Business law: Breach, dispute resolution in contracts

Introduction

Breach and disputes in contracts including commercial contracts are common in everyday life. In this article I look at providing for breach and disputes in contracts or agreements.

Breach

MANY times I have encouraged clients to pay attention to the provisions on breach in contracts or agreements. There is a tendency to overlook this aspect the same way newly- weds never imagine a divorce but life is not always a bed of roses.

There are many reasons for such oversight. These may include optimism not correctly measured, inexperience, due diligence not properly done, or many other factors.

Breach in simple terms is failure by a party to act in terms of the provisions of the agreement or contract. It is advisable to include provisions on breach particularly what constitutes breach or material breach and consequences of such breach.

There are many examples of breach or material breach. For example in an agreement of sale a purchaser may be in breach if he or she fails to pay the purchase price in terms of the provisions of the agreement.

In the case of a seller he or she may be in breach or material breach in the event of failing to deliver the object being sold or purchased. This may also extend to service provision.

It is advisable to provide for what happens in the event of breach. Some agreements provide that a party in breach be given a certain period of time to the rectify breach.

In the event of breach that has not rectified there can be different scenarios. For example, an aggrieved party may summarily terminate the agreement, sue for specific or positive performance or may claim damages in certain situations. All that has to be specified in the contract for clarity.

Dispute resolution

There are so many disputes over contracts or agreements some which go before courts or arbitration. Disputes may arise over breach or different interpretation over for example rights and obligations.

There is a tendency to overlook provisions on dispute resolution. I always advise clients to apply their minds to dispute resolution assuming the worst would have happened.

It is standard to find the following provisions in contracts under dispute resolution.

Contra preferentem rule does not apply

Though not directly under dispute resolution but as a separate clause, this is a legal doctrine to protect a party considered to have drafted the agreement or contract in the event of a provision considered to be ambiguous.

It is common to find a provision to the effect that each of the provisions has been negotiated and agreed upon by the parties and therefore the rule of construction that the agreement shall be interpreted against or to the disadvantage of the party responsible for its drafting or preparation shall not apply.

Disputes in contracts or agreements may be resolved through different means such as mediation, arbitration or litigation.

Mediation

Parties may engage on their own, through their legal advisors or some other agreed people to find common ground to their disputes.

Arbitration

Parties may also agree to subject their dispute to arbitration. This is quite popular as the approach can quicker and is less confrontational.

Litigation

Some contracts provide that in the event that arbitration fails an aggrieved party reserves the right to approach a court with competent jurisdiction over the dispute. Some agreements do not even provide for mediation or arbitration but simply for litigation.

Conclusion

During drafting of agreements or contracts parties are encouraged to apply the minds to breach and dispute resolution.

Disclaimer

This simplified article is for general information purposes only and does not constitute the writer’s professional advice.

◆ Godknows (GK) Hofisi, LLB(UNISA), B.Acc(UZ), Hons B.Compt (UNISA), CA(Z), MBA(EBS, Heriot- Watt, UK) is the Managing Partner of Hofisi & Partners Commercial Attorneys, chartered accountant, insolvency practitioner, registered tax accountant and advises on deal and transactions. He has extensive experience from industry and commerce and is a former World Bank staffer in the Resource Management Unit. He writes in his personal capacity. He can be contacted on +263 772 246 900 or gohofisi@gmail.com