As a small or medium-sized business owner in Australia, you have to wear many hats. You are in charge of marketing, managing employees, and running the business. However, in the midst of all that, it is absolutely essential to understand the legal basis of your business. Contract law is the very foundation of business. Every time you hire someone to work for you, every time you buy supplies for the business, and every time you sign up for a new client, you are entering into a legal agreement.
It is important to understand the basics of Australian contract law to safeguard your hard-earned business and avoid any legal tangles that could arise due to trivial misunderstandings.
The Four Elements of a Valid Contract
In Australia, for a contract to be legally valid and binding, it has to contain four essential elements. The first element of a valid Australian contract is the offer. One party has to make a clear and explicit offer to another. This offer has to be made by one party to another and has to be made in such a manner that the other party knows that the offering party is willing to be bound by the terms and conditions laid down in the offer.
The second element is acceptance. This is the acceptance of the terms and conditions laid down in the offer by the other party. This acceptance has to be explicit and unconditional. Any alteration to the terms and conditions laid down in the original offer by the other party constitutes a counteroffer and not acceptance.
The third element of a valid Australian contract is consideration. This is the exchange of value between the two parties to a contract. This means that one party provides some form of goods and services to another and receives some form of payment in return. This payment is normally in terms of money.
The final element of a valid Australian contract is the intention to create legal relations. This means that the parties to a contract have to be aware that the agreement they have entered into is legally valid and can be legally enforced by a court. This element is automatically presumed to exist in a business scenario by Australian courts.
Written, Verbal, and Implied Agreements
Most entrepreneurs are under the misconception that a contract must be written and signed by both parties for it to be completely valid. This, however, is not true. In Australia, there are several types of agreements.
Written contracts are the most straightforward. In this type of contract, all the terms and conditions are clearly outlined. This way, all parties involved are aware of their responsibilities. This type of contract has very little room for error.
In verbal contracts, agreements are reached through verbal discussions. Although this type of contract is legally binding, it can be very tricky when trying to enforce it. If any problem arises, it becomes a he-said-she-said situation.
Implied contracts are formed based on actions. For example, if your supplier delivers goods to your shop every single week, and you pay for them, this is a type of contract. Although verbal and implied contracts are often legally binding, it is always important to have your agreements written down. This way, you are completely protected. If you’re currently experiencing issues, contact a breach of contract lawyer for help.
Key Clauses to Mitigate Commercial Risk
A well-written contract can be likened to a safety net for your business. In this type of contract, several clauses must be included to help reduce your exposure to any form of commercial risk. The termination clause outlines the terms under which either party can terminate the business relationship. This way, you are not locked into a contract that does not favour your business.
A dispute resolution clause establishes the basic rules for dispute resolution. It is common for it to require professional mediation before anyone can engage in a costly lawsuit. It is also highly recommended that you consider adding a limitation of liability clause. This limits the amount of money that can be claimed in case of a problem and will protect your business from huge losses.
Secure Your Business with Professional Advice
While it is imperative that you gain an understanding of the basics of contract law in order to effectively operate your business within the complex Australian legal system, it is equally important that you seek professional advice in order to avoid any potential financial pitfalls that can arise as a result of an improperly drafted contract!