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Case law: Parties to contracts should keep ‘contemporaneous records’ of performance failures or risk losing legal action

Parties to contracts should keep contemporaneous records of any performance failures by themselves or the other side - and consider including formal procedures for raising and dealing with alleged performance failures in their contracts - or risk losing a future legal action, the court has made clear.

March 2019

This update was published in Legal Alert - March 2019

Legal Alert is a monthly checklist from Atom Content Marketing highlighting new and pending laws, regulations, codes of practice and rulings that could have an impact on your business.

A contractor was commissioned to carry out various IT projects for a council, and sub-contracted part of the work. When delays occurred, the contractor blamed failures by the sub-contractor. The sub-contractor responded by terminating its contract on grounds the contractor had breached that contract - and claimed compensation.

During a preliminary hearing to decide whether the sub-contractor was entitled to relief from complying with delay notices served by the contractor, the court made comments in relation to record-keeping during the course of a contract. Those comments give useful general guidance for parties entering into commercial contracts.

The court said ‘contemporaneous documentation’ is the best evidence a party to a contract can bring forward to show there have been failures to perform that contract by the other party, or to show that its own alleged failures are not failures at all. Such contemporaneous documentation should set out what had happened, what had been done about it – such as discussing alleged failures with the other party - and why.

Particularly, where one party is arguing that the other party’s failures were serious, repeated and longstanding (as the contractor argued in this case), the court said it would expect to see ‘a consistent picture of such issues being raised with the [other party] in the contemporaneous documentation’.

However, the contractor in this case had been unable to produce contemporaneous documentation showing it had raised these issues, relying instead on evidence from witnesses of their memory of events.

The contractor said the reason there were no such records was because it had operated very much in partnership with the sub-contractor. It did not ‘attribute and document fault’, preferring to focus on ‘moving ahead with the contract’. The court found this argument to be ‘wholly unconvincing’. The contractor’s failure to produce records made at the time to support its case is likely to weaken its position if it reaches a final hearing.

Operative date

  • Now

Recommendation

  • Parties to a contract should:
    • ensure they keep contemporaneous records documenting and, where appropriate, explaining reasons for any performance failures by either side - no matter how close their relationship;
    • consider including express clauses in their contracts requiring performance failures to be brought to the attention of each party’s senior management, and for the issue of notices requiring the poor performer to remedy any failures.

Case ref: Agilisys Ltd v CGI IT UK Ltd [2018] CSOH 112

Disclaimer: This article from Atom Content Marketing is for general guidance only, for businesses in the United Kingdom governed by the laws of England. Atom Content Marketing, expert contributors and ICAEW (as distributor) disclaim all liability for any errors or omissions.

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