Commercial Disputes – A Bad Bargain?

by | Aug 27, 2015 | Blog Posts

Disputes over commercial contracts can be costly, time consuming and stressful. Clear written contracts minimise the risk of dispute, our experts have the understanding of how contracts work, knowing how to prepare terms and conditions and what to do resolving a dispute.

One of the most fundamental principles of English contract law is the doctrine of ‘freedom of contract’; the doctrine that parties may negotiate a contract on any terms that they wish, as long as those terms are not illegal. This freedom has of course been restricted during the last few decades by provisions such as the Unfair Contract Terms Act 1977, which is primarily concerned with protecting parties in a weak negotiating position. However, at least in commercial contexts, freedom of contract rules supreme.

Freedom of contract is generally very useful to commercial enterprises who wish to negotiate contracts with the greatest possible flexibility. However, with ultimate freedom to negotiate, there is always the risk that the agreement will not favour both sides equally. Through either carelessness, or commercial pressure, one side may quickly find that they have entered into a bad bargain.

Will the court rescue a party to a bad bargain? Unfortunately not. It is well established law that the court will not vary or interpret the terms of a contract to alleviate a bad bargain. This principle was demonstrated most recently by the Court of Appeal in Wood v Sureterm Direct Ltd & Capita Insurance Services Ltd [2015] EWCA Civ 839.

Wood concerned a commercial dispute over the construction of an indemnity clause in an agreement to purchase an insurance brokerage company. The defendant had agreed to indemnify the claimant against all penalties and liability arising from a referral of the target company to the Financial Services Authority for an accusation of ‘mis-selling’. The court had to decide whether the indemnity only applied to situations where the company was referred to the regulator by a customer, or also applied if the company referred itself to the FSA. The court applied what it believed to be the ‘natural’ interpretation and ruled that it only applied in situations where the company were referred by a customer. The fact that this interpretation made the contract a bad bargain for the claimant was considered irrelevant.

This once against highlights that extreme caution is required when negotiating the terms of a commercial agreement. The court will not rescue a careless party who has entered into a bad bargain.

Are you in dispute over a commercial contract? If so the experienced commercial litigation team at Levi Solicitors can help to resolve your commercial dispute.

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