Contract Risk Management and Mitigation — without lawyers

Managing risk and obtaining “insurance” at the same time

One of the best ways to manage contract risk is to employ outside lawyers. They may get the law right. There is no guarantee that they will, no matter how expensive they are. There are many cases that come before the courts, including the Court of Appeal and the Supreme Court, where the contracts were drafted and entered into with the help of very expensive law firms. However if you lose at court, you will at least have someone else to sue — your lawyers!

But what is the risk?

But, hold on, do you need to worry? On the face of it, the contract is only worth a few thousand pounds to you.

“Battle of the Forms”

So it is vitally important, if you have standard contact terms, to ensure that the contract is made on your terms and conditions, if you can. And if you cannot, then it is necessary to have an important discussion with the other side to agree a commercially-acceptable limitation of liability clause.

Can you get your goods back?

For example, the customer has just taken delivery of thousands of pounds of your goods and has now gone into liquidation! Can you send a van or two around to get your goods back? After all, your standard terms and conditions have a “retention of title” clause.

£200 million claim kicked into touch

In one very recent case, a company terminated an agreement under an express right in the contract for it to do so if the other side experienced and insolvency event. Okay so far? Not really! The company claimed £200 million claiming that the other side had been in breach of contract. However, the company had terminated for insolvency and not for breach. Therefore, it could not claim damages. So a £200 million claim kicked into touch because someone did not read the contract or understand the risks associated with termination for cause.

So, what can you do?

So what can you do? One option is, nothing. You have spent a lot of money using lawyers to draft standard terms and conditions. You can trust your systems to mitigate risk and your staff are able to recognise and deal with contract risk. The other side, by the way, have also spent a lot of money on their terms and conditions.

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