The danger of handshake deals

The danger of handshake deals

Australians have always prided themselves on honouring the old handshake agreement. But unless you have agreements in writing, you might not have a proverbial leg to stand on.

We’ve all done it before: you get a quote, you like what you hear and you shake on the terms.

Sure, it might help get the job done more quickly, save you legal and admin costs and more often than not you’ll get exactly what you agreed to.

But every now and then an unexpected issue can rear its ugly head. Bad weather might kick in, sales targets might fall short of what was promised, or perhaps a quote balloons out to triple what you budgeted.

“Handshake agreements can also lead to a ‘he said, she said’ debate that racks up quite the legal bill. The biggest problem with oral contracts can be proving the terms of the contract if a dispute arises”

Is a handshake enough?

A handshake agreement is usually  legally binding in Australia  whether or not they  involve big ticket items (one area where agreements have to be in writing is where they concern land).

However, handshake agreements can also lead to a ‘he said, she said’ debate that racks up quite the legal bill. The biggest problem with oral contracts can be proving the terms of the contract if a dispute arises. That’s why it’s best to always get your agreements in writing – so that each party is aware of their responsibilities.

Contract basics

We all know that contracts have a reputation for being quite long. But they don’t always have to be.

In fact, a contract can be as small and simple as getting a quote on the back of an envelope. That said, you can (and should) do better than that for your business.

It’s well worth checking out local regulations and consulting a lawyer. But to begin with the Department of the Treasury points out that good contracts should  cover exactly what is required by each party, the limits to what is required, payment terms and dealing with risk: what might go wrong in the relationship and how to safeguard against this.

The WA Government’s Small Business website goes into more detail about what each of these points mean in reality, recommending the below structure:

  • Details of the parties to the contract, including any subcontracting arrangements
  • Duration or period of the contract
  • Definitions of key terms used within the contract
  • A description of the goods and/or services that your business will receive or provide, including key deliverables
  • Payment details and dates, including whether interest will be applied to late payments
  • Key dates and milestones
  • Required insurance and indemnity provisions
  • Guarantee provisions, including directors’ guarantees
  • Damages or penalty provisions
  • Renegotiation or renewal options
  • Complaints and dispute resolution process
  • Termination conditions
  • Special conditions


A lot of businesses can deal with contract ambiguities by having standard terms of trade which include the above.

Legalities and insurance

Once the contract is drawn up, there’s a few extra boxes you need to tick off before you sign on the dotted line. First and foremost, it’s a good idea to seek advice from your industry association, lawyer or business adviser.

Insurance policies often include a contractual liability exclusion. These exclusions are often seen in claims relating to general and products liability.

These contractual liability clauses may increase your liability in the event of a claim and it is usual for insurers to not provide cover for this increased liability.

You should ensure you read the entire contract and understand it all. Check your contracts carefully for indemnities and seek the advice of a solicitor or your broker before you sign any contracts as this is a complex area. If in doubt, don’t sign it.

You’ll also want to make sure you have adequate insurance in place in case something goes wrong, particularly if the contract you are entering into requires you to have insurance.

Your Steadfast insurance broker can  help you determine  what risks you’re exposed to on your side of the bargain.

For example, if you’re handling sensitive client data, you may need Cyber Insurance, or if you’re providing a professional service, then you might need to cover your business with Professional Indemnity Insurance.

The moral of the story is: don’t risk your business’ bottom line.

Instead, save the handshake for a ‘thanks, job well done’.

For expert help making sure you’re adequately insured, contact our office.

Important note – the information provided here is general advice only and has been prepared without taking in account your objectives, financial situation or needs. Steadfast Group Ltd (ABN 98 073 659 677, AFSL 254928). Watkins Insurance Brokers Pty Ltd (ABN 23 059 370 455, AFSL 244427)

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