Most disputes we handle share a single root cause: a contract that either does not exist or does not account for what actually happened. Almost every time, a little more attention at the start would have been enough.
¶ Why contracts get underestimated
I know the pattern well. Two people shake hands, they get on, and there is an opportunity in front of them. At that moment the contract is a formality that has to exist so the deal can be called a deal. They download a template, change a few numbers and sign.
Then something changes. One of them wants out, the other had pictured it differently, a delivery is late, a payment does not arrive or a business partner starts acting on their own. And it turns out that the contract the whole relationship rests on says nothing about what to do when things do not go to plan.
At IUSTORIA we deal with cases like this several times a month.
¶ What a good contract does differently
A good contract assumes that something will go wrong, and it does not have to be longer for that. It sets out how the partners part ways, who bears the risk of delay, what happens to intellectual property when the collaboration ends, how severance is calculated, and who decides a dispute and where. Anyone can describe what happens when everything goes well.
In other words, it deals with scenarios that have not happened yet, which is why you need it in advance, not once the problem has arrived.
¶ Understanding interests matters as much as knowing the law
Lawyers often overlook the fact that a contract records a business deal between two parties, each with its own priorities, its own concerns and its own limit of what it can live with.
When I draft a contract, knowing what should go into it is not enough. I need to understand why the client is entering the deal, what is unacceptable to them, where they are willing to give ground and what would keep them awake at night if the deal went wrong.
Without that, I can produce a technically flawless document that misses what the client really cares about. When I understand their interests, I can design solutions that protect the client without putting the other side off signing.
¶ The maths of prevention
Quality contract documentation for a business transaction, such as a shareholders' agreement, a share transfer agreement and the related corporate documents, typically costs tens of thousands of Czech crowns (from a few hundred to a few thousand euros). A more complex deal may cost more, but we are still talking tens of thousands.
A commercial dispute that reaches court runs for two to three years, and legal representation costs hundreds of thousands. On top of that comes the time spent on hearings, preparing documents, expert reports and appeals. And the risk that you lose and pay the other side's costs as well.
That works out at a ratio of one to ten, sometimes one to twenty.
Yet in many cases three extra hours on signing day would have been enough to make the contract address the scenarios nobody wanted to imagine at that point.
¶ When an internet template will do
Not every contract needs a lawyer. If you are having a fence built for fifty thousand crowns, a template will probably do.
For a joint venture, an incoming investor, a cross-border transaction, a technology licence or a long-term collaboration with a key client, however, a template is not enough. It need not be badly written. It simply does not account for your specific situation, your risks and your counterparty.
The more important the relationship, the more important the contract, and that has nothing to do with mistrust. When things get complicated, and they will, you will value clear rules agreed while you still saw eye to eye.
¶ The takeaway
A contract works like an insurance policy. It pays off at the moment you need it most, which is exactly when you can no longer take one out.
Clients who come to us before a problem arises usually leave with a contract that protects them. Those who come afterwards leave with an invoice for a dispute. For what you would pay your own lawyer in such a dispute and how much the court would award you, see Attorney's fees in court. For typical contract mistakes, see Contract mistakes and Five contract clauses nobody reads.
Not sure whether a template still does the job for your transaction — or whether you have outgrown it? In our risk prevention practice we quickly assess where a template is fine and where a bespoke contract pays for itself. Get in touch.
¶ Frequently asked questions
How much does a tailored contract cost compared with a court dispute?
Quality contract documentation for a business transaction typically costs tens of thousands of Czech crowns. A commercial dispute in court runs two to three years, legal representation costs hundreds of thousands, and if you lose you risk paying the other side's costs too.
Do I need a lawyer for every contract?
No. For a simple job worth around fifty thousand, such as building a fence, a template will probably do. For a joint venture, an incoming investor, a cross-border transaction or a technology licence, a template does not account for your specific situation.
Why have a detailed contract if we trust our business partner?
Because when things get complicated, you will have clear rules you agreed on while you still saw eye to eye. The more important the relationship, the more important the contract.
What should a good commercial contract cover?
Above all, what happens when things go wrong: how partners part ways, who bears the risk of delay, what happens to intellectual property when the collaboration ends, how severance is calculated, and who decides a dispute and where.