The Importance Of Making Your Contract Watertight

• Published date: 18 October 2022
• Subject Matter: Corporate/Commercial Law, Contracts and Commercial Law
• Law Firm: Giambrone & Partners
• Author: Mr Gonzalo Butori

A contract should clearly define the terms of the contract and the expectations and obligations involved in the transaction for both parties. It should also set out the consequences, should either party fail to adhere to the terms of the contract, regardless of whether the default was deliberate or due to unanticipated circumstances. Having a well-drafted contract that is watertight can protect the business if, for any reason, the business relationship fails, which can result in a detriment to your business, particularly during these challenging times arising from the consequences of the mini-budget.

No two business collaborations are the same and the business landscape changes all the time but frequently a contract drafted in the past is used time and time again. Commissioning a legal review of a contract is money well spent, especially if the update results in introducing clauses that ultimately protect the business if a dispute arises. Commercial history is littered with examples where a situation could have been saved or has been saved by an unambiguous watertight contract.

Gonzalo Butori, a partner, points out "business survival depends on your level of foresight to protect against risks."Gonzalo further comments "it is essential to ensure that your contract is in line with current law in England & Wales and includes all the appropriate clauses to protect your business should an unforeseen development occur."

The unexpected COVID 19 pandemic was a shock to businesses and insurers alike. Businesses rapidly discovered that insurers did not share their view of business interruption clauses. The polar opposite stances that businesses and insurers assumed was only clarified due to the Financial Conduct Association's (FCA) decision to take the issue to the courts. The Supreme Court's complex decision, which was largely in favour of the policyholders, was heralded as a significant win for businesses. However, this was a lesson to businesses to treat "boilerplate" clauses in their contracts, those provisions that are not actually part of the commercial transaction but include an aspect of protection for the business, with the same level of scrutiny as the terms of business governing the transaction.

Each transaction has its own requirements. The common clauses that offer protection that would be wise to incorporate largely focus on protecting the business should a dispute arise. In the current economic situation, it is crucial to limit the potential for a...