Contractual Disputes: Hints and Tips

Contractual disputes are a frequent challenge, often bringing with them significant disruption, financial strain and reputational damage to you and your business. Fortunately, there are steps you can take to minimise the risk of such issues arising in the first place but, if a dispute does arise, it’s crucial to explore all available options before pursuing litigation. Keep reading to discover the best strategies for navigating these situations…

1. A written contract

The most effective way to prevent a contractual dispute is to ensure you have a well-drafted, written contract in place; one that clearly and accurately outlines the terms agreed between the parties. A written contract provides essential protection to all the parties and can help to reduce misunderstandings and conflicts. 

While oral agreements are legally valid and enforceable, they come with inherent risks and are more likely to give rise to disputes. In the absence of written documentation, oral agreements bring with them higher levels of uncertainty due to differing recollections of the agreed terms, making it difficult to prove what terms were agreed. Resolution of such disputes is therefore more challenging as arguments are based on witness memory rather than documentary evidence.

A well-structured written contract sets out the key terms of the agreement, reducing the risk to you and your business. At a minimum, a written contract should cover:

• The rights and obligations of each party
• Key deliverables and timelines
• The term (duration) of the contract, including any auto-renewal provisions
• Payment terms
• Expected standards and service levels
• Clear termination provisions including why, when, and how each party may terminate the agreement
• The governing law and jurisdiction

A comprehensive contract should also address the mechanics of how disputes will be resolved should they arise. Addressing dispute resolution in the contract helps to ensure that there is a clear process for managing those conflicts, which can help the parties maintain ongoing contractual relationships, as well as provide safeguards for you and your business.

Finally, where you have a written agreement, make sure that you carefully review all of its terms. It is essential that you understand the terms that you are signing up to, and that you are comfortable with the rights and obligations of your business, and the other contracting party, under the agreement.

2. Indicators of a potential dispute

Contractual disputes often come with warning signs you can look out for which may indicate a dispute could be on the cards. Common indicators include:

• Delayed deliveries, incomplete work or late payments - these can be tell-tale signs that an individual or company is in financial trouble or facing operational difficulties, especially if such issues are happening frequently and without valid reason. 
• Changes in tone of communication - if a party to the contract begins to write in a more formal tone, citing specific clauses within the contract, this could indicate they are gearing themselves up for a possible dispute.
• Breakdown in communication - if a party fails to return calls, answer emails or suddenly disengages from communication, it may be another indicator of an impending dispute.

Spotting these warning signs early gives you and your business a chance to step in and sort out any issues before they turn into a formal dispute.

3. Clear communication is key

In the event of a dispute, keeping lines of communication open with the other party can often be one of the most effective ways to resolve matters quickly and help to keep legal fees down. It is important to clearly set out the issues at hand and your proposals for a potential resolution. Carefully consider any response and be open to compromise where possible.

Keep records of all communications and follow up discussions or telephone calls with emails to confirm the key items discussed and agreed, to ensure both parties are on the same page following those calls. This documentation can be used as valuable evidence in litigation, if needed at a later date.

When discussing potential resolution of a dispute, ensure you mark all written communications as ‘without prejudice’ and express that any oral communications are ‘without prejudice’ until a formal settlement is reached. This ensures that such negotiations remain confidential and cannot be used against you or your business in any future litigation.

Taking these steps makes it more likely that the issue will be resolved and without the need to formally engage solicitors.

4. Document preservation

From the start of a dispute, it is essential that you save or ‘preserve’ all documents. If your business has a standard system that automatically deletes files, this must be suspended immediately until the dispute is resolved. If court proceedings are ultimately necessary, relevant documents to the issues in the case will need to be disclosed to the other party.

‘Document’ has a very wide meaning and includes emails, letters, written agreements, text messages, WhatsApp chats, Teams messages, reports, spreadsheets, audio recordings and images, and any other material that contains information which is relevant to the dispute.

It is important to think carefully about where documents may be stored, for example what devices those documents may be stored or saved on, and which personnel within your business will hold such relevant documents. In the event of a dispute, being able to gather a copy of the contract and key correspondence will assist your case and make it easier to progress matters with legal advisors or decision makers within your business.

5. Dispute Resolution

Start by checking whether your contract includes a Dispute Resolution (DR) clause. If it does, the clause should outline the steps the parties are required to take to attempt to resolve the dispute before pursuing formal court proceedings. It may stipulate the parties must mediate, go to arbitration or whether expert determination is needed. 

It is important to follow a DR clause if there is one, as ignoring it may affect your ability to bring a claim.

If no DR clause exists, the parties can still try to agree on a suitable dispute resolution process and it is always advisable to explore DR, before embarking on court proceedings, as DR processes can be relatively quick and inexpensive, and the courts do expect parties to attempt resolution before filing a claim at court.

6. Understanding Limitation Periods

Limitation is a key consideration in any dispute and should be considered as soon as the dispute arises. Limitation periods dictate the timeframe within which a claim must be brought and are governed by statute. If a limitation date is missed, it is likely to mean you will not be able to bring your claim, even if your claim has good prospects.

In England and Wales, the statutory limitation period for claims arising from a breach of contract (not involving a deed) is six years, though in some instances, this can be longer (where the contract involves a deed), and others where this can be shorter. It may also be the case that the contract itself stipulates the timescale within which a claim must be brought. Seeking legal advice early can prevent you missing a limitation date.

7. Taking legal advice

Taking legal advice at an early stage can make handling a dispute much easier. There are key points where involving a solicitor can be particularly useful:

• When drafting a contract – a solicitor can help to draft, review, and negotiate your agreement so that it is clear, comprehensive, and binding. They will ensure the contract identifies the parties, and clearly sets out their rights and responsibilities. A solicitor can also draft bespoke contractual clauses to capture the specific terms agreed between the parties, and ensure that they are drafted in a way that will be legally enforceable. They will also fully explain the terms to you and your business making sure you understand your obligations. 
• At the start of a dispute – a solicitor can review the background, conduct a legal analysis, and help to determine who is responsible. They can advise on the prospects of a proposed claim and the best way to resolve the dispute, as quickly and cost effectively as possible. Having legal support allows you to focus on running your business rather than managing the dispute yourself.
• During settlement negotiations – a solicitor can review and advise on settlement proposals and prepare a settlement agreement which addresses all the issues in dispute. They can also assist with the specific DR process you may have agreed to and engaged in. For example, they can prepare for and attend a mediation with you or enter into formal settlement discussions on your behalf.
• Before formal court proceedings – if court action seems likely, having legal support is invaluable. A solicitor will make sure all court rules, procedures and protocols are followed and that all deadlines are met. They will also be well-placed to prepare the necessary court documents and can assess the likelihood of success and provide expert guidance to strengthen your case.

Practical hints and tips

• Stay calm, level-headed and don’t be hasty. Sometimes swift action is necessary, however, try to take a step back and remove the emotion of the situation to allow you to look at the situation objectively.
• Be considerate. Consider all obligations and liabilities as well as the consequences of any action before any steps are taken.
• Don’t terminate prematurely. Avoid saying the contract is terminated immediately, purely out of frustration. Terminating a contract is a serious step, and immediate termination can only be justified in limited circumstances. Whether, when and how a party can terminate will usually be governed by the terms of the contract, though if the contract does not provide for termination, the parties may be able to rely on common law principles to terminate for a repudiatory (fundamental) breach. Incorrectly terminating a contract can have significant financial and legal consequences as incorrectly terminating could itself amount to a breach of the contract, granting the other party the right to terminate and potentially claim against you for damages for wrongful termination, even if you were not the party in breach of the contract in the first place.
• Don’t ignore the issue. Whilst you shouldn’t be hasty, leaving things to drag on without taking any action to mitigate or resolve a dispute can often make matters worse.
• Seek legal advice early. Whilst you may not need too much legal involvement at the very early stages of a dispute, obtaining advice as to your options and legal position can often inform how you choose to deal with a dispute and assist in achieving a much swifter resolution on the best commercial terms.