Contractual Disputes

A contract is a legally binding agreement between two or more people or companies, for example an agreement to supply goods or provide certain services in return for payment. A contract can be created by word of mouth or exchange of letters but it is often preferable, in order to reduce the risk of a dispute arising as to what was agreed, to have a formal written contract signed by both parties.

Even with formal written contracts, however, disputes sometimes arise between the parties as to whether something which has happened is in accordance with the contract or in breach of it (e.g. whether services provided conform to the specification in the contract).

If a dispute goes to court, the court will hear evidence about what has happened, decide how the contract should be interpreted, and then decide which party is in the wrong and how much compensation it should pay to the other party.

The interpretation of a written contract is a matter of law and involves not only looking at the wording of the contract but also applying certain statutes such as the Supply of Goods and Services Act 1982 and the Sale of Goods Act 1979 which imply certain terms into contracts even if they are not explicitly mentioned in the contract, and the Unfair Contract Terms Act 1977 which controls the validity of certain clauses (“exemption clauses”) in a contract. For example in a contract for the supply of computer software a clause absolving the supplier from liability for “bugs” in the software may, depending on the circumstances, be held to be invalid. Generally there is a greater control of exemption clauses if one of the parties to the contract is a “consumer”. It some circumstances it is possible for a business to be a “consumer”.

As well as terms implied or restricted by statute, the common law of contract (i.e. the law as developed by the courts in the last two centuries) can imply terms into a contract. For example a term will be implied if it is necessary to give “such business efficacy to the transaction as must have been intended at all events by both parties who are business men”.

Some statues, rather than implying terms into a contract, create parallel statutory rights which a party may enforce instead of, or in addition to, any contractual rights. An example is the Defective Premises Act 1972 which imposes a duty on a builder constructing a house to ensure that it is fit for habitation when completed.

This page was lasted updated in December 2006. Disclaimer