How to deal with unfair business contracts as the owner of a small company
Business Advice legal expert, and Grid Law founder, David Walker reflects on a recent conversation with a client to help company owners deal with unfair business contracts that could threaten the future of a small firm.
?The law is an ass? according to Charles Dickens in Oliver Twist, which is a far politer description than one of my clients gave it this week!
It was an all too familiar situation. My client needed advice about a disputed contract he had signed up to after being completely let down by the service provider.
He had paid a rather hefty up-front fee and there was an ongoing monthly retainer for the five-year term of the contract. On top of this, my client had committed to a minimum marketing spend which the service provider had said was absolutely necessary to get the results promised.
Three months in, my client was realising that the reality of the service was nothing like the expectations from the sales pitch.
His priority was getting out of the relationship before wasting any more money on it and he also wanted to sue the service provider to recover the money he had already spent.
As with all new disputes, before giving any advice, I needed to review the contract and find out what had happened.
My client was shocked to discover that in this case, the contract was weighted completely in the service provider’s favour. He thought that contracts had to be fair and negotiated in good faith.
However, that’s not always the case.
With consumer contracts there are statutory protections to help prevent consumers from being taken advantage of. But with business-to-business contracts (as this was) as long as you don’t break the law, there’s no obligation to act in good faith. When negotiating a business contact, you can act entirely in your own best interest and that’s what the service provider had done.
My client received an elaborate sales pitch and was lured in by a glossy brochure full of testimonials.
The sales pitch included estimates of the likely profits the average business could expect to achieve if they signed up to the service provider’s services.
I asked what was said. My client told me he was expecting to earn up to 100, 000 within the first two years.
My client thought this was a misrepresentation, but the sales pitch was very carefully worded. If my client had earned only 10, 000, just 10% of what he was expecting, the earnings estimate would have been accurate as this was up to? 100, 000.
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If the statement was true, even with such dismal results, it wasnt a misrepresentation.
Also, the service provider had protected itself from misrepresentations by including an entire agreement? clause in the contract. The entire agreement clause specifically excluded all discussions and the contents of the brochure from the terms of the contract.
As explained above, my client had invested a considerable amount of money into this relationship and he was obliged to continue paying a whole lot more for the remainder of the contract.
With so few results, my client felt like this was a complete waste of money and wanted to sue the service provider to get his investment back.
So, assuming we could get over the entire agreement clause hurdle, could we take legal action to recover this money? Probably not.
You can’t just sue someone for your money back because you’re unhappy with the deal you signed up to. You must have a legal basis for bringing the claim.
In this case, misrepresentation didnt look like a strong option so was there a breach of contract?
Again, the contract was weighted entirely in the service provider’s favour. Their obligations were so vague that they only had to do the very minimum to comply with the contract. Proving a breach of contract was going to be difficult too, especially so early in the relationship.
David Walker is the founder of Grid Law, a firm which first targeted the motorsport industry, advising on sponsorship deals, new contracts and building of personal brands. He has now expanded his remit to include entrepreneurs, aiding with contract law, dispute resolution and protecting and defending intellectual property rights.
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