Legal Documents and the Danger of the Internet

We all realise that there has been significant change in the way we now communicate. The use of the mobile telephone and the computer allows people to communicate in writing 24/7.

The nature of the communication can range from the social all the way through to important legal matters. I will talk about the important communication that affects your legal rights.

It is fully understandable and relatively common for parties to negotiate by written communication through the internet. Often, the only evidence of an arrangement or contract between the parties is the exchange of email or text. The obvious reasons for this are convenience and cost.

From a legal point of view, such communications carry significant risks. Reducing a commercial arrangement between the parties to writing and signing that document has been an important part of our law for centuries. And for good reason. The practice of having a signed and binding legal document does not arise simply by chance. Rather, people in business have found that the best way of doing business and entering into relationships is formalising that arrangement in a written document and having it signed by each party.

The advantages of having a signed contract or a deed between the parties is that it creates certainty and evidences the exact nature of the rights and obligations of the parties. The enforceability of such a legal document is almost never at issue – but it is if all you have is a series of emails or texts.

One of the cornerstones of good business is managing risk. Whether you should have a written legal contract prepared by a solicitor will depend upon the importance of the arrangement for your business. Some arrangements are so insignificant that an exchange of emails is more than adequate. It is certainly better than an oral agreement between the parties.

Therefore, where less important arrangements are needed and there has been an oral agreement, it is good practice to record that oral agreement by a short email to the other party asking for confirmation.

However, where the nature of the arrangement is important to the business, having a proper written contract or deed prepared by your solicitor is an important part of doing business and managing risk.

Federated Farmers of New Zealand have standard form documents for farmers. These contracts are preferable to exchanges of emails or oral arrangements. However, they are only forms and, in my experience, they are not adequate. It is important that, if those forms are to be used, you obtain the assistance of your solicitor to complete them.

Often, the document is blank and not completed, leaving both parties uncertain of what was intended. Or there may be additional clauses at the back of the agreement, drafted by one of the parties or the farm management consultant. These are almost invariably badly drafted, ambiguous or unclear. The uncertainty caused by such clauses and/or inadequate completion of a standard document may lead to a dispute and a costly process of resolving the dispute.

Another good example of “dropping the ball” is around rent reviews and rent renewals. Where landlords and tenants understand that a renewal or a review is to be undertaken, it is common for them to communicate by email and to conclude the arrangement by a final email that agrees to the renewal and the new rent. Security of tenure to the tenant is a vital part of that tenant’s business. A failure to properly record a renewal potentially gives the landlord the right to terminate the lease on a month’s notice.

I need to emphasise that the cost of resolving a dispute between the parties is significantly higher than the cost of having a legal document prepared and/or checked by your solicitor.

Finally, you might be interested in the difference between a deed and a contract. A deed is a document prepared and witnessed in a particular way. Your solicitor will know how to prepare such a document. Deeds are often used for leases and family arrangements. The advantage of a deed is that it is clear evidence of the arrangement between the parties and it does not require consideration, ie value.

In contrast, a contract is an agreement between the parties that requires three elements: offer, acceptance and consideration. The courts will never enquire into the adequacy of the consideration but it is an important ingredient to the formation of a contract.

Irrespective of whether you have a deed or a contract to manage the risk of a business, I hope that you now better appreciate the importance of involving your lawyer in commercial transactions of this kind.

Written by Ian Blackman