Many businesses enter into terms and conditions every day without really understanding what they are agreeing to or how important they are.
They are a legally binding agreement often for goods and/ or services that set out how you are to regulate your business relationship. They tend to be a standard set of terms that are often prepared by the supplier who will try to insist on their standard terms being used.
The key things for both parties to look out for in terms and conditions are:
It is important to set out how the goods are to be delivered to the buyer. Set out what is being delivered along with the mechanics of delivery of goods and/ or services.
The default position under legislation is that the goods are to be delivered at the supplier’s place of business. If this is not the commercial deal that has been made, make sure you set-out the alternative position be it at the buyer’s premises or the premises of a third party.
Detail how the goods are to be transported from the supplier’s place of business to the designated address for delivery. If the goods are delicate make sure you specify the packaging along with acceptable hours for delivery.
Notice to terminate
Make it clear how and when notice has to be given to end the contract so that you are not trapped in an unprofitable or otherwise unsatisfactory agreement.
Consider whether you want certain events to trigger immediate termination.
Set out the price of the goods or services that are to be provided, what the price includes, who is to make payment, who is to receive payment, when the obligation to pay arises and the consequences of late payment.
In case of goods or services to be delivered in instalments or over time, the dates or triggers for any payment of instalments should be set out here.
It is important to check what the price includes and particularly whether it includes the cost of delivery. If it relates to goods be careful to check whether it includes the cost of insurance and delivery of the goods.
Check the consequences of late payment. Most terms will provide for interest on late payment, usually at a fixed rate above the base rate of a bank. Terms often provide for interest on late payment at a rate of 4% above the banks base rate. If you do not set out an interest rate in your terms the Late Payment of Commercial Debts (Interest) Act 1998 provides for interest at a fixed rate which is never less than 8%.
Retention of Title
Look out for a ‘retention of title’ clause which is when ownership of the goods passes from the supplier to the buyer. It is important to understand that physical possession of the goods and/or legal ownership of the goods can pass from the supplier to the buyer at different points. If you are the supplier I would suggest you make sure that legal ownership of the goods only passes to the buyer when the goods have been paid for, not when physical possession of the goods passes. This means there is a possibility of retrieving those goods in the event of the buyer going bust without paying.
There are many terms that are implied into every contract to say what quality the goods and or services should be. The implied terms are supplemented by express terms that are set out in the contract.
With regard to goods it will be implied that the supplier has the right to sell the goods, that those goods are of satisfactory quality and that they comply with their description/ specification (or with a sample if relevant). There may also be implied a term that they are fit for a specific purpose for which they are sold.
With regard to services there is an implied term that these will be delivered with reasonable care and skill.
There are different remedies available depending on whether a fundamental or a more minor term has been breached, the nature of the breach and what the terms say about the consequences of that breach. Breach of terms which are fundamental to the contract by their nature or which the contract specifies as such (‘Conditions’) will allow the buyer to terminate the agreement whilst some lesser breaches require particular remedies.
In some very pro-supplier contracts virtually any breach can be labelled as a Condition even if in reality the breach is trivial which is very dangerous for the supplier.
As a supplier you will want to try to limit or exclude your obligations as much as possible. The supplier can do this in the exclusions and limitations section of the terms.
Limit your liability for breach
This will look at the obligations of each party to the agreement and then try to either limit or exclude those obligations.
In the main, as the only real liability of the buyer is to pay the agreed price, these limitations are for the protection of the supplier.
As the supplier I would recommend that you check there is a cap on the monetary damages that can be claimed. Also check that you have excluded liability for indirect and consequential losses.
In business to business contracts using standard terms legislation will apply a reasonableness test to exclusions and limitations that are in the terms. If they do not pass the reasonableness test they will be void.
Contracts cannot exclude or restrict liability for personal injury or death caused by negligence.
A party can also not exclude liability for its own fraud or fraudulent misrepresentation. Any attempt to exclude liability for these things may cause that section to be void, preventing either party to the agreement from relying on it.
If you want to limit liability for intentional breach of the contract that needs to be specifically stated.
It is surprising how many businesses do not have a standard set of terms. It is even more surprising how many use a cobbled-together set of terms that have been put together from documents that they have found on the internet which are inappropriate and not properly tailored to their requirements.
The key points to take away are:
- Prepare (or better, have your solicitors prepare) your own bespoke set of standard terms and conditions and make sure these form the basis of your contracts and are properly incorporated into your business dealings so that your position is properly addressed and protected.
- If someone else expects you to contract on their own standard terms and conditions, make sure you read and understand them.