UK contract law – things to look out for

With business becoming ever more international, many non-UK businesses will enter into contracts with UK companies and will be bound by UK law (in fact English law as Scottish law is different).  Even where goods or services are not provided in the UK, it is in fact very common for international contracts, where one party

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With business becoming ever more international, many non-UK businesses will enter into contracts with UK companies and will be bound by UK law (in fact English law as Scottish law is different).  Even where goods or services are not provided in the UK, it is in fact very common for international contracts, where one party is a UK entity, to be made expressly subject to English law based on the fact the English Courts and legal system are generally very highly regarded internationally.

So, if you are an international business doing business in the UK, what are the most important things you need to know about UK contracts ?

  • Small Claims Court – if the contract is breached and the value is less than £10,000.00, which is the case in the vast majority of contracts, and you need to bring a claim in the English Courts, it will be a small claims matter. The most important thing to note is that, if you use lawyers, your ability to recover legal fees incurred is very limited. The general rule is that neither party is at risk on costs.
  • No prohibition on assignment at law – unless a clause is inserted in the contract preventing or limiting the right to assign, you may find that the other party can transfer the benefit of the contract to a 3rd party. This means you will end up dealing with another business pr individual you would not otherwise have agreed to contract with.
  • Implied terms – there are many instances where terms may be implied by the English courts in the event of  a dispute. Terms may be implied by English statutes, especially where your contract is with consumers.
  • Variation and waiver – it is important to be aware that UK law recognises many circumstances in which written contractual terms can be varied by conduct or otherwise. Your contract should be careful about this and you should be alert to the risk of varying terms without realising it. In addition, in the event the other party breaches the contract, you should be careful not to waive the breach by continuing to deal with the party in a way which is inconsistent with your rights to take action over the breach.
  • Enforcement of judgements – this ties in with the fundamental difference between the English Court system and the legal system in most of Europe. English law is adversarial not inquisitorial. If you obtain a court judgment for money you should be aware that it will then still be up to you to enforce that judgment. The court will not assist as of right, and the options available for enforcement do not always work that well.
  • Consequential loss – under English law, where there is a breach of contract, the law is fundamentally loss rather than compensation based. The duty is on the party who is innocent to mitigate his, her or it’s loss and to prove that losses are consequential on the breach of contract.
  • Right to cancel contract – in UK law this only arises where there has been a fundamental breach of contract. It is important to set out in a written contract which terms are fundamental i.e those that are so important that breach will allow the innocent party to end the contract. In the absence of this, if in doubt as to whether a fundamental breach of contract has taken place, you should still perform your part of the contract and usually allow the party in breach an opportunity to remedy the breach.
  • Company law – whilst not strictly contract law, if you are investing in a UK business, possibly setting up a company as a Joint Venture, be aware that company law is  fairly non-interventionist in the UK. It is generally imperative therefore to have a shareholders agreement to protect your rights and to regulate how the company is run.

If you are considering doing business or entering into a contract with a UK company, we would be delighted to advise and assist you. Please do get in touch with me.

commercial law • David Swede

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