Legal lessons from 2024: Contract mistakes businesses can’t afford to repeat
As the calendar turns to 2025, it’s the perfect time for business owners to reflect on the past year’s legal developments and evaluate how they can strengthen their contractual practices. Here are some key lessons from recent legal cases and industry events in England and Wales that highlight common contract pitfalls and how to avoid them.
1. Clarity in payment terms
Late payments are a major issue for SMEs and SMBs and affects cash flow and investment. Contractual terms can be used to protect businesses by giving remedies for late payment. These terms need to be clearly drafted and clearly set out what remedies are available to the party being paid late, for example the ability to charge interest on late payments, a clearly defined specific rate of interest and recovery costs for when businesses need to take steps to recover debt. Recovery costs should include the costs of obtaining legal advice, instructing debt collectors, and serving court proceedings.
It is important to make sure your sales contracts, whether for goods or services, clearly set out how customers should pay, when they should pay, and the consequences for failing to pay on time.
This both gives you a legal remedy in this situation but also makes clear to other businesses that there will be consequences for late payment.
An appropriate action for 2025 would be to review your sales contracts and check that you have these remedies available to you.
Case in the spotlight: In Lidl Great Britain Ltd v Closed Circuit Cooling Ltd, unclear payment mechanisms led to legal challenges, demonstrating the importance of precise terms.
2. Force majeure and business continuity
Prior to the COVID-19 pandemic, force majeure clauses were sometimes seen as just boiler plate clauses to be put in a contract without consideration for the specific commercial circumstances under which they might apply. However, the pandemic has cast a light on these clauses and shown the value they can provide to businesses. Many businesses suddenly had to rely on these clauses and interpret them and some were not fit for purpose and others didn’t really reflect the intentions of the parties.
It is important to have clear language in force majeure clauses, a clear definition of what a force majeure event is, and carefully thought-out remedies and consequences should a force majeure event occur.
An appropriate action for 2025 would be to review your force majeure clauses to check they meet your needs and those of your customers should a force majeure event happen and that they adequately protect your business in this situation.
Case in the spotlight. The case RTI Ltd v MUR Shipping BV demonstrated the importance of clear language in force majeure provisions. The Supreme Court examined whether a "reasonable endeavours" proviso required a party to accept non-contractual performance. The Court ruled that unless explicitly stated, there is no obligation to accept such performance. This highlights the need for clear drafting in force majeure clauses.
3. Liability and indemnities: Avoiding the “unlimited” trap
It is important that businesses seek to limit their liability. This is a risk mitigation activity which is important for protecting your business. Typically, businesses will look to their overall risk profile and insurance cover as well as the risk in specific negotiated contracts.
It is standard procedure for businesses, especially those selling services or goods, to limit their liability for indirect and consequential losses and to cap their overall liability to an acceptable figure.
These limitations of liability need to comply with the Unfair Contract Terms Act 1977 (UCTA) which is a piece of legislation designed to ensure that contractual liability is limited in a fair way. This means that liability should be limited fairly in a manner which considers the specific circumstances of the contract being entered into. In the case of standard sales terms, limitations of liabilities need to be carefully considered and must be fair in the context the terms are being used.
An appropriate action for 2025 would be to review your limitation of liability clauses to check they protect you sufficiently, align with your insurance coverage, are specific enough to the relevant contracts or standard terms and comply with the requirements of UCTA.
Case in the spotlight. The Last Bus Ltd v Dawsongroup Bus and Coach Ltd case highlighted the importance of reasonable and well-drafted limitation of liability clauses. The Court of Appeal confirmed that even clearly drafted terms must satisfy the Unfair Contract Terms Act 1977 (UCTA) reasonableness test.
4. Intellectual property
Intellectual property is one of the most valuable assets in the business. This helps differentiate the business and contributes heavily to its brand. Businesses spend a huge amount of time and resources protecting this intellectual property. However, sometimes, businesses take very aggressive steps to protect their intellectual property, and this can backfire.
It is important to understand what intellectual property needs protecting and how is best to register it. For example, a trademark should be registered in relevant classes and in a manner that is wide enough to protect it but restricted enough to be enforceable.
An appropriate action for 2025 would be to audit your intellectual property portfolio and adjust any registrations as necessary.
Case in the spotlight. In Sky v SkyKick, Sky sued SkyKick for intellectual property infringement. While the case settled out of court, the Supreme Court deemed this case so important it provided guidance anyway. It was determined that Sky had registered its Sky trademark in bad faith because it had registered in classes that it never intended to provide goods and services in as a prohibitory action to avoid others using similar trademarks in that area. These trademarks were deemed invalid as a result.
5. Governing law and jurisdiction
Another boiler plate clause that can be overlooked is the governing law clause. Sometimes businesses insert a standard governing law clause without thinking through the consequences. It is important to make clear what laws govern the contract and what courts have jurisdiction over any disputes (have the right to decide the outcome of such disputes). It is also important to make clear whether any arbitration clauses sit inside or outside of this arrangement, especially since Brexit, if contracts are cross-border and include EU parties.
An appropriate action for 2025 would be to review your governing law and jurisdiction clauses and check that they reflect the intentions of the parties should a dispute arise and ensure that you consider what happens if there are cross-border parties to an agreement.
Case in spotlight. The Enka Insaat ve Sanayi AS v OOO Insurance Company Chubb case in 2024 clarified governing law and jurisdiction issues, particularly in the context of arbitration agreements and post-Brexit complexities.
Moving forward
The lessons from 2024 highlight the critical role of robust, well-drafted contracts in protecting your business. Reviewing and updating your contracts annually can mitigate risks, enhance compliance, and strengthen business relationships.
If you’d like to ensure your contracts are fit for 2025 and beyond, please reach out for legal advice tailored to your business needs. By learning from the past, you can secure a more resilient future for your business.
About Adaptable Legal Counsel
Adaptable Legal Counsel offers flexible legal services designed to meet the unique needs of small and medium-sized businesses. We specialise in helping businesses with drafting contracts, negotiating partnerships with larger clients, and tackling specific legal challenges, and much more. Whether you’re looking for legal counsel as a service, fractional legal support, or assistance with day-to-day commercial legal work, we’re here to help.
For more information about how Adaptable Legal Counsel can support your business, visit our website. To book a free, no-obligation initial chat, click here.
About Amy
Amy is a commercial solicitor with a strong background in commercial contracting. During her time at Panasonic and Reed Exhibitions (RX Global), part of the RELX Group, Amy gained invaluable experience advising on contractual matters. She now offers fractional legal support, helping SMEs navigate complex legal landscapes with confidence and efficiency. She now offers flexible legal services, including flexible retainers and fractional legal counsel as a service packages through Adaptable Legal Counsel.
Disclaimer: This blog is for informational purposes only and should not be considered legal advice. The content provided here is intended to offer general insights into key contract clauses for small businesses. For specific legal advice tailored to your circumstances, please consult a qualified legal professional. Adaptable Legal Counsel disclaims any liability for actions taken or not taken based on the information in this blog.
