Contractual conundrums and doldrums

contracts, contractual, t's and c's

Many of us when entering into exciting commercial transactions become disillusioned when we are confronted by a monstrous morass of legal documentation so lengthy, wordy and complex that it brings to mind the Joseph Joubert quote, “When you go in search of honey you must expect to be stung by bees”. It’s enough to make anyone throw up their hands in frustration and head for the hills.

Here are a few tips to help determine whether to flee or stay the course of the contractual journey.

Tip 1: Remember the first contract

Ostensibly the first contract known to western mankind was that between God and Adam and Eve which in legal terms dealt with rights of use. God would give Adam and Eve the right to use the Garden of Eden on the condition that they did not partake from the tree of knowledge. Adam and Eve understood their obligations and the consequences of not complying with those obligations, i.e. on eating the forbidden fruit the rights of use would be extinguished or to put it in biblical terms would result in expulsion from Paradise.

In today’s precedent-fuelled legal world, simple contracts are well and truly historic. Added to this in the current fast-paced Internet environment when confronted with modern contracts obscured by legalese it is very tempting and certainly understandable to hit the “I Agree” button without reading through these tortuous documents. Even lawyers find the exercise not only to be painstaking but also painful.

When contracts relate to your supply, distribution or finance agreements as opposed to the latest mobile phone app, it is best to read the terms and conditions to ensure that your business is well protected. Just keep in mind the first contract, ignore the legalese and much like a treasure hunter search the contract to find the basic tenets of the transaction, i.e. does the contract contain terms which accurately and adequately describe the transaction, the cost of the transaction, each party’s material rights and obligations and the ability of both parties to enforce the transaction.

Tip 2: Don’t be scared to negotiate and discard

Effective contracts are similar to a well written customised operations’ manual. Unfortunately in practice we are often faced with the ‘kitchen sink’ precedent type contract which includes every possible issue, probability and risk whether pertinent to the transaction or not.

The rule of thumb when reviewing this type of contract is to remember that someone who is not a party to the negotiation must be able to understand how to implement and enforce the contract without clarification. Don’t hesitate to sort the ‘wheat from the chaff’ and negotiate to discard unnecessary terms which cloud the clarity of the transaction.

Tip 3: Know when to walk away

Sometimes, no matter how much you want ‘seal the deal’ it is best to walk away when despite attempts at negotiation the other party insists on including unreasonable contractual terms or refuses to include terms which capture the important aspects of the deal.

The way in which companies approach their contracts is a good indication of whether they value you and stand by their products/services. When companies require you to sign up to onerous terms and conditions while at the same time avoiding any or most obligations themselves, walking away from the transaction is often the best choice especially if this could prove costly both from a price and risk perspective.

Tip 4: Manage the bees and you won’t get stung when collecting the honey

Remember to always read contracts carefully, ensure that transactions are accurately and adequately recorded, ensure that the terms and conditions are reasonable as they apply to you and most importantly if there is any doubt consult your legal adviser.