When we review contracts for clients, we keep running into the same problems. Most of them stem from a lack of attention to detail rather than from ignorance of the law.
¶ 1. Vague definition of the subject matter
The most common mistake. The contract says "the supplier shall perform work according to specification" but the specification either doesn't exist or is so vague that each party imagines something different.
¶ 2. Missing or non-functional contractual penalties
A contractual penalty must be proportionate. If it is too high, the court may reduce it; if it is too low, it motivates no one.
¶ 3. Unclear termination rules
Who can terminate? With what notice period? Under what conditions can either party withdraw? The contract must answer these questions clearly.
¶ 4. Forgotten personal data processing
If one party processes personal data on behalf of the other as a processor (typically an accounting firm, an IT supplier or a cloud provider), there must be a data processing agreement between them under Article 28 of the GDPR. It is often missing entirely.
¶ 5. Governing law and dispute resolution
In international contracts, it is essential to set out the governing law and the dispute resolution mechanism. The choice between arbitration, court and mediation has a major effect on both cost and speed. My colleague Jan Vytřísal covers when to go to court and when to mediate in a separate article.
More contract pitfalls are covered in Five contract clauses nobody reads. If you are dealing with an agreement between shareholders, read Articles of association are not a formality as well.
Want a contract reviewed before you sign? In our risk prevention practice we go through the contract sentence by sentence and find exactly what could end up in court a year from now. Get in touch.
¶ Frequently asked questions
How high should a contractual penalty be?
Proportionate. If it is too high, the court may reduce it, and if it is too low, it motivates no one.
What should a contract say about termination?
It must state clearly who can terminate, with what notice period and under what conditions either party can withdraw.
What should I not forget in an international contract?
The governing law and the dispute resolution mechanism. The choice between arbitration, court and mediation has a major effect on both cost and speed.
Why do mistakes end up in contracts?
Mostly through insufficient attention to detail rather than ignorance of the law.