Have you ever heard, “…what if I didn’t read the business contract before I signed it?” Unfortunately I have, with my default response being, “the devil is always in the detail”. So if you have not read your document, then the chances are that the “detail devil” will cause you trouble.
Experience has shown me that when faced with a lengthy document or contract to review, most people skip the read and get by on the verbal overview provided to them – choosing to act in the spirit of what they believe it means. For the few who do make the effort to read the document, important parts are either not understood or missed, so a heavy level of reliance is still placed on what they are told.
A quick cautionary word – I am not a lawyer – so if you are looking for legal advice – then you need to consult your solicitor. This article provides some practical pointers to get you thinking and stimulate conversation about the importance of this issue.
A few observations;
- Having had the opportunity to read many different contracts and legal documents over time – including sale contracts, loan contracts, mortgage and security documents, membership and association terms, franchise deeds etc, there is always one common theme – whoever writes the document – has the power (or preference). So get involved in the document production if you can to add some balance.
- Not all documents are up for negotiation or amendment, however if there are clauses that concern you – then at least ask. If you can’t get the document changed, then you may be able to get a side letter which articulates when a clause may be activated, or the spirit of what is trying to be achieved (by the document) or more detail of a trigger etc. As an absolute minimum, by going through this type of negotiation you will have a stronger understanding of the contract or deed.
- Many people will be satisfied with just the verbal explanation given to them by the person asking them to sign the document. Common words such as, “these are just our standard terms” or “don’t worry – we never enforce that” are often heard. The reality is that what’s in the document is what you are signing up for – and you will be liable, not them. So when in any doubt, take the document away and get independent advice.
- When reading a contract or document, remember that you are not just signing for today’s circumstances – but potentially for a long period into the future. A loan contract or membership deed may cover years or perhaps decades, so it is very important that you consider exit or change of circumstance clauses. As a general rule, the longer the term of the document, the more time you should spend on these types of clauses.
- If you have not read the document, then as a starting point – you need to accept responsibility for this. Accountability starts with the fact that you have been your own worst enemy by not reading the document. Moving forward – always read the document!
So…. you have signed a document and now the “devil” which was hidden in the detail is coming after you – what do you do?
- Leave the anger at home. Contract defaults, breaches, triggers etc are emotive – no doubt – but leave the anger and extra emotion at home as it will only hinder the resolution process. Equally, avoid making a contractual issue into a personal one – just stick to the facts.
- Don’t just settle for the “black or white” version in the document – seek to negotiate some grey. The reality is that the cost of a contract breach or trigger for both parties can escalate quickly, so be mindful of the risks of enforcement, its cost and always consider what the court of public opinion will say. Winning the legal victory may be hollow if you lose the moral one.
- Understand the issue. Find out what has happened, what has been triggered and why. Without a strong understanding of this – you will only go in circles, as it is knowledge you need to have to progress forward.
- If you disagree that anything has been breached or triggered in the document, then seek absolute clarity on this. The issue, default or trigger should be confirmed in writing to you so there is no doubt as to what the issue is. This is not the time to assume.
- If however you acknowledge that you are clearly in breach of the document (sometimes it is very clear) then the approach is more about what does this now mean and is it actually relevant. Over the years I have seen a number of contracts with technical breaches, but when considered in context of the current situation and the prevailing conditions – meant nothing.
- Regardless of the “if” – I prefer to concentrate on the, what now rather than the blame game. If all parties can align to seeking a resolution – then considerable time and money will be saved. This normally involves looking at the current situation, rather than simply the history of what triggered the situation. Consider items such as; a clear exit, a compensatory payment, acceptance of the breach/trigger as a one off, a time extension, or even the removal of the clause if it’s not important. What you want to avoid at all costs is making the situation worse. I have seen contract breaches escalate to incur further damage, further costs simply because one or both parties decided to focus too much on what had happened rather than what can now happen.
- For banks specifically – always approach senior management to negotiate a mutually acceptable outcome. If this fails, then options such as a mediator or the ombudsman can be considered – but conditions apply, so you will need to check the detail.
- Lastly – but by no manner least – consider formal legal advice. This is naturally going to be swayed by the importance and potential $ value of the issue. However, the law is clearly a specialist area – so my guide is to seek out an appropriately skilled legal professional, spend a few dollars and get some relevant legal opinion.
The “detail devil” only has the power you give it. Read your documents upfront, be well informed and face into any issues as they arise – with a forward looking approach. By doing this, you drain the devil of its power. If however you are in the “…but I didn’t read the business contact” situation, then you do have some work to do. Start with; reading the document to understand what you have signed up for, before taking a forward facing perspective of resolving the matter, seeking relevant advice as you go.