About the article
Rapid Contract Enforcement is an essential requirement for the growth and prosperity of India. It will enable more investment, entrepreneurship, and trust for all stakeholders in business and commerce. The community of lawyers in India does not have access to a practical and scholarly manual that gives them a path to deliver rapid contract enforcement to their clients. Such a manual will also help lawyers to draft contracts that enable timely enforcement. Rapid enforcement requires the effective use of the Arbitration Act, the institutional framework, and technology-enabled dispute resolution infrastructure. This article belongs to a series where the author analyses each of the Illustrations available in the Contract Act and recommends practical approaches to rapid enforcement.
An illustrated rapid resolution example that is intended for lawyers. Useful when lawyers draft contracts for clients who enter into services agreements. And for rapid resolution of disputes arising out of faulty service or service default in such agreements.
Keywords: Uncertain Agreements, Credit Sale, Cheque Payment, Services Agreements, Unclear Service, Ambiguous Service Definition
Reference: The Indian Contract Act: Section 29: Illustration (a)
Indian Contract Act: Section 29
According to Section 29 of the Indian Contract Act, 1872, agreements the meaning of which is not certain or capable of being made certain, are void. There must be no ambiguity about what the parties intend. If the meaning of an agreement is neither certain nor capable of being made certain, then the contract becomes void.
Illustration (b) – Contract Act: Section 29
The first illustration of section 29 is as follows:
“A agrees to sell to B “a hundred tons of oil.” There is nothing whatever to show what kind of oil was intended. The agreement is void for uncertainty.”
In the modern business world, uncertainty is more likely to occur in a services contract than in a contract to purchase goods or property. This is because service descriptions often tend to be complicated and lengthy.
Therefore, our example below is one of uncertainty in a service agreement.
Illustration 1 – A modern-day example
Let us examine a modern-day example of this type of agreement:
“X, a media company, entered into an agreement with A under which A would create and maintain X’s website. The agreement specified that X would pay a fixed monthly fee for ‘website maintenance services’ and pay per person-hour for additional services. However, the agreement did not specify what constituted ‘website maintenance services.’
A few months after the agreement was signed, the website required a software update. X’s CEO was under the impression that the update was covered in the maintenance fee and therefore was shocked when A invoiced X for Rs. 200,000/- for the update.
As X’s CEO did not wish to take the trouble and expense of finding a new service provider for the website or fighting the case in court, X paid A.
Interpretation and scenarios
In the above example, as is true for most business agreements, even though the agreement could be voided for uncertainty under section 29, voiding the contract is not a feasible business decision.
Most companies would choose to either go with the other party’s interpretation or attempt to renegotiate the agreement. However, this kind of dispute also results in bad blood between the parties, which affects the business relationship in the future.
The solution is to ensure that there is no ambiguity in the agreement. This does necessarily mean incorporating clauses with lots of legalese. On the contrary, many times, the solution is to have simple clauses in the contract that spell out each party’s obligations and entitlements. If this is done, even if a dispute does arise, it can be resolved using a rapid resolution tool like ODR.
Some such clauses are examined below.
The Drafting Solutions
Solution 1- Removes Ambiguity (Makes Interpretation and Dispute Resolution Easy)
In any service contract, the service must be clearly defined. There cannot be any ambiguity about what is expected of the service provider, be it nature, quantity, or quality. In our example, there was no clear distinction between what was covered under the maintenance charge and what was not. This uncertainty is what caused the payment dispute.
Similarly, the payment clause must also be crystal clear, especially when there are multiple heads of payment, as is the case in our example (retainer plus additional services).
Solution 2 – Accelerates dispute resolution for both parties (Pre-decides contentious elements of the Arbitration process)
The agreement gives the claimant the right to ask for the arbitrator’s appointment by a named institution or ODR platform; and for such appointment to be made within 35 days of receipt of the defendant receiving notice.
In these cases, it will better serve the parties if the institution or ODR platform promises a process that binds the arbitrator to rapid resolution. Platforms often do this by minimizing oral hearings, not accepting documentation delays, and not allowing adjournments unless in emergencies.
In conclusion, it is fair to say that disputes arising from service contracts agreements can be made very friendly to rapid resolution, as long as there is no uncertainty surrounding what the service is, or the payment to be made for providing the service.
Simple Explainer For The Layman
High Tech Media engaged A Plus Web Services to build and maintain their website. High Tech would pay a monthly retainer for website maintenance services under the agreement and would pay an additional amount for any other services. However, the agreement did not define what exactly constituted ‘maintenance services.’
About six months after the agreement was signed, High Tech asked A Plus to perform an essential software upgrade. High Tech was under the impression that the upgrade would be covered under the monthly retainer fee and were shocked to receive an Rs. 20,000/- invoice for the upgrade.
After a lot of back and forth between the parties, High Tech Media decided to pay up and continue with the contract as it was cheaper than trying to litigate it in court or through conventional arbitration.
Had the agreement clearly defined what was covered under the monthly retainer, it is improbable that a dispute would have arisen. Further, even if there was a dispute, it could have been quickly and inexpensively resolved as long as the agreement also had an ODR friendly arbitration clause, which pre-decides contentious aspects of the dispute resolution process.
About the Authors
Dushyant Krishnan is a Mumbai based lawyer and the co-founder of House Court, an online dispute resolution platform.
Devansh Garg is a third-year law student at the Vivekananda Institute of Professional Studies, and an associate editor of Indian Law Portal, an online legal news publication.