A guide to creating successful and watertight commercial contracts

AdobeStock_626749965-contracts-3.jpg.jpg

For any formal business agreement, a well-drafted commercial contract benefits all parties by helping to ensure the terms of the agreement are adhered to as well as saving time and expense on legal action if its terms are breached.

Paul Matthews, associate director and head of WHN Solicitors’ corporate and commercial team, discusses the key elements of making sure commercial contracts are successful and watertight.

Skilful and diligent drafting helps to ensure a contract has its desired effect. Poorly drafted contracts can fall foul of the contra proferentem rule which effectively means that where there is doubt as to the meaning of a contractual provision, that provision will be interpreted against the party who put the provision forward.

Well drafted contracts are also easier to comply with as well as being more straightforward, and therefore cheaper, for the recipient to obtain legal advice and negotiate any points of concern.

In addition, when a dispute arises, the likelihood of court proceedings being required is reduced as the contract will already provide for what happens in the event of a variety of foreseeable issues arising.

Even if a dispute ends up with court proceedings, a well-drafted contract is likely to significantly narrow the issues to be dealt with by avoiding the need for legal argument about what various contractual provisions were intended to mean.

A successful and watertight contract should be:

Coherent and consistent

The quality of business contracts varies widely and this tends to be heavily dependent on how well the initial version was drafted. It can be very tempting to cut corners by borrowing parts from other contracts you have seen or seeking to repurpose a contract designed for a different set of circumstances.

Doing this involves all sorts of risks. For example:

  • Inconsistent use of defined terms
  • Inconsistency between different provisions
  • Including provisions which were relevant to the previous contract but are not appropriate to the current contract
  • Including provisions which were not relevant to the previous contract but are desirable for the current contract

Clear

Avoiding lengthy and unwieldy sentences or clauses makes contractual provisions significantly easier to understand and interpret.

A well drafted contract will, wherever possible, avoid longer clauses by dividing them into shorter clauses or using sub-clauses. This is particularly important in relation to clauses where the enforceability of the clause is dependent upon reasonableness e.g. restrictive covenants and clauses seeking to limit or exclude liability.

Where it is found that part of such provision goes beyond what is reasonable (which is always a risk with such clauses as different judges may take different views as to what is reasonable), a court can strike out the offending wording (rather than ruling the entire clause unenforceable) providing the remainder of the clause continues to make sense without the offending wording.

Where the offending words are contained in a separate subclause rather than embedded within a single longer clause, it is far more likely that the remainder of the clause will be left unaffected.

Certain

A contractual provision will only be enforceable if it is sufficiently certain. By way of example, agreements to agree (e.g. the price will be revised on the first anniversary to such increased price as the parties shall agree) are likely to be worthless in the absence of any provision as to what happens if the parties can’t agree.

Concise

The length of a contract should be determined by what it sensibly needs to cover. Contracts should not be artificially shortened but can often be repetitive, dealing with the same issue on more than one occasion.

Not only does this make the contract longer than it needs to be, it also risks inconsistency. This creates avoidable scope for dispute as often the issue won’t be dealt with in an identical way.

Judging which words to include in a contract is extremely important – making sure the correct words are included assists with clarity and certainty. Including unnecessary words is likely to prejudice coherence, clarity and certainty.

Drafting commercial contracts is a skilled matter and, whether you need a contract preparing or are the recipient of someone else’s contract, getting appropriate professional advice at the outset will help ensure it is successful and reduce the scope for costly and time-consuming disputes.

Paul specialises in corporate and commercial transactions, including company and business sales and acquisitions, management buyouts, shareholder agreements, joint ventures, partnership agreements and issues, as well as general commercial contracts including terms of business.

For further information on commercial contracts or any other corporate or commercial law matter, call Paul on 0161 761 4611 or email him at [email protected]

Enjoyed this? Read more from Woodcocks Haworth & Nuttall Solicitors

Latest news

1

County council chief executive set to depart Angie Ridgwell

County council chief executive set to depart

12 Jun 2024

2

Acquisitions bolster Chorley investor's neuro rehab offering Handl Group

Acquisitions bolster Chorley investor's neuro rehab offering

12 Jun 2024

3

Napthens announces new senior marketing hire Catherine Wong Napthens

Napthens announces new senior marketing hire

11 Jun 2024

4

Business leaders enjoy a Taste of Hyndburn culinary tour AmazingAccrington business leaders enjoyed a culinary tour of Hyndburn as part of the Taste of Hyndburn event press.jpeg.jpg

Business leaders enjoy a Taste of Hyndburn culinary tour

11 Jun 2024

5

EV charging point software firm appoints new chair Paul Brennan Fuuse

EV charging point software firm appoints new chair

11 Jun 2024

Lbv116 Ltb Strip980
Background image for hub sign up block

LBV Hub

Reach 50,000 members of the Lancashire business community

Post your news
Post your events
Post your offers
Company profile
Social reach
Magazine coverage
Sign-up
Events
RISE - The Academy for Female Leaders and Managers
WENDY BOWERS RISE Illustrstion copy.jpg.jpg
LBV Hub Seminars
11 Jun 2024 - 04 Dec 2024

RISE - The Academy for Female Leaders and Managers

East Lancashire Chamber of Commerce, Clayton le Moors, BB5 5JR

09:00 - 16:30

Business Networking in Lancaster - BNI Castle
EVENT LISTING BNI Castle.png.png
LBV Hub Networking
13 Jun 2024

Business Networking in Lancaster - BNI Castle

Vale of Lune RUFC, Powder House Lane, Lancaster, LA1 2TT

06:45 - 08:30

Business Networking in Burnley - BNI Kudos
EVENT LISTING BNI Kudos.png.png
LBV Hub Networking
13 Jun 2024

Business Networking in Burnley - BNI Kudos

Prairie Sports Village, Windemere Avenue, Burnley, BB10 2FU

06:45 - 08:30

The Business Network Central & East Lancashire
LBV Header (9).png.png
LBV Hub Networking
13 Jun 2024

The Business Network Central & East Lancashire

Mytton Fold, Langho, BB6 8AB

11:30 - 14:15

How to Meet the Requirements of the Women's Health Strategy
LBV Hub Webinar
13 Jun 2024

How to Meet the Requirements of the Women's Health Strategy

x, Online, x

12:30 - 13:15

Business Networking in Blackburn - BNI Infinity
EVENT LISTING BNI Infinity.png.png
LBV Hub Networking
14 Jun 2024

Business Networking in Blackburn - BNI Infinity

Hampton by Hilton, 2 Frontier Ave, Blackburn, BB1 3AL

06:30 - 08:30

Business Networking in Preston - BNI Brunch
EVENT LISTING SIZING Brunch .png.png
LBV Hub Networking
14 Jun 2024

Business Networking in Preston - BNI Brunch

Samlesbury Preston Hotel, Preston New Road, Preston, PR5 0UL

09:30 - 11:00

Chamber Annual Dinner
Chamber Logo1.png.png
LBV Hub Social
14 Jun 2024 - 14 Jun 2024

Chamber Annual Dinner

Morecambe Football Club, Morecambe, LA4 4TB

19:30 - 00:00

Liverpool City Region Business Expo
LCR 22 EXPO IMAGE.jpg.jpg
LBV Hub Exhibitions
14 Jun 2024

Liverpool City Region Business Expo

Exhibition Centre, Liverpool, L3 4DQ

09:00 - 15:00

Business Networking in Chorley - BNI Endeavour
EVENT LISTING SIZING Endeavour.png.png
LBV Hub Networking
18 Jun 2024

Business Networking in Chorley - BNI Endeavour

Oak Royal, Bury Lane, Chorley, PR6 8SW

06:30 - 08:30

Business Networking in Blackburn - BNI Vista
EVENT LISTING SIZING Vista.png.png
LBV Hub Networking
18 Jun 2024

Business Networking in Blackburn - BNI Vista

Hampton by Hilton, 2 Frontier Ave, Blackburn, BB1 3AL

06:45 - 08:30

Business Networking in Accrington - BNI Zeus
EVENT LISTING SIZING Zeus.png.png
LBV Hub Networking
19 Jun 2024

Business Networking in Accrington - BNI Zeus

The Mill House, Corn Mill Yard, Accrington, BB5 5HX

06:45 - 08:30

Advertise with us

Reaching 50,000 members, our print, digital and event platforms offer a fantastic way to raise your business profile and help you grow.

Find out more LBV116 Online Graphic
Subscribe now

Weekly news bulletin