Contractual Disputes
Contractual Disputes

A contract is a written agreement made between the parties which states the terms of their legal relationship. Every contract will
contain different terms and conditions concerning the bargain it embodies. A dispute will occur when any of the terms and conditions are breached by either party, when there is disagreement as to interpretation of the written agreement or in the event that the written agreement has failed to address a specific matter.

HOW TO ADDRESS A DISPUTE

If a dispute occurs one of the first steps is negotiation. Costs and time involved will be considerably reduced if the parties can
agree between themselves (or thorough the negotiations of their legal representatives) an appropriate course of action. In some cases this appropriate course of action will already be embodied in the written agreement itself, for example a clause which applies interest to any payments which are made late under the contract.

ALTERNATIVE DISPUTE RESOLUTION

ADR can be a flexible, cost effective and speedy way in which to address disputes. Mediation and arbitration can both assist
parties to resolve their disagreement without resorting to the court. If you are interested in reading more about arbitration, please refer to our article “Arbitration in Cyprus”.

REMEDIES:

SELLER’S REMEDIES

One of the most common contractual relationships is that made between buyer and seller. Under a standard sale agreement, the most primary of duties that the buyer will be under are: a duty to accept and take delivery of the goods and a duty to make payment.

In the event that the buyer commits a breach of his obligation to accept the goods (and assuming that there is no lawful reason not to take delivery) then the seller may be entitled to damages. A prudent lawyer will include in the original draft provision for liquidated damages in the event of failure to accept delivery.

The duty to make payment on time is (unless the contract is drafted to the contrary) generally not considered to be “of the essence”, ie sufficiently critical to allow the seller to terminate. However, this is often unacceptable to a seller and therefore a prudent lawyer seeking to protect a seller will include some or all of the following clauses in the original agreement:

  • Reservation of the right to amend the price;
  • Right to set off;
  • A clause stating that timely payment of the price is of the essence and stating applicable timeframes for payment;
  • If cheque payment is allowed, a clause to state that the price is not paid until the cheque clears;
  • Provision for payment of interest on late payments;
  • Reservation of title clause to secure payment.

BUYERS REMEDIES

The most basic duty a seller is under is the duty to provide the goods in accordance with the times in the agreement. If he fails to do so, then he will be in breach. Late delivery of the goods will allow the buyer to sue the seller. However, if the original agreement has classified time as being of the essence then the buyer may also be entitled to reject the goods, terminate the contract and sue for damages. Therefore a lawyer representing a buyer will always seek to impose this terminology in the original agreement where he can. In the case of non-delivery then the buyer may be entitled to a level of damages corresponding
to his loss directly resulting from the breach. Late delivery may also prompt a similar claim. The court may also order specific performance of the contract where the goods are unique, but this is a discretionary remedy.

In the case of another breach of contract by the seller then the buyer may have the right to reject the goods and terminate the contract if the breach is sufficiently serious (ie a breach of a condition of the contract). It is not necessary for the buyer to
physically return the goods to the seller, but they must be available for him to repossess. The rejection will have the effect that the title to the goods will revest in the seller and the risk in the goods will also revest. If payment has been made, the buyer may be entitled to recover that sum or claim damages for non delivery. The right to reject may be lost in some circumstances (eg by lapse of time or by express intimation of acceptance) and so the buyer must act with due caution in order preserve the right if he intends to reject.

A prudent lawyer seeking to protect the buyer will include some or all of the following clauses in the original agreement in order to offer the buyer the strongest possible protection:

  • Express provision concerning cost of delivery;
  • Specific times stated for delivery with time being of the essence and variation of such
    subject to the buyers consent;
  • A clause to cover risk in transit, and if possible to shift this burden to the seller;
  • Clear agreement on quality and quantity and the acceptability of variation.

In the event of a contractual dispute, there are a number of different remedies and options available to the parties involved, some of which (in relation to the purchase of goods) have been demonstrated in this article. However, what is clear is that (whatever the
type of contract involved) a large number of rights and remedies will depend upon the content and classification of the term breached in the original contract. For this reason it is highly important (when entering into commercial agreement) to ensure that your legal team addresses every aspect of the legal relationship and pays particular attention to breach of agreement and to what will happen in the event that a dispute does occur.

Michael Chambers & Co. LLC has an experienced contract law team. We are able to draft agreements to fully protect our client’s interest in any commercial or other contract and can assist clients with understanding and asserting their rights under existing agreements. If you wish to speak to one of our lawyers, then please contact us.