As a lawyer who has had the opportunity to represent and defend different types of clientele; from medium to large scale businesses, corporations and high net worth individuals, I am occasionally confronted with the odd client who would retort, “This is a pretty standard contract, right? So why do we need to review it? Just sign!” or “Why do we need to take so long to look into this joint venture agreement? Isn’t this pretty much a standard contract?” or worst still “Can you give me a discount since it’s a standard contract!”
In my 15 years of legal experience, I have never come across two contracts that are exactly the same. I have never given any of my clients “standard” contracts because no such thing exists in my books.
Contracts should be crafted according to the particular and specific requirements, needs and requests of the parties involved.
It is always good to remember that contracts once entered into and signed are binding on the signatories. You can’t plead ignorance nor can you say that you did not understand the terms of the contract or that you did not foresee the consequences of breach or non-compliance.
Unless of course you were coerced, forced or unduly influenced into signing the said contract. However, do take note that the threshold of proof for coercion and undue influence is one that is high and onerous.
Oftentimes clients, in a bid to save on legal cost, use “standard” contract templates that they obtain from the Internet. You are forewarned here that doing so and not reviewing the specific terms can lead to devastating legal repercussions.
Let me give you some examples of matters that are not covered in these template contracts that you find on the Internet.
The laws applicable in any other country will not be applicable here in Malaysia. This clause is extremely important if you are contracting with a foreign party.
For example, if you are entering into a contract with a party from Singapore but the subject matter of the contract, for example the sale of a factory in Malaysia and the governing laws are Singapore, you will be faced with difficulty in the event litigation arises.
If you have an incompatible or inconsistent clause in your agreement, it will make the litigation process rather cumbersome and costly for you. The issue of jurisdiction will have to be dealt with before the substantive issues of fact and law can be addressed.
This is an unduly protracted and costly affair.
The Appropriate “Governing Laws”
Oftentimes when you use a standard contract, no one looks at the ‘Governing Laws’ clause.
There is a huge difference between the arbitration process and laws as compared to the Court process. Arbitration is an excellent alternative to litigation but if the value of your contract is small and the subject matter of the dispute is straightforward, then the cost of the arbitration process may exceed the value of your claim in itself.
Do not attempt to deal with governing laws and jurisdiction in the same wording. The two concepts are different and the contract should address them separately.
Let’s assume two people enter into a contract which contains Clause (1) and Clause (2). Further let’s suppose that the two clauses do not contradict one another yet come into conflict with each other. For example:
This contract shall only be terminated upon mutual agreement by both partiesClause (1)
This contract may be terminated at any time upon written notice to the other partyClause (2)
Clearly both these clauses can be in conflict with one another. Conflicting clauses are one of the most commonly litigated contractual disputes in Malaysia.
Once there are conflicting clauses, the Courts will then have to resolve the conflict by interpreting and “making sense” of the contract by reading all of the contractual documents in context and also consider parties’ commercial intentions by way of oral evidence in Court.
It is worthy to remember that not all standard contracts are advantageous. A standard contract may not capture the specific needs and circumstances of your business, and therefore not protect you from risks. On the contrary a badly drafted standard contract that you glean off the internet can cause more damage than benefit to you.
Always remember that there is no such thing as a standard contract. You are entitled to negotiate the terms of a contract you wish to enter into based on your own circumstances and facts. Investing in good legal and professional advice will reduce risk and save you a lot of legal cost in the long run.
Lawyer’s fees may seem expensive when you voluntarily decide to hire them initially but it is wise to remember that lawyers become more expensive when you have no choice but to hire them just because you decided not to in the first place.
This article was written by Sharmila Ravindran