Why Bother with a Written Contract?

Why Bother with a Written Contract?

Business-people are frequently frustrated by the unnecessary restrictions that lawyers seem to want to introduce. They think (possibly rightly) that if they were more attuned to business matters the lawyers would be business entrepreneurs themselves.

Why is it necessary, a business-person might ask, after having gone to all the trouble of negotiating the deal, and sealing it over a good lunch, to go to the trouble and expense of putting into writing what had just been agreed. And on those occasions when everything goes smoothly they would be right to ask the question. It is, however, different when trouble develops.

When that happens the parties who had had such a good lunch will be at loggerheads – the mutual cooperation that once existed will long since be gone. There will be a dispute over what was agreed and expected. One party will say that he has done all that was expected: the other will point to the fact that the roof leaks, or that the truck will not start, or that the delivery never arrived or was late and say that what was promised was not delivered.

Resolving that dispute will involve looking at what was agreed to see whether what was promised and expected was delivered. If there is a properly drafted written contract the areas of dispute will be far less than if there is nothing but one party’s version of what was agreed against the other’s version. If the dispute proceeds to court the outcome is far more likely to be predictable if there is a written agreement.

But even then there may be difficulties if the written agreement does not spell out all the relevant terms. The law does not allow a party to explain to the judge how the contact was negotiated, or what he believes the contract to mean. The judge is limited: she can determine the terms of a written agreement only by working out what the parties must have intended from the words used, seen against the factual background in which the agreement was made.

As so often happens in litigation, at least one party goes away dissatisfied: not infrequently both go away dissatisfied. A written contract prepared by a lawyer is more likely to remove the uncertainties found in a home-made contract, or a contract made by word of mouth and finalised over that good lunch.

Many years ago I had the pleasure of acting for one of the most successful entrepreneurs I have met. He had negotiated a contract that was very favourable to him. He went to his lawyer to have the terms recorded in a formal written document – but refused to pay the lawyer’s fee for the drafting. Unnecessary and exorbitant. So, he drafted the contract himself. When relations with the other party broke down there was litigation over the contract – and great dispute over the meaning of the home-made agreement. The trial took 5 days – we lost. But on the appeal (which took 2 days) we won. The further appeal to the House of Lords took only a day – we won.

The litigation in that dispute took some 3 years or more to conclude. The management time taken away from my client’s business was significant – and the costs enormous. After we had finally succeeded, and after the celebratory lunch was over my client asked for a copy of the many, many bundles of documents used in the litigation. Why? Because he had had a bookcase built in his office to accommodate them – so that whenever he might again be tempted to do it himself, he could look across the room, remember, and get it done professionally.

The moral is that contractual relations do not always remain as rosy as when the agreement is first made – people do fall out. So, it is worth either instructing a lawyer to put it all in writing. Or for the business-person to do it himself – remembering the importance of covering all eventualities, including those that will never happen. Because experience shows that they do.

David Phillips QCWritten by David Phillips QC
David Phillips QC is a senior silk with an established reputation as a strategist and advocate in the field of commercial litigation and dispute resolution. He is also highly regarded in the fields of sport, professional negligence, and EU transport regulation.