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The rise in commercialisation and business activities has resulted in an increase in complex commercial relationships, thereby highlighting the need for clear and well-drafted contracts. Commercial contracts provide a framework for defining the rights, obligations and expectations of parties, while at the same time outlining mechanisms for managing potential risks where they arise. Poorly drafted contracts, on the other hand, may create significant legal and financial problems. This article highlights the importance of well-drafted contracts and the common clauses associated with them. It also examines the legal complications that may arise in the absence of a well-written contract. Ultimately, this article serves as a practical guide for businesses and individuals who intend to enter into agreements, highlighting how a thorough and well-drafted contract can help protect contractual interests and strengthen business relationships.

IntroductionAgreements have long formed part of human relationships and interactions, providing a means through which the rights, obligations and liabilities of parties are established. In earlier times, agreements were often based on oral promises, customs and the word of the parties, sometimes in the presence of witnesses. For example, Roman law recognised the stipulatio, a formal verbal contract created through a question-and-answer exchange between the parties.1 While such arrangements were practicable, especially within communities where trust and reputation played a significant role, they may provide less certainty in modern commercial transactions.As modern commercial transactions became more complex, it became necessary to have a clearer written record of each party’s commitments rather than rely solely on memory or verbal assurances. Written contracts therefore provide a clearer record of the parties’ intentions and obligations, making them an important tool for preventing misunderstandings and protecting businesses. Nonetheless, written contracts are of little value if they do not meet the legal requirements necessary for enforceability. The rights of parties are better protected where

Importance of Well-Drafted Commercial ContractsA well-drafted commercial contract is fundamental to the protection of a business because it provides a clear framework within which the parties’ rights, obligations and expectations are established, thereby giving certainty to the commercial relationship. Beyond merely recording the existence of an agreement, a properly drafted contract is highly significant for a number of reasons.

a) First, a well-drafted contract clearly defines the rights and obligations of the contracting parties. Commercial transactions frequently involve several obligations relating to payment, delivery, performance, timelines and standards. Where these obligations are expressed in clear and precise terms, each party is better able to understand the scope of its responsibilities and the extent of the other party’s obligations. This is particularly important because Nigerian courts generally hold parties to the terms of contracts freely entered into. In Zakhem Construction (Nig) Ltd v Emmanuel Nneji,2the Supreme Court affirmed that parties retain the commercial freedom to determine the terms of their agreement and that the court’s duty is to interpret those terms according to their clear wording. Thus, a business should not assume that a court will subsequently supply an obligation or protection that was omitted from the contract.

b) Proper drafting promotes certainty and reduces the possibility of disputes arising from ambiguity. Where contractual provisions are vague, inconsistent or incomplete, parties may attach different meanings to the same provision, creating disagreement over their respective rights and liabilities. In Adetoun Oladeji (Nig) Ltd v Nigerian Breweries Plc,3the Supreme Court stressed that courts must give effect to the terms that the parties freely agreed. In delivering the judgement, the court, per Justice Niki Tobi emphasized the duty of the court to simply interpret the text of a contractual arrangement to give effect to the true wishes of the parties, as expressly provided for in the document.4 Careful drafting is therefore important because the words chosen by the parties may determine how their commercial relationship is understood and enforced.

c) Furthermore, a well-drafted contract facilitates dispute resolution. Although careful drafting cannot eliminate every disagreement, it can reduce uncertainty by establishing the parties’ agreed position in advance. A contract may specify how notices are to be given, the applicable law, the forum for resolving disputes, or the procedure to follow before litigation or arbitration. In Nika Fishing Co Ltd v Lavina Corporation,5the Supreme Court considered a jurisdiction clause in a bill of lading and recognised the significance of the parties’ contractual choice of forum. This illustrates how carefully negotiated provisions can provide a structured approach to disputes rather than leaving questions to be determined after a disagreement arises.d) A well-drafted contract assists businesses in allocating commercial risks. Transactions inevitably involve risks, including delay, non-performance, defective performance and financial loss. By anticipating foreseeable risks and allocating responsibility for them, parties can establish who bears certain liabilities and the remedies available in the event of default. This promotes predictability and reduces financial and operational uncertainty.

Common Clauses Found in Commercial ContractsCommercial contracts contain clauses that define the parties’ obligations and allocate the risks arising from the transaction. The clauses required will depend on the nature of the agreement and should reflect the actual commercial arrangement rather than be inserted as standard wording without review. They should clearly state what each party must do, when performance is due and the applicable standards or conditions.

a) Representations, Warranties and Risk Allocation Provisions: These record important facts or assurances, such party’s authority to enter the contract, ownership of supplied materials or conformity with agreed specifications.6 Covenants set out continuing obligations, such as maintaining licences or meeting service levels. Indemnities allocate responsibility for defined losses or claims, while limitation-of-liability clauses may cap liability or exclude specified losses.7 These provisions should identify their scope and remedies clearly and be checked together so that they do not conflict.

Confidentiality and Intellectual Property: These clauses define what information is protected, how it may be used and who owns work created under the contract. The Copyright Act 2022 provides that, unless otherwise agreed, copyright initially vests in the author, while an assignment or exclusive licence must be in writing.8 Where one party processes personal data for another, the Nigeria Data Protection Act 2023 requires a written agreement and imposes obligations relating to data security and personal data breaches.9 Contracts should therefore allocate responsibilities for security, incident reporting and the handling of personal data.

c) Force Majeure and Termination Clauses: These address disruption and exit from the contractual relationship. A force-majeure clause should define the events covered, notice and mitigation requirements, and the obligations affected. It should also provide for termination if the disruption continues beyond an agreed period. Under Nigerian law, force majeure generally operates where the parties have expressly provided for it in their contract, although the doctrine of frustration may apply in circumstances where performance becomes impossible or substantially different. 10 Termination provisions should specify grounds, notice and any opportunity to remedy a breach, as well as obligations that continue after termination.

d) Dispute Resolution Clauses: This clause is highly fundamental in the drafting of contracts. Dispute resolution clauses may require negotiation or mediation before arbitration or litigation. If arbitration is chosen, the parties should specify matters such as the seat, venue, applicable rules, number of arbitrators and language. The Arbitration and Mediation Act 2023 recognises arbitration clauses in contracts as a valid expression of parties’ intention to submit their matter to arbitration.11 Furthermore, the Act provides that the requirement for writing may be satisfied through an electronic communication where the information is accessible for future reference.12The contract should also distinguish the governing law from the court jurisdiction or arbitration seat.

e) General Clauses: Often called boilerplate clauses, they address matters such as notices, amendments, waiver, severability, assignment and the entire agreement. Although they may appear routine, they should be consistent with the operative terms and the transaction’s requirements.

Legal Risks of Poor DraftingWhile well-drafted contracts help parties clearly define their rights, obligations and expectations, poor drafting can create uncertainty and expose businesses to legal and commercial risks that the parties may not have anticipated. Some of these risks include:

a) Poorly drafted commercial contracts can create uncertainty, disputes and financial liability for businesses. Ambiguous or inconsistent terms may cause parties to misunderstand their respective rights and obligations, particularly in relation to payment, performance and liability. In Zakhem Construction (Nig) Ltd v Emmanuel Nneji, the Supreme Court held that where the parties’ intentions are clearly expressed in a written contract, their rights are to be determined from that document.

b) Poor drafting may also leave important obligations unclear or omit terms necessary for the proper performance of the agreement. In Adetoun Oladeji (Nig) Ltd v Nigerian Breweries Plc, the Supreme Court emphasized that contractual terms should be given their plain and clear meaning and that a court cannot make or rewrite a contract for the parties14. Thus, a business may be unable to rely on an intention that was not properly expressed in the contract.

c) Furthermore, uncertainty in contractual terms may lead to breach, litigation and financial loss. As recognized in Yadis Nigeria Ltd v Great Nigeria Insurance Co Ltd, the rights and liabilities of parties to a contractual relationship are determined by the terms and conditions of their contract.15 Consequently, careful drafting is essential to minimize disputes and ensure that the parties’ intended rights and obligations are clearly established.

5. Conclusion

Well-drafted commercial contracts play an important role in protecting businesses and reducing the risk of disputes by clearly defining the rights, obligations and responsibilities of the parties. Properly drafted clauses on matters such as payment, risk allocation, confidentiality, termination, liability and dispute resolution provide greater certainty and help parties understand what is expected of them.

Conversely, poorly drafted or unclear contracts may lead to misunderstandings, breaches, financial losses and legal disputes. Businesses should therefore ensure that their commercial contracts clearly and comprehensively reflect the terms of their agreements. Where necessary, legal practitioners should be consulted to ensure that important issues are properly addressed and the interests of the parties are protected.