One of the key problems with contracts is knowing how and when to use them effectively.
This decision should be part of a clear contract strategy. Even if you don’t have a mature contract strategy, any strategy is better than hope! As fellow speaker and internet marketing expert, Ian Brodie, tells me:
Hope is NOT a strategy
No strategy? No problem!
The brilliant thing about the law is all the stories we get to enable us to learn from the mistakes of others. I often tell elements of this story, about a popcorn factory, when trying to persuade an audience to sort out their contracting – both the process and the content.
Once upon a time, a buyer was discussing its new popcorn factory in Pontefract with a seller it had worked with before. It asked the seller to provide a fire suppression system for that new factory. The contract discussions progressed nicely, a price was agreed, a standard specification sent and other relevant terms bandied around…
They hit a metaphorical brick wall in the process: neither seller nor buyer had any clear process or strategy for getting the process completed and the project started. They adopted what the judge referred to as a ‘haphazard’ approach.
The seller sent their quote which referred to their own T&C, but forgot to send those T&C to the buyer.
The buyer sent their confirmation which referred to their T&C, but did not send those T&C to the seller.
What was missing?
Neither of the companies seemed to know:
- who was responsible for finalising the contract and through what process
- how to precisely record their agreement – they ended up contracting ‘by default’
- their ideal terms for a contract including scope, aims, risks
- how to negotiate the commercial and legal aspects
- which of the buyer’s and seller’s aims should be noted and which took priority
- which risks should be taken into account (eg catastrophic fire) & who should bear those risks
- how to audit their contract process to spot mistakes.
The result was that when a dispute occurred (and a multi-million pound claim was raised), they had first to determine the terms of the contract between the parties.
And the difference?
- If the seller’s T&C has been part of the contract, and correctly drafted, the seller might have limited its liability to mere thousands of pounds.
- If the buyer’s T&C had been part of the contract and correctly drafted, the buyer might have recovered its full £110m claim.
Instead a mere (!) £34m was paid by the seller (or its insurers) to the buyer. Both suffered hugely from their respective failures to have a coherent, clear contract strategy.
What should you do?
If you want to avoid costly contracting mistakes, you should audit your contract process. You need to know who is responsible for agreeing all critical commercial, operational and legal terms, including the key aim for your projects and ensuring the contract reflects that aim.
You may also want to exclude supplier liability for losses that the buyer can reasonably be expected to insure against (see Goodlife v Hall).
Cases: Trebor Bassett Holdings Ltd (2) The Cadbury UK Partnership v ADT Fire and Security plc [2012] EWCA Civ 1158; Goodlife Foods Ltd v Hall Fire Protection Ltd [2017] EWHC 767
[Updated January 2024]
