Navigating Through the Contractual Minefield

Every business should have terms and conditions of sale in place. Terms and conditions regulate your business's relationship with a customer, they minimise your risk and provide avenues of resolution in the event of a dispute with a client.  The crucial point here is that a small amount of time and some legal advice at the outset, can save you a lot of wasted management time and money in the longer term.  Remember Abraham Lincoln's quote - "Give me six hours to chop down a tree and I will spend the first four sharpening the axe."  

If you are already in business, take the time to look through your terms and conditions, even if they were drafted by a solicitor, as law, time and circumstance move on.

Terms and conditions do not need to be long or complex, but they must be appropriate to your business.  When companies refer to having "standard terms and conditions", they mean a bespoke set of terms and conditions drafted just for them and which they always use, so they consider them to be "standard".  In this internet age terms and conditions are sometimes "borrowed" from the internet - but such documents often contain nasty surprises.  So ask yourself the question - are my terms and conditions appropriate to my business?  Here is a brief list of some of the main things to consider:-

• Do your terms and conditions detail what goods and/or services are to be provided? Whether this detail is to be found on an attached purchase order or within the terms and conditions does not matter - it is critical that an accurate description of the goods and/or services is incorporated into the contract.

• If there are any other documents, such as purchase orders, do your terms and conditions incorporate them into the contract? If your terms and conditions do not incorporate these documents they may not be enforceable as part of the contract.

• Do your terms and conditions limit your liability as far as permitted by law?  Your liability can be limited in most cases, but these clauses are often vulnerable to challenge and so must be drafted carefully.

• Do the payment terms within your terms and conditions detail exactly what is covered by the price (are prices inclusive or exclusive of VAT, packaging and delivery?), where any price lists can be found, when payment is due and when the customer can be invoiced?

• Do your terms and conditions state when the risk transfers in relation to any goods? If you are supplying goods you want the risk in the goods to transfer to the client as early as possible so as to minimise your risk.

• Do your terms and conditions make it clear that title in any goods will only transfer when payment is in full?  Again, retention of title clauses need to be drafted with care.

• Are there sufficient customer obligations to allow you to carry out any services? Are they bound to provide access to any necessary buildings and obtain any required licences and consents?

• Do your terms and conditions clearly state whether you own any intellectual property rights in your goods and services?

• Are your terms and conditions fair, reasonable and compliant with the Unfair Contract Terms Act 1977 and consumer protection law?

• Is Scots or English law to apply? Is it necessary to consider how disputes will be resolved -  escalation and then mediation or arbitration? If your client is based overseas, consider whether a UK court judgment would be enforceable in the client's country.

• Are your terms and conditions being used correctly - for instance, do your purchase orders expressly refer to the incorporation of your terms and conditions on the back of the order and are they there?

These are just some of the many important points to be considered when drafting, or reviewing, terms and conditions. If you would like us to draft, or review, your terms and conditions, please contact us.  Having developed your terms and conditions, you then need to ensure that you contract on the basis of your own, and not the other party's, terms and conditions.

Neil Killick

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