Reading time: 5 minutes

A contract is an essential document that governs the relationship between two parties. This is usually because both parties are dealing with some sort of transaction. Most businesses will use contracts to stay protected if the other party does not uphold their side of the deal. If this happens, you can seek compensation in court, usually damages. For a contract to be legally binding is must have several elements, such as certainty and intention for both parties. However, a contract is only as good as the terms it contains. This article will outline and explain the most important clauses to include in your New Zealand contract. 

Who and What the Contract is for?

The most important clause of any contract is one that ensures through precise wording: 

  • who the contract is with; and 
  • what the contract is for. 

This is because, for a contract to be binding, the terms must be certain and unambiguous. If a class of persons is defined, such as anyone working for a specific company, it may be harder to enforce. This is because there may be contention on who an employee is. For example, they may be suspended or on leave.

There must also be clear wording on what specific transaction the contract is covering. Is it an employment contract? If so, the contract must clearly state the duties of the employee. If it is a supply contract, the contract must be specific to what goods are being supplied. 

You should note that if the matter is being disputed in court, the judge can invalidate the contract if it is not specific enough.

Dispute Resolution

It is common for contracts to be disputed between businesses. Because of this, it is good practice to include a dispute resolution process in your contract. Dispute resolution is a way that you can resolve a disagreement without having to go to court. Avoiding a legal battle will save both parties time and money. 

A good dispute resolution process will mandate that a negotiation must take place first. This is where two parties discuss what they want and compromise to find a solution. If this does not work, then mediation can take place. Mediation is similar to negotiation, except there is a neutral third party who is there to steer the conversation in the right direction and help both parties find a solution. Mediation will not always find an outcome, so if this is the case, the parties can go to court. 

Going through a dispute resolution process will guarantee that you only use the court system if there is no other alternative. 

Liquidated Damages

Another way that you can resolve a dispute without going to court is by using a liquidated damages clause. Liquidated damages are a pre-determined figure that is negotiated at the start of the contract. This amount is paid out if the other party breaches the contract. This gives both parties an idea of what the consequence of breaching a contract is. However, the courts can void a liquidated damages clause if it is deemed an unfair estimate of the loss incurred. This means if the amount pre-agreed is not proportionate to the loss suffered, the courts will not enforce that clause.

Termination

Every contract should include a termination clause. This is because there may be a situation where the contract is no longer needed or viable for both parties. Therefore, a termination clause allows the contract to be cancelled with no remaining obligations for either party. You may activate this clause if either party breaches the contract. 

It is important that you meet the criteria if you want to use the termination clause. If you do not meet the criteria, you could be found to have repudiated the contract. Repudiation is where either party is unable to uphold their obligations under a contract. If you have repudiated a contract, you could be liable yourself for a breach of contract claim.

Key Takeaways

A legally binding contract should underpin any business transaction. A binding contract must have several elements, including unambiguous wording. This is to ensure that both parties are aware of what is being agreed upon. You should include several key clauses in your contract to get the best out of your contract. These are a:

  • clause outlining the identity of the parties;
  • clause detailing the premise of the contract;
  • dispute resolution clause;
  • liquidated damages clause; and
  • termination clause.

This is not a complete list, but they are the most necessary clauses to have in a contract. As with any contract, a lawyer should always check these clauses before you sign them. If you need any legal assistance with New Zealand contracts, contact LegalVision’s contract lawyers on 0800 005 570 or fill out the form on this page.

Frequently Asked Questions

What happens if the contractual terms are ambiguous?

The contract can be deemed unenforceable, which means you could lose out on any rights under the contract.

Do both parties have to follow the dispute resolution process if there is one outlined in the contract?

Yes, this must be followed; otherwise, either party could be found to have breached the contract.

Can I terminate the contract at any time if there is a termination clause included in the contract?

No, you can only terminate the contract if you meet the criteria specified in the contract. This is usually a breach of contract. 

About LegalVision: LegalVision is a tech-driven, full-service commercial law firm that uses technology to deliver a faster, better quality and more cost-effective client experience.

The majority of our clients are LVConnect members. By becoming a member, you can stay ahead of legal issues while staying on top of costs. From just $119 per week, get all your contracts sorted, trade marks registered and questions answered by experienced business lawyers.

Learn more about LVConnect

Need Legal Help? Get a Free Fixed-Fee Quote

If you would like to receive a free fixed-fee quote or get in touch with our team, fill out the form below.

  • 2019 Top 25 Startups - LinkedIn 2019 Top 25 Startups - LinkedIn
  • 2020 Excellence in Technology & Innovation – Finalist – Australasian Law Awards 2020 Excellence in Technology & Innovation Finalist – Australasian Law Awards
  • 2020 Employer of Choice – Winner – Australasian Lawyer 2020 Employer of Choice Winner – Australasian Lawyer
  • 2021 Fastest Growing Law Firm - Financial Times APAC 500 2021 Fastest Growing Law Firm - Financial Times APAC 500
  • 2021 Law Firm of the Year - Australasian Law Awards 2021 Law Firm of the Year - Australasian Law Awards
  • 2020 Law Firm of the Year Finalist - Australasian Law Awards 2020 Law Firm of the Year Finalist - Australasian Law Awards