How to minimise the risk of contractual disputes

Often businesses do not want to make a business relationship overly 'legal'; they trust that everything will be fine, or simply cannot afford to take legal advice on each and every contract they enter into.

Legal advice can be expensive, but then so can contractual disputes.

Lawyers are often accused of using 10 words where one will do – apparently Franz Kafka once joked that a lawyer is a person who writes a 10,000-word document and calls it a "brief" – but my mantra is: "It is better to put things in writing than not."

Another of my mantras is: "If there is a contract, read it."

Devil in the detail

A recent case that demonstrates the benefit on one side and the misfortune on the other of written contract terms is Huntsworth Wine Co Limited v London City Bond Limited [2021] EWHC 2831 (Commercial Court). 

In this case, Huntsworth stored valuable vintage bottles of wine at various bonded warehouses operated by London City, but was the victim of a burglary at one of the warehouses one night in 2019. 

Huntsworth lost wines that they valued at at least £120,000 and consequently made various claims against London City for these losses.

Despite the court finding that London City had failed to take reasonable care of the wines, the court also found that a limitation of liability clause, set out in industry-wide standard terms and conditions, was incorporated into the contract and applied. 

How often have you, in a personal capacity, signed contracts or agreed to terms and conditions without reading them? 

This limited London City's liability to Huntsworth to a mere £1,000. To add insult to injury, the standard terms and conditions also allowed London City to claim a loss of £3,662.34 from Huntsworth in respect of excise duty payable by London City due to the wines no longer being held in bond.   

This case was a valuable lesson to Huntsworth and should be a valuable lesson to all businesses about the importance of being aware of, negotiating, agreeing and recording contractual terms, as well as identifying risks from a business transaction. 

Often, businesses will have a fairly relaxed approach to business-to-business contracts having never experienced a contractual dispute; they might have some terms and conditions set out on their website that were prepared by a lawyer many years ago that they think apply to all of their dealings, or they rely on the concept of fair dealing and 'my word is my bond'.