify the law that governs the contract and the Court with jurisdiction over any dispute. It is important to synchronise governing law and jurisdiction matters to avoid the complexity, and in some cases, uncertainty, of requesting the court of one country to apply the laws of another country.
7. Keep the contents of your contract within lawful limits. Even if parties have unknowingly signed off on a contract to carry out an illegal purpose, it is open to either of them to refuse to perform such a contract upon discovering that it is illegal to do so. The other party cannot lawfully compel the performance of such a contract, neither will the Nigerian courts enforce it.
8. Before you sign the contract, read through carefully to be sure you understand the meaning of all its content. That contract is either personally binding on you or on your organisation. If you’re not clear, have your lawyer walk you through.
9. Above all, discharge your obligations under the contract as and when due.
10. Post contract: If you use standard form contracts, review them regularly. Large organizations often have standard contracts with which they deal with suppliers or vendors. While this is often an efficient way to transact, one must bear in mind that the business landscape changes from time to time – new laws are made, regulatory agencies introduce policies that may impact on how an organization does business. It is therefore important to have your contracts reviewed from time to time by an experienced lawyer.
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