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Before signing or performing a contract
Benjamin Franklin’s words apply to commercial arrangements as well as to health. Costly and time consuming commercial disputes can be avoided by:
- Putting the terms of your agreement in writing before you perform the contract
- Getting independent legal advice on your rights and obligations under the contract and on whether the contract reflects the agreement which you believe you reached with the other party before you signed it.
It sounds simple, doesn’t it? But as the recent Western Australian Supreme Court case of Absolute Analogue Inc v Sundance Resources Ltd [No 3][1] demonstrates, not doing the obvious can have disastrous consequences.
This case was about whether Absolute Analogue’s employee, Mr Porter, had a legally enforceable contract with Sundance Resources under which Sundance Resources was required to issue Mr Porter with 30 million options to acquire shares in Sundance Resources in exchange for his services. Mr Porter found out the hard way that, in the absence of a written agreement between him and Sundance Resources, there was insufficient evidence for the Supreme Court to find that he had a binding contract with Sundance Resources and was entitled to the options.
Terms and conditions
Of all commercial contracts, perhaps the most frequently encountered are commercial terms and conditions.
Are you or your business selling goods and or services? Do you want to prevent spending your valuable time and money on trying to resolve commercial disputes? If so, make sure that you or your business:
- Has adequate terms and conditions in place.
- Are familiar with your rights and obligations under the terms and conditions that you have signed.
- Keep the terms and conditions up to date, so that they reflect changes in your personal or business circumstances as well as the law.
Outdated terms and conditions and failing to comply with the terms and conditions can expose you to the risk of:
- Not being able to enforce your rights under the contract and losing money that you cannot recover.
- Becoming involved in a dispute that consumes a lot of your time and money.
It is vital for instance to have a term in all commercial contracts (including terms and conditions) that “Fits the fuss to the forum”, so that any disputes that arise can be resolved effectively and efficiently. A clear and detailed dispute resolution clause can be an effective mechanism for preventing the cost of resolving a dispute from outweighing the amount that is in dispute.
Performing a contract
The contact is your road map; not a doorstop to be filed in the ‘blah blah blah’ section of your desk drawer and never to be seen again.
You and all of the key members of your team need to understand your rights and obligations under the contract to avoid disputes and to make sure that the project (or whatever has been agreed to) is completed within the time frame and budget that you and the other party anticipated.
Don’t be penny wise and pound foolish. It is beneficial to spend money on obtaining proper legal advice in the early stages of the contract to ensure that:
- You know what you are required to do under the contract and do it.
- You know what the other party is required to do under the contract and can make sure that they do it.
Don’t allow problems to limp along in the hope that they will fall into that hole in the bottom of the garden marked: “If I ignore it, it might just go away.”
It is natural to want to avoid conflict with the other party, especially during the early stages of the contract. This can create a reluctance to report ‘bad news’ and issue contractual correspondence to secure entitlements or a written variation to the contract.
Ask yourself “Will we get paid for this?” or “Will this problem negatively affect our profit?”
If so, the sooner you bring the problem up with the other party, the better chance you have of mitigating any losses that you may suffer.
Contact a solicitor in our commercial advice team on (08) 9228 2881 or by sending an email to reception@equitaslawyers.com.au. for:
- Assistance with negotiating and drafting commercial contracts and terms and conditions
- Advice on your rights and obligations under a particular commercial contract
- Advice on resolving a commercial dispute
[1] [2014] WASC 283.
