Monday, June 3, 2013

When contracting parties do not honor a contract; controlling the dispute by controlling your evidence.

by Richard I. John, Lawyer (Bridgeland Law). View the original post here.

I have been practicing law since I graduated from the Faculty of Law at the University of Alberta in 1992. During these years I have seen many contractual agreements result in a dispute between the contracting parties. Most of my clients would say that this is unavoidable. No matter how tight your contract is some contracting parties will try and find a way to avoid honoring their contractual obligation. This blog is about some sensible business practice which will help position you as a contracting party to deal with a defaulting contracting party.
 
The most important thing is to ensure that ALL of your contractual relationships are reduced to writing. Without them being in writing you are implicitly inviting the worst behavior in persons to be displayed. As an example, the DSM V, a tool used by the psychiatric community, describes a person who suffers from antisocial personality disorder as possessing, without limitation, the following personality traits:
 
Pathological personality traits in the following domains:
1.  Antagonism, characterized by:
a.  Manipulativeness: Frequent use of subterfuge to influence or control others; use of seduction, charm, glibness, or ingratiation to achieve one‘s ends.
b.  Deceitfulness: Dishonesty and fraudulence; misrepresentation of self; embellishment or fabrication when relating events.
c.  Callousness: Lack of concern for feelings or problems of others; lack of guilt or remorse about the negative or harmful effects of one‘s actions on others; aggression; sadism.
d.  Hostility: Persistent or frequent angry feelings; anger or irritability in response to minor slights and insults; mean, nasty, or vengeful behavior.


When placed in context of a contractual dispute with a party or person with these traits, and perhaps possessing little or nothing economically (hence having nothing to lose), you may find it difficult to manage the dispute because a disputing contracting party with these traits may act in a manipulative and deceitful manner. Prudent business persons can guard against this by, among other things, drafting a robust written contract. This written contract should contain, amongst many other things, an entire agreement clause and waiver and amendment clause. For example the following:

Entire Agreement Clause:
"This agreement constitutes and expresses the whole agreement of the parties hereto with reference to the relationship between the parties and with reference to any of the matters or things herein provided for or here before discussed or mentioned.  All promises, representations and undertakings made prior to the signing of the agreement by the parties are merged herein and all  parties hereto agree that they may not subsequent to the signing of this agreement assert or allege that any statement made prior to the signing of this agreement induced the party to enter into this agreement."
Waiver and Amendment:
"The parties hereto agree that no amendments to this agreement shall be valid or binding unless they are set forth in writing and duly executed by both of the parties hereto.  Moreover the parties hereto agree that no waiver of any breach of any term or provision of this agreement shall be effective or binding unless such waiver is made in writing and signed by the party purporting to make such waiver and, unless otherwise provided in the written waiver, such waiver shall be limited to the specific breach waived."

The point here is: he/she who has the paper is more likely to win in a Court proceeding. A contracting party does not ever want to be in a position whereby they have a dispute with a person who suffers from this type of personality disorder or exhibits these traits without a written agreement. Any dispute which ends up in Court will be best received by the Court if a contracting party has a well crafted and drafted written agreement. In this regard, one of the core principals of interpretation is that "the document speaks for itself" and that a disputing contracting party is generally not permitted to make reference to evidence outside of the written agreement. This should prevent most manipulation and deceitfulness from entering the dispute. But this is only 1/2 of the picture; the other 1/2 occurs after the contract is written and the dispute is developing or has developed.

A person who exhibits these traits may continue to be manipulative and deceitful as the dispute emerges and after the dispute and Court proceedings have commenced. There is a saying which is applicable in this regard: "fool my once, shame on you; fool me twice, shame on me". This is applicable because the decision to enter into a contract was when you were fooled once. You do not want to allow the disputing contracting party to be able to succeed in the dispute by being manipulative and deceitful. Some persons with these attributes are very charming and you may have a moment of weakness where you think that you can work out a fair deal with the disputing contracting party. From my experience this is not the case. What you think you have negotiated may then be manipulated in a deceitful manner by the disputing contract party. Your reaction will be that this was not what was agreed to but it may be too late and you will have been fooled twice. The shame will be on you unless you act proactively to protect against this type of conduct.

A way in which a contracting party can protect against being fooled twice is to not conduct conversations or communication with the disputing contracting party unless the disputing contracting party agrees in writing that any conversations or communication are personal and confidential and without prejudice to the larger dispute. Moreover, it must be made clear in writing that any settlement/resolution of the dispute which is negotiated will be conditional upon your lawyer confirming that the settlement/resolution of the dispute is agreeable in that lawyer's sole and unfettered discretion. Moreover, after obtaining written confirmation from the disputing contracting party in writing that any conversations or communication are personal and confidential and without prejudice to the larger dispute you should not engage in a one-on-one conversation either on the telephone or in person with the disputing contracting party. Consider meeting with the disputing contracting party in the presence of your lawyer or at least meet face-to-face with a witness. This will then give you the best evidientiary basis from which to defend against the disputing contracting party.

By following these suggestions a prudent business person will minimize the negative interactions which can result and avoid the concomitant frustration which may result in dealing with persons who possess these types of traits or who suffer from this type of personality disorder.