In brief – Clarity and simplicity are key in transport, supply chain and logistics contracts
When drafting transport and logistics contracts, avoid abbreviations, jargon, Latin, legalese, unrealistic audit obligations and unfair allocation of risk.
Increasing emphasis on plain English in contract drafting
Most people have heard of the "KISS" principle - "Keep It Simple, Stupid!" The same principle is now being applied more frequently in the supply chain and logistics area.
For many years there has been an increasing emphasis in the law on drafting contracts in plain English. But despite this, many companies and those involved in the transport industry have continued to produce lengthy supply chain and logistics contracts with very detailed specifications and performance requirements.
These contracts often have little active monitoring or enforcement of those performance requirements because of their complexity and the need for extensive resources to be allocated to monitoring and audit.
Simple mechanisms for monitoring and auditing performance
Contracts can be far more effective if they are kept simple, are written in a style which can be easily followed and have simple mechanisms for monitoring and auditing performance.
Ensure that what the contract stipulates is actually being done
We have seen too many contracts where, for example, a party is required to arrange insurance and provide evidence of those arrangements, but nobody has ever followed up to require production of the evidence of insurance. Alternatively, evidence of cover is produced without anyone checking if the cover is for the risks required to be insured or for an appropriate amount.
We also see contracts that require monthly service of records of performance being enforced. If records are provided then someone should be checking to see if they reveal any contract performance issues.
Seven golden rules for transport contracts
With this in mind, we suggest that transport service providers and their customers should review their current arrangements and consider the following tips for drafting of future contracts.
1. Don't use abbreviations or jargon that are not understood by the man in the street.
2. Don't overdo the definition of terms as this then requires cross referencing to check meaning.
3. Avoid legalese and terms that are only well understood by lawyers and, especially, never use Latin.
4. Don't impose monitoring or audit obligations which you are not able or willing to follow and enforce.
5. A fair allocation of risk and obligations is often more effective than an unbalanced allocation and is more likely to lead to a long term relationship.
6. Don't require or expect a party to control matters which are beyond its practical control.
7. Never think the job is done once the contract is signed. That is only the beginning of the job.
If in reviewing your own contracts in light of these rules you realise that you or your advisers have fallen into the traditional traps for the unwary, we suggest that you consult an experienced transport lawyer about reviewing you current contract arrangements.
This is commentary published by Colin Biggers & Paisley for general information purposes only. This should not be relied on as specific advice. You should seek your own legal and other advice for any question, or for any specific situation or proposal, before making any final decision. The content also is subject to change. A person listed may not be admitted as a lawyer in all States and Territories. © Colin Biggers & Paisley, Australia 2024.