In business many people struggle when asked to review a contract or an agreement that has been presented to them. After all when finalising a deal or new business relationship, you are more likely to be focusing on the logistics and implementation of the actual deal than the wording of the contract.
However quickly glancing at a contract and just signing it to 'get the ball rolling' should be done at your peril.
Getting professional legal help with the document is your safest option, but if you're in the early stages of going through an agreement we wanted to share a few contract review tips on how to read a contract like a lawyer.
Contract review process.
A contract is simply a written agreement between two or more parties to do (or not to do) a particular action. When correctly drafted and signed, a contract becomes a legally binding agreement that both parties must comply with.
The most important aspect of any contract is to precisely articulate the arrangement that has been agreed between the parties, ensuring it is in line with current law and legislation.
The remainder of the contract should then document how any foreseeable scenarios will be dealt with for the duration of the agreement. Such as implementation, timings, payment, failures, amendments, disputes and termination.
With this in mind it's time to begin the process of a detailed read through to understand the key clauses and look for anything that’s ambiguous or absent.
Definitions in contracts.
The major terminology or wording used should be specifically defined, either in the body of the contract or in the case of a lengthy document in a dedicated 'Definitions' section. Disputes often arise if a term isn't clearly documented and is just left for each party to interpret. For example, common terms such as:
Identifying parties to a contract.
The individuals or businesses that are entering into the agreement should be clearly defined. If only the name of a business or individual is documented, it may be considered ambiguous should you ever need to enforce the contract.
In the case of a limited company make sure their registered office and company number is recorded which precisely identifies them. With individuals detail their trading name (if a sole trader), address and date of birth.
Duration, termination and renewal.
The duration that an agreement covers or remains in force is an important clause to consider. While the parties may not want to be bound to an arrangement forever, they also may not want to be entering into a new contract every few months. Therefore, each party needs to consider what is a reasonable period for the contract to cover and how any extension or termination is dealt with.
Indemnity clause and limitation of liability.
Indemnity is when a party agrees to protect and compensate another party from losses that may occur in the event of a specific breach or negligence. For example, a retailer may seek indemnity from a manufacturer in the event the products supplied are defective and a claim is made against them by a consumer.
A limitation of liability clause is used to restrict the amount a party pays in the event another party suffers a loss due to the contract. Without this term, a party may be liable for an unlimited amount of damages and financial compensation.
Both these clauses require careful and clear drafting if they are to successfully manage the risks posed by a contract whilst not impacting a party's statutory rights.
Governing law, jurisdiction and dispute resolution clauses.
There's little point in carefully drafting a legal document without specifying the law and jurisdiction under which it falls.
You may think this is only important when dealing with international agreements, however this isn't the case. The UK alone has three legal jurisdictions (England and Wales, Scotland and Northern Ireland) each of which has their own distinct legislation.
A contract should clearly define which legal system it operates under and the court any dispute will be handled in. On the subject of disputes, court action should always be a last resort, so it is also worthwhile to consider dispute resolution options as part of the agreement.
A simple alternative dispute resolution clause that requires all parties must first undertake negotiation or mediation in an attempt to resolve an issue can save both time and money should a disagreement ever arise.
Legal document checking.
If you are presented with a contract prepared by another party or their solicitors, there really is no substitute for getting your own independent legal advice on its content.
Likewise if you have been using the same contract or terms of business for several years, how confident are you that it still stands up to the latest legislation?
Instructing a solicitor to review and advise on the contract should be seriously considered. Many will be able to offer a fixed fee service and by acting with your best interests in mind, tailor a review to focus on the risks you may be exposed to.
If you've a consumer or business issue that you've been unable to resolve with informal discussions or negotiation, the next step is usually civil legal action.
As the Claimant in a claim it will cost you time and money to issue court proceedings and there are three 'tracks' which a claim can be allocated to depending on the complexity and value of the matter.
The majority of disputes and subsequent claims fall into the Small Claims Track which is designed for use without the need of a solicitor. However, in reality the process can be complex with various procedures, dates and correspondence all to be complied with.
But before starting down the path of issuing a claim, you need to have an understanding of how much it may cost to take someone to the small claims court.
Small Claims Court Fees.
Being the Claimant, you will need to the pay fees to the County Court to start and run the claim. These Court Fees are payable at two key stages of the claim and are required in advance, so ensure you have these available prior to starting your claim.
Should your claim be successful, and a judgment be returned in your favour, all the Court Fees you have paid will be added to the amount the Defendant must pay you.
Small claim court fees and limits and can vary across the UK as well as with different types of claims (personal injury, housing disrepair etc). In this guide we'll be referring to the process in England and Wales for Money Claims.
While there is technically no minimum amount for a money claim, the lowest issue fee (the fee you pay to start the process) is £35.00. Therefore if the amount you are looking to recover is very small, you should consider if issuing a claim will be cost effective for you.
Small Claims Court Issue Fee.
The Issue Fee is required when you first submit your Claim Form to the court and start your claim.
A claim can be submitted with a paper claim form or via the Internet using the Money Claim Online service. Previously there was an issue fee discount for using the online service, however this discount was withdrawn in May 2021.
Still the benefit of submitting the claim online is that you won't have to print and post the documents, so your claim will be issued faster. You will however need to register for an online account and you cannot use this service if you don't know the exact amount you are claiming for or the defendants are outside England or Wales.
Regardless of which method you use to submit your claim, the Issue Fee will be based on the amount you are claiming or the amount that you are estimating the claim is worth.
Correct as at 29 October 2021, but please see EX50 for full details and latest fees.
If using the online service this fee is payable by credit or debit card prior to submission. If you use a paper claim form, you will need to include a cheque or postal order for the correct fee.
If your claim isn't disputed or defended, then judgment will be awarded in your favour and no other court fees will be payable (known as judgment by default).
Small Claims Hearing Fee.
If the claim is defended, then the case will need to proceed to a small claim hearing unless an agreement or settlement is reached beforehand. The court will send both parties a proposed allocation to the small claims track along with a Directions Questionnaire.
The Directions Questionnaire will ask you details about your claim in preparation for a hearing, including the proposed track, court location, any expert evidence, witnesses and if there are hearing dates to avoid.
While claims are usually allocated to the track based on the amount that is being claimed, the judge can alter this based on other factors, such as the complexity of the matter.
Once both parties have submitted a Directions Questionnaire, this will lead to an order from the court confirming the track and giving a date for the hearing, exchange of evidence and a date for paying the hearing fee.
As with the other small claims court fees, the hearing fee for a small claim hearing will be based on the amount being claimed:
Fees correct as at 29 October 2021, but please see EX50 for full details and latest information.
Small Claims Mediation Service Cost.
The Directions Questionnaire will also ask if you agree to your claim being referred to the Small Claims Mediation Service. If both parties agree to this, then a mediation appointment will be organised by telephone and a mediator will attempt to reach a settlement over the course of an hour or so.
The HMCTS Small Claims Mediation Service is free of cost so should be seriously considered as an option. Also, mediation appointments will be available quicker than court hearings and you won't incur the Hearing Fee if the claim is settled at mediation.
If mediation fails, then the claim will proceed to a hearing and the Hearing Fee will become due.
Small Claims Expert Costs.
Depending on your dispute, you may require an expert to provide evidence to support your claim. You will need the court to grant permission to use an expert and if permission is granted you will then need to pay the expert to produce written evidence.
As with court fees, if using an expert has been approved and your claim is successful, the cost of the expert will be recovered from the defendant up to a maximum of £750.
What costs can be recovered in small claims?
If your claim is successful, as well as the court fees and approved expert costs, there may be other items you can claim and recover from the losing party.
There are various rules and limits around what can be claimed so it is always a good idea to get legal advice before starting your claim. Without legal advice then there is a risk you could miss out on recovering costs that you are entitled to claim from the opposing party.
Examples of small claim costs.
Unpaid Invoice or Loan debt of £1,400.00
£80.00 - Claim Issue Fee (due when you submit your claim)
Faulty Goods valued at £2,800.00
£115.00 - Claim Issue Fee (due when you submit your claim)
Poor Service or Workmanship costing £450.00
£50.00 - Claim Issue Fee (due when you submit your claim)
How much does a lawyer cost for the small claims court?
Although the small claims process is designed to be conducted without legal representation, many people still choose to use a solicitor and can recover some of these costs as part of their claim.
The way legal representation costs for small claim are calculated is complex and relates to the claim amount, how the Claim Form is served and the number of Defendants. There are then further costs that can be claimed if judgment is entered which depends on the amount claimed and how the judgment was obtained.
Correct as at 4 June 2021, but please see CPR Part 45 for full details and latest fees.
Therefore, if you choose to use a solicitor for you small claim, you can typically expect to receive around £50 to £130 awarded towards your legal costs if your claim was successful.
The relatively low legal representative costs that are recoverable in the Small Claims Court is the reason you don't see 'no win no fee' funding being an option when dealing with small claims. So if you do decide to seek legal help with a claim, ensure you look for a law firm offering fixed fee small claims services.
Do I need a solicitor for the small claims court?
While you may not be able to recover all your legal costs as part of your claim, there are still some compelling reasons to consider instructing a solicitor for a small claim.
Firstly (and most importantly) a solicitor will be able to advise you on the law and your prospects of success. Spending money on issuing and attending a court hearing only to have no basis for a claim would be an expensive mistake.
Secondly a solicitor will be an expert on litigation and the court process, ensuring you comply with the relevant directions/deadlines and that your claim is comprehensive. If your claim is significant, missing out or even miscalculating an item such as your interest entitlement can prove costly.
Finally, even if your claim is successful and judgment is awarded in your favour you may still need to enforce that judgment. A lawyer can advise you on the most cost effective and productive enforcement methods that are available.
Should I take someone to the small claims court?
Taking a person or a business to the small claims court isn't free and not without risk. Knowing the potential costs along when fees will require paying is likely to influence your decision on if it is worthwhile process to undertake.
However, if your claim has merit and you can afford the court fees, then many of your small claims court costs will be awarded back to you should your claim be successful.
Disagreements are a fact of life. Most of the time people are able to resolve matters between themselves without turning them into full blown legal disputes. But unfortunately this isn't always the case, and matters can escalate when points of view are not appreciated or legal rights are felt to have been breached.
Decisions then have to be made about when to escalate matters and seek legal advice.
However before issuing the war cry 'You'll be hearing from my solicitor!' take a moment, consider your options, and try to keep a few things in mind.
Keep calm and carry on talking.
Whether your dispute is with an individual (such as a friend or family member), a small business (a tradesperson) or a large company, anger and stress won't help. Clouded judgement and impulsive action will usually only make matters worse and provide a bad impression of your reasonableness.
Keep focused on the specific issue and try to engage in calm and polite discussions with the individual or business representative. Tell them your problem, what action it will take from them to resolve it, and make sure you listen to their response or any alternatives offered.
Use the correct channels as a customer.
Talk to the right person or department about your issue. For example if your dispute is about a faulty item you have purchased, then a manager or dedicated customer service representative will be better placed to help you get it replaced than a member of the sales team.
Likewise if you've had poor work performed by a tradesperson, then the customer service team or owner of the small business may be the most appropriate person to speak to.
If you are not sure who to talk to, make polite enquiries until you find the right person.
After these initial conversations if you still cannot get the matter resolved, ask whether there is a formal complaints procedure that you can follow. This may then reveal if there is an independent trade body, regulator or ombudsman that you can escalate your complaint to for resolution.
Disputes with friends or family.
If a dispute arises between you and a friend or family member, there unfortunately won't be a dedicated complaints department that can help resolve the issue. However this doesn't mean you should move straight to legal action.
Often disputes between individuals relate to money being owed. In these cases you should remain polite and sympathetic in your requests for repayment along with being open to receiving payments in instalments or over a longer period of time.
Should an agreement then be reached, you need to ensure this is documented in writing (messages, emails, text etc.) and further information can be found in our guide what to do when money is owed by a friend.
Don't make threats.
Try not to talk about taking legal action, suing them, or dragging them in court until you have tried everything you can reasonably do to resolve the matter. Taking an adversarial approach at the very start may limit your options for a quick, simple and cost effective solution.
If an ombudsman does become involved in a consumer issue, they may recommend mediation to resolve the dispute which you should be open to.
Keep a record of events.
If matters do need legal action and in extreme cases have to go to court, you will need to provide evidence of the problem. So keeping notes, photographs, documents and anything else that is relevant will be important. This documentation will also help you demonstrate all you have done to try to resolve the issue before being forced in taking legal action.
Make notes of any conversations you have with the date/time and who you spoke to, also keep copies of any letters, emails or messages you have sent.
You will be hearing from my solicitor!
If you have satisfied yourself that you have done absolutely everything possible to sort things out but have been met with no success, then it's time to contact a solicitor for legal advice.
If you have a solid case then quite often a letter from a law firm can bring surprisingly quick and positive results and won't cost the earth. But depending how far you wish to pursue the matter, it could ultimately end up in court which will take time and money (see our guide on how much it costs to take someone to the Small Claims Court).
A solicitor will be able to advise you fully on your dispute, including your chances of a successful legal claim, the evidence that will be needed and what costs are involved.
Knowing when to seek legal advice will help you in the long run, just don't take legal action first or in anger!
Catalyst Law are team of legal professionals with over 20 years' experience helping businesses and people with their legal problems.
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