The harmful risks of a do-it-yourself contract.

SMEs often do not rely on a lawyer to draft commercial contracts, incurring in high-level risks that may cause serious damage to the enterprise.

Be it a domestic or an international contract, there are always certain clauses and regulations that have to be inserted or complied with. These may be easily overlooked by anyone who is not a lawyer.

It is common practice to download standard draft agreements available on the internet. This in the belief that they can replace the experience and skills of those who practice the legal profession on a daily basis and are capable to ensure a valid and executable contract. The same applies to general drafts prepared by trade associations that are often not adequate to the specific facts of the case.

The aspects to be evaluated in a contract go beyond the simple deal itself. It shall ensure evidential clarity, must be constructed validly and the clauses expressed therein must comply with certain limitations required by law.

The contract must be drafted in a way that effectively protects the party if the counterparty does not execute the contract or in any other eventuality that leads to potential damages.

Alternatively, one may risk creating a nice-looking piece of paper that has no effect whatsoever in the hands of the wronged party.

Some examples:

1. Issues regarding enforceability and international execution of the contract: Which jurisdictions are involved? How to enforce a contract in case of default? You may find yourself unable to claim damages, leading to a situation where you may need to sustain all the losses.

2. General terms and conditions (T&Cs) containing provisions going directly against the consumer acquis: Is your contract compliant with the applicable law at the place of distribution and sale of products respectively?

3. Issues of validity: Is the domestic or international contract validly drafted in accordance with the law having full effect? You may produce a beautiful international contract but, in case the jurisdiction happens to be Vietnam and the stamps next to the signature are missing, you will be holding a null and void contract in your hands.

Preventive advocacy.

It is not that rare to have a client coming to a lawyer with a contract, even of significant value, containing strictly punitive and harmful clauses. Clauses that could have been easily avoided with the previous assistance of a lawyer. Other consultants, such as accountants, are well placed to work in their respective fields of expertise and intervene in the drafting phase of an agreement only with respect to financial matters.

Requesting the intervention of a lawyer once the problem already emerged, probably at a stage where the situation is likely to be irreparable, may mean losing everything. It is really worth the effort saving a bit of money risking the total value of the transaction?

Preventive advocacy is much more effective than emergency advocacy.

® Euroleges