Why Resolving Disputes Costs Ten Times More Than A Contract
Lawyers are expensive, particularly if you are in dispute with someone. However, because prevention does not sell, many small business owners tend not to use lawyers except when they are unfortunate enough to face litigation. In the meantime, rather than use lawyers to draft any agreements for them, even important ones like terms of business. They are turning to the burgeoning industry of contract templates and buying standard precedents to use.
The problem is many of the contract templates on sale are every bit as lengthy and complicated as legal precedents used by contract lawyers. Unless you’ve got seven years of legal training under your belt, these so called “simple templates‟ can be an overwhelming place to start for the layperson!
Even where the templates ARE written in plain English they have a fundamental flaw: It is difficult to know how to use or alter them because it’s the details of the commercial transaction which will determine how you should tailor the document. If you lack an understanding of the business context and the dynamics that would entail the need to alter a standard template how can you properly adapt it to your situation? Rarely are transactions so standard that a general legal document is adequate. As I explained in my blog Why use a lawyer when you can buy a legal agreement? Last week entrepreneurs would do far better to just use plain English and avoid any legalese when writing their own agreements.
If you’re left to grapple with complex drafting alone and then there’s a dispute on that agreement, you are unlikely to be well positioned to contest the dispute, and it will cost you a lot more than it need do to resolve it.
You do not need to sign a piece of paper to be bound by its terms.
There are many misconceptions about contracts, including the belief that it’s necessary to sign a piece of paper in order to have a contractual relationship. That’s not the case.
When you engage someone to perform a service for you, or agree to sell something to someone, a contract exists between you and the other party whether you realise it or not. The exception is if it’s purely a domestic relationship, which the law treats differently.
If either of you put forward written terms at the right time during your discussions you would have a contract on those terms even though nothing was signed.
It’s important to realise that your email discussions, and telephone conversations are enough to create a binding contract. If you don’t document the agreement then it will be quite messy and expensive to resolve any disputes later.
In my blog I explained how to document your own agreements informally using plain English instead of relying on bought templates. Here I just want to explain what happens if you can’t negotiate a solution with the other side and need to involve a lawyer to help you resolve the dispute.
Resolving disputes using lawyers
Lawyers start by gathering background information to try to work out the legal answers to the issues in dispute between you. They will question you on the oral and written discussions you had with the other party before the contract was formed. Details of who said what and when will be relevant to shed light on your mutual intentions and what you “signed up to”, as will any written terms either of the parties put forward.
After building a picture of the background circumstances, the lawyers would apply their knowledge of contract law principles to your situation to pin point the time when the contract was formed in the eyes of the law. This date would also give an indication of what terms were incorporated within it. Your discussions or documents sent after that date are generally unlikely to have contractual effect. It can happen that the contract is formed before people realise it and the legal agreement they used had no effect!
Say your dispute is about an ecommerce website being delivered late. You had engaged a PR company and incurred various other expenses relying on the web developer’s promise to deliver your site on time. The delays left you considerably out of pocket.
Your lawyers decide you have an arguable case to claim that the other side broke the contract. So, they would write a letter claiming compensation on your behalf. There has to be a lot of posturing to get the other side to want to conclude the matter without resort to court. so, the dispute will generally mention legal actions and remedies that the parties could avail themselves of if the other side fails to agree to their demands. It can therefore be quite unpleasant to be involved in a dispute.
The other party’s lawyers will hopefully give advice along similar lines. So if you have a good case, it’s likely they will suggest their clients be ready to make an offer of compensation to you. They may not do this straight away, but they will advise their client of the strength of your case. When the offer is made it will probably be lower than the sum you claimed. That’s just the way negotiations tend to go. However, you never know whether the other party is serious or just bluffing, and risk losing the chance of a settlement each time you reject their offer. Some correspondence will ensue before a final compromise is reached or the matter is escalated to issue of legal proceedings (which is not to say you will end up in court).
If the other side’s lawyers glean some information which they think weakens your claim, they will respond to say you contributed to the delay because of something you did (such as changing the brief) or failed to do (such as providing a list of requirements by a set date), and therefore are not entitled to any compensation, or as much compensation as you claimed and so on. Generally, after some correspondence back and forth the matter is resolved. Only a tiny number of disputes end up in court.
That’s not to say it doesn’t matter what document you use. The better your documentation, the cheaper it will be to resolve disputes, and the less likely you will be to be to need lawyers to help you resolve matters. The real purpose of a legal agreement is to achieve clarity. It’s not just to have a piece of paper. The reason for having a legal agreement is to encourage you to think through the details and discuss them with the other side before the contract between you is formed. Hopefully if you are like minded you will do a deal and if you’re not, the pre-contract negotiations will highlight it so you walk away from the deal.
