Three Ways to Use Clarity to Avoid Contract Disasters

Why Worry?

Contract disasters produce

• Costly claims

• Time-consuming proceedings

• Damage to your reputation

• Damage to your business relationships

The solution is clarity x3

Clarity for contracts

• Clear agreement: don’t let the paperwork slip

• Clear processes: don’t let your business partner’s T&C take precedence

• Clear terms and conditions: don’t assume your T&C will be enforceable, get advice

“A contract… is the expression of agreement that has been reached”

Peter Hibberd, JCT Newsletter 2012

What Is A Contract?

RTS v Molkerei, 20102000: First contact2003: Contract discussions start2004: 1st quotation by RTSFeb 2005: 12th quotation by RTS followed by 1st letter of intent for 4 weeks work only - later extended. Negotiations continued and works startedAug 2005: project was varied mid-way throughDec 2005: planned completion

Then the court proceedings start…

Disaster#1: no contract

RTS v Molkerei, 2010

2008: judge says contract on terms of letter of intent2009: Court of Appeal says no contract after letter of intent expired2010: Supreme Court says contract concluded in August and requirement for ‘formal contract’ waived

7 years to determine whether there was a £1.68m contract!

Disaster#1: no contract

Tip #1: Get clear agreement

“The different [court] decisions… demonstrate the perils of beginning work

without agreeing the precise basis upon which it is to be done. The moral of the story to is to agree first and to start work later”

Tip #1: Get clear agreement

RTS v Molkerei, 2012, SC

Trebor v ADT, 2012Aug 2003: ADT quotation on their T&C limiting their liabilitySept 2003: purchase order from Trebor, subject to their T&CDec 2003: works completed2004: fire in popcorn hopper2005: catastrophic fire destroys confectionery factory in Pontefract

Disaster #2: wrong T&C

Trebor v ADT, 2012n

2010: claim brought for £110m2011: judge decides Trebor T&C apply, no limit on liability (award reduced by 75% for contributory negligence)2012: Court of Appeal agrees (refusing fitness for purpose argument)

Award was 10,000 x price

Disaster #2: wrong T&C

Tip #2: Use clear contract processes

The employer’s “haphazard approach at the outset was not picked up by [the contractor], and was compounded by [the contractor’s]

own rather cavalier attitude to what they were being asked to do”

Tip #2: Use clear contract processes

Trebor v ADT, 2012, CA

Ampleforth v T&T, 2012n2002: Appointment sent to client with £100,000 limit on T&T’s liability - never signed2003: T&T issue letters of intent to contractor, held to be in breach of duty of care to client2003: works commenced by contractor under letter of intent (late completion)

Disaster#3: unenforceable T&C

Ampleforth v T&T, 2012n2008: client brought claim for recovery of £¼m (mainly lost LADs)2012: court says that limit on liability was part of the contract, but not reasonable & cannot be relied on

Award was more than double the limit in the appointment

Disaster#3: unenforceable T&C

Tip #3: Use clear contract terms

“In the absence of any explanation as to why in this case TTPM should have stipulated insurance cover of £10 million despite a limitation of liability to less than £200,000, I consider it unreasonable that the contract purported to limit

liability in that manner”

Tip #3: Use clear contract terms

Ampleforth v T&T, 2012

Why Worry?

Disasters are

• Costly

• Time consuming

• Bad for your reputation

• Bad for your business relationships

Get clear contracts!

Why Me?

• 20yrs drafting contracts

• Trainer, speaker & thought-provoker

• Author of the 500-Word Contract™

• Plain language advocate

Thank you for listening