Contract negotiations: key issues

Two recent cases highlight the importance for businesses of taking care when negotiating and drafting contracts.

In the first, the Court of Appeal held that losses caused by a breach of contract and arising out of a fall in property values were not too remote to recover. Parties wishing to ensure that they are not held liable for particular types of loss, should ensure that they expressly exclude them when making the contract. Otherwise, to escape liability, they will have to demonstrate circumstances that make the implied assumption of responsibility inappropriate for the type of loss in question.

The decision in the second case highlights that, in contracts involving the sale of goods or property, where the contract has been rescinded before title has passed from seller to buyer, the forfeiture of instalment payments may be unfair to a buyer. A buyer should protect its interests by ensuring that, where a contract is rescinded, the sale agreement will release the buyer from its accrued obligations and will give it the right to claim back any instalments paid before termination. In this case, the High Court held that a seller of two gas plants was entitled to keep instalments paid by the buyer and to receive the outstanding purchase price, even though the seller had rescinded the contract and property in the plants had not passed to the buyer.

This checklist highlights the key issues that a business should consider when negotiating contracts