Let’s Get Topical - Managing Contract Risks: Let’s (not) Shake on it
1st June 2020
- Businesses should avoid getting into verbal agreements during COVID-19 which could have unexpected consequences in future
- Read more to find what constitutes a legal contract, the risks and best practices
- Active Law, ACS Queensland's Preferred Legal Partner, is providing a webinar on Employment Law Essentials for the Tech Profession on 17th June which is free for ACS members.
Now more than ever, it’s important for businesses not to get unwittingly caught out by a verbal agreement or ‘handshake deal’ made during the current COVID-19 crisis that may have unexpected consequences moving forward once things return to ‘normal.’
Handshake deals often arise due to parties being too busy to document the agreement in writing, relying too heavily on their current relationship with each other (‘we have always worked well together’ or ‘we have known each other for years’) or simply thinking the deal is too complicated to put in writing (‘let’s just agree to do this until the crisis is over’).
There are three main elements to form a valid contract:
1. Offer and Acceptance - When one party makes an offer that is unconditionally accepted by the other party.
2. Consideration - Something of value is exchanged between the parties, usually the exchange of money.
3. Intention to create legal relations - Intention by parties to create legal relations and to make a binding contract.
If all three elements are satisfied, then you have a contract but this leads to the question, is a verbal contract enforceable?
The burden of proof lies with the party wishing to rely on the verbal agreement. It’s not an easy task and can be very difficult to prove.
Proof can take many forms including letters, emails, text messages, receipts or third-party statements.The court will scrutinise closely that evidence to decide if a legally binding contract exists. The court may also consider other factors such as the setting and purpose of any meeting between the parties and even the commerciality of the arrangement.
What if it’s a verbal variation of an existing written contract? Commonly found in written contracts is a clause providing the agreement may only be amended in writing signed by both parties. Australian courts have taken the view that such clauses do not prevent verbal variations and provided the party wishing to rely on the variation can prove it, the variation will be legally binding.
Handshake deals ultimately boil down to a question of risk. The impact of COVID-19 on your business is yet another layer to that risk. Without a written contract, you are at risk of being forced into an arrangement that may be on unfavourable terms and without pre-defined dispute resolution arrangements your options are limited when things go awry. Minimise that risk by taking measures to put your agreement in writing.
Disclaimer: Reliance on content the material distributed is general information only. The information supplied is not and is not intended to be, legal or other professional advice, nor should it be relied upon as such. You should seek legal or professional advice in relation to your specific situation.
Active Law are offering ACS Queensland members a 10% discount off legal services up to $2,000, and a 5% discount thereafter. To take up this offer, just mention you are an ACS member when you contact the team on (07) 3160 0000 or email [email protected] Don’t miss the upcoming Active Law webinar, offered free for members:
Employment Law Essentials for the Tech Profession
Date: Wednesday 17 June
Time: 5.30pm – 6.30pm
For the first event with the Active Law team, Michelle Cowan will present on the topic of employment essentials for employers and employees, including the effect of current COVID-19 amendments. She will look at the things you must understand and comply with to minimise the risk of employment disputes and financial penalties for breach of employment obligations.
Michelle is an experienced workplace relations lawyer who has advised both employer and employee groups in state and federal jurisdictions. She has expertise in establishing strategic employment standards and in managing workplace disputes. Michelle’s legal experience is augmented by her many years of direct management experience in large retail organisations, managing all aspects of the employment lifecycle for large groups of employees.
Her practical experience assists her to provide pragmatic advice about how to navigate the complexities and risks that exist in the area of employment relations. If you have any questions you would like addressed in the presentation, you can submit them to ACS Queensland [email protected] and we will pass them onto Michelle so she can address them in the webinar.
About the Author
Phillipa Hooper is a Senior Associate at Active Law, ACS Queensland’s Preferred Legal Partner. Phillipa has over 20 years of local and international experience across a diverse range of legal areas including business and commercial law, property and construction. Phillipa can assist with structuring, business acquisitions/sales, loan agreements, mortgages, IP/trademark issues, governance, and a range of commercial contracts.