Contract disputes

When promises in contracts fall short: a legal perspective

A contract dispute is a conflict or disagreement between parties. Disputes occur when there are differing views or claims regarding the terms, obligations, or rights outlined in the contract. Some of the most common causes of disputes include ambiguity in the terms used – vague or unclear language can lead to different interpretations or expectations by the parties involved; breach of contract – one party fails to fulfil their obligations as outlined in the contract; misrepresentation or fraud – false statements or deceit during the formation of the contract; or performance issues – disagreements over whether the work performed meets the contract standards. There are other causes of dispute but these crop up the most often. Contract disputes can be either material or minor. Minor disputes can usually be solved by negotiation, but material disputes often wind up in a court of law.

A very material dispute

When a contract is signed, a transaction completed, and the buyer later discovers that certain promised conditions have not been met, the dispute is anything but minor. It can become complicated and embroiled in legal challenges. This happened in the recent appeal case of Summermania Eleven (Pty) Ltd v Hattingh N O. The Supreme Court of Appeal of South Africa deliberated a breach of contract dispute regarding the sale of a game farm and the promised number of animals on the property at the time of sale. The purchaser, Summermania, alleged a significant discrepancy in the game count upon taking possession, contrary to what was guaranteed by the seller, the Billy Hattingh Trust, representing a breach of warranty. This case was particularly interesting because of the evaluation of evidence, in particular the reliance on an affidavit from an expert witness who was unable to testify due to health reasons. The Court examined the evidence and its reliability in depth. However, the take-home message for anyone entering into a contract concerns due diligence, not the nature of the evidence given in the legal battle over the contract. This case illustrates what happens when expectations, as outlined in a sale agreement, don’t meet reality.

Warranty

At the heart of this dispute was a warranty – a promise that the game numbers on the farm would match those agreed at the sale time. When the buyer took over and found the numbers lacking, it was about more than the missing game; a legal principle was at stake. Was the seller liable for the shortfall?

Due diligence

This case underscores the importance of due diligence. Before signing a contract, a meticulous examination of the assets in question can save endless legal headaches later. Every detail that could impact the agreement’s integrity must be verified. 

When you are navigating contract negotiations, scrutinise every claim and promise within the contract and make sure it is backed by rigorous due diligence. If a dispute arises, the strength of your evidence can make or break your case.

Other ways to avoid contract disputes

Due diligence before signing – or even drafting – a contract is indisputably prudent. No corporate merger or acquisition would proceed without a lengthy and thorough due diligence process. Even if your contract does not involve buying a company, it is still worth doing your homework.

What else can you do to prevent disputes arising? There are various measures you can take in the drafting of the contract that can protect you against future legal squabbles.

• Clear and precise language: be specific and unambiguous and define key terms and responsibilities explicitly.
• Detailed descriptions: outline all obligations, deadlines, and performance standards in detail to avoid the risk of differing interpretations.
• Legal review: have a lawyer review the contract before signing to identify potential issues and ensure it meets all legal requirements.
• Documentation: keep records of all communications, drafts, and version changes the contract goes through.
• Dispute resolution clauses: specify how disputes will be resolved to provide a clear path for addressing disagreements.
• Warranties and guarantees: outline any warranties or guarantees related to the performance or quality of goods/services.
• Termination clauses: clearly state the conditions under which the contract can be terminated by either party.
• Regular reviews and updates: periodically review and, if necessary, update the contract to reflect any changes in circumstances or agreements between the parties.
• Mutual understanding: ensure all parties fully understand the terms and implications of the contract before signing. 

If the worst happens…

Relax! Anyone who regularly enters into contracts will wind up in court at some point. Because human beings make mistakes and change their minds, disputes are a normal part of the legal system and are resolved through established legal procedures, taking into consideration relevant laws, statutes, regulations, and legal principles. It’s a good idea to try negotiation, mediation, or arbitration before resorting to litigation. It will save costs and result in less stress. But the law is there to help with dispute resolution when necessary, as the Summermania case illustrates.

SD Law can help

If you need help to draft a contract or you’d like us to review a contract you are considering entering into, contact Simon on 086 099 5146 or email sdippenaar@sdlaw.co.za to arrange a preliminary discussion.

Further reading:

• Drafting effective contracts
• Breach of contract – legal implications
• How AI is changing contract review and due diligence

SD Law

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