Law of Contracts – Part 13
In Part 1 (August 2014), I categorised risk into five categories, namely; 1. PEOPLE, 2. MONEY, 3. LAW, 4. SERVICE and 5. ECOLOGY. In this series, I deal with the risk profile of each, i.e. broadly speaking the areas of risk that any business is exposed to can been allocated under these five categories.
In Part 2, (September 2014), I covered the category of ‘People’ under four sub-categories: Staff (discussed in Part 1); Third party service providers (‘TPSP’); and Business Associates.
Part 3 (October 2014), continued with ‘PEOPLE’ as Customers.
Part 4 (November 2014), started the discussion on the 2nd category, namely ‘MONEY’ in terms of CASH and CHEQUES.
Part 5 (December 2014), looked at CREDIT and CREDIT CARDS.
Part 6 (January 2015), looked at LAW and CONTRACTS, with an introduction and Requisite #1: Offer & Acceptance.
Part 7 (February 2015), continued with Requisite #1 covering telephone enquiries, e-mails, websites and advertising.
Part 8 (March 2015), covered Requisites #2: Legally Binding Obligation, and #3: Consensus in contracts.
Part 9 (April 2015), covered Requisite #4: Performance Must Be Possible.
Part 10 (May 2015), covered Requisites #5 & 6: Performance Must Be Permissible, and Capacity of the Contracting Parties.
Part 11 (June 2015), continued with Requisites #6: Capacity of the Contracting Parties.
Part 12 (July 2015), covered Requisite #7” Negotiating a Contract.
REQUISITE #8: DRAFTING A CONTRACT
As stated in previous articles, an agreement does not have to be in writing and verbal agreements are perfectly binding. However, we reduce such verbal agreements to writing because ‘when the wheels come off’, the ‘finger pointing’ and ‘who said what’ very quickly puts paid to the consensus you thought you had.
How do you go about reducing it to writing – can you do it yourself or do you have to speak to the legal fraternity? The answer to this is that you can indeed do it yourself to a large extent, but other than the factual issues (even that), it should be given to a lawyer to cast his eye over to ensure you have said the right thing, stated it correctly, and that it is binding from a legal perspective. However never ask a lawyer to ‘have a quick look at your document’: it implies that you want a cheap job, that what you’ve done should suffice and he merely has to rubber stamp it, and that his contribution is no more than a sop. It will put pressure on him to cut corners, whereas he is requested to put his professional reputation on the line – it is simply not fair to either party. As the saying goes ‘If something is worth doing, it is worth doing it well’.
It should be borne in mind that more often that not it is a good idea to involve your lawyer in the equation as early as possible, although this should be assessed on a case by case basis, depending on the complexity of the matter and the relationship you have with your lawyer (As you know, the relationship I aim to achieve with my clients via my BASTA™ Legal Advice Clubs is that of a ‘legal GP’ thereby being part of your ongoing long term planning and strategy, ensuring the latter is legally sound permanently and not simply ad hoc). There is nothing worse (and more expensive) than ‘dumping a pile of paper’ on a lawyer’s desk after weeks of meetings and then expecting him to produce an adequate agreement.
Why involve your lawyer in the ‘build up to the final contract’?
He can steer the parties in a more effective direction and guide the thinking, strategy and the implementation. Such guidance will (or at least should) include taking cognizance of the facts and the law: this includes latest case law and statutes that may impact on the ultimate contract. He will furthermore be in a position to interpret such matters as body language and innuendos, things he simply can’t pick up from the dreaded pile of paper. Such involvement on a proactive basis will also result in reduced legal fees: not only from a time factor but also because a final draft will be produced at an earlier stage. Regardless of the option the parties implement, it is very important to spell out quite clearly and as early as possible ‘Who is going to do what and by when’ (the ‘w.w.w.’).
This also has a bearing/depends on drafting style. Some lawyers like to draft long, verbose and complex agreements. My personal style s to keep it simple (including the language), have lots of definitions and addendums and have the parties themselves draft the ‘commercial components’ of the agreement.
The reasons for this approach are:
1. Keep it simple: pretty obvious – it means it is easier for everyone to understand it!
2. Lots of definitions:
• it means everybody will apply their minds;
• consensus is reached on the meaning of key issues;
• it shortens the agreement.
3. Addendums: (this goes hand in hand with next point)
• it means that if anything changes in the future you simply have to change the addendum or add a new one, sign and attach it to the agreement;
• it often also means you don’t have to involve the lawyers!
4. Commercial components:
this pertains to factual matters which by definition is the province of the parties;
• it does (more often than not) require a legal mind to refine it;
• it can be contained in addendums;
• the (often) long hours refining this does not mean concomitant legal fees!
5. Template: Aim to prepare a document that can be used as a template in future.
• It will also assist in the parties applying their minds.
• It will save legal fees in future.
Bear in mind that ideally the above should be preceded by a letter of commitment (‘LOC’) (see earlier articles).
Disclaimer: This article is intended to provide a brief overview of legal matters pertaining to the travel and tourism industry and is not intended as legal advice. © Adv Louis Nel, ‘Louis The Lawyer’, August 2015.