Many businesses have a document which sets out their Terms and Conditions. In practice, however, many businesses fail to incorporate those Terms and Conditions into their contracts and so they are not afforded the intended benefits of those terms.
This article considers when a contract is formed; how you may ensure that your Terms and Conditions are incorporated into your contracts and gives some practical advice upon how to avoid some common mistakes which we see in practice. We have also provided some guidance as to how to how to deal with onerous terms.
When a Contract is Formed
It is essential for every business to understand when a contract is formed.
In a commercial situation, a party will often make an offer to another party to sell or purchase certain goods or services. It will then be for the other party to decide whether to accept that offer. If they accept the offer then a contract will usually be formed at that point. For the purposes of this article, we shall refer to this as the ‘Formation Point’.
It is important to appreciate that in most cases a contract does not need to be in writing. It can be made orally. There are some notable exceptions where writing is required – for example, contracts relating to the sale of land.
In order for your Terms and Conditions to be incorporated into a contract, they need to have been agreed at the Formation Point.
Usually, you cannot include terms after the Formation Point unless the other party agrees (and the contract is thereby amended).
How can you try and ensure that that your written Terms and Conditions become part of your agreement with the other party?
There are various ways of doing this:
1) Signed terms. Ask the party with whom you are intending to contract to sign a copy of your Terms and Conditions and declare that they are to apply to all dealings between you.
2) Other written acceptance. Obtain some other written confirmation that your Terms and Conditions are to apply to dealings between you – for example, a letter/email or (if you are dealing online) have the other party tick a box to confirm that your Terms and Conditions are agreed.
3) ‘Incorporation by reference’. Terms may be incorporated by being printed on or referred to in the contract. For example, if a customer signs an order form which states that your Terms and Conditions apply and those terms are either attached or are said to be found at a website address.
4) Acceptance by conduct. This would occur in a situation where you provide your Terms and Conditions to the other party and, whilst they are not expressly agreed or rejected, the parties act in a manner which shows they have been agreed. An example of this is where you supply goods to a customer and the goods are delivered and payment is made in accordance with your Terms and Conditions supplied beforehand. In those circumstances then the conduct of the parties may be evidence that your Terms and Conditions formed part of the contract. This is an option which is normally only raised when there is a dispute and the party seeking to rely on the Terms and Conditions has failed to use 1 to 3 above.
5) Previous dealings. If you have dealt with the same customer before and provided your Terms and Conditions to them previously (e.g. on the back of an invoice) then you may be able to argue that your further dealing with them was upon your Terms and Conditions. Again, this is normally something that is only raised in the context of a dispute as to whether Terms and Conditions have been incorporated and where the party seeking to rely on them is not able to rely on 1 to 3 above.
6) ‘Battle of the Forms’. If you send your Terms and Conditions to another party and they then send their Terms and Conditions to you and you then supply goods to them then it may well be found that the other party’s Terms and Conditions apply (and that you accepted their counter-offer on their terms). To seek to avoid this, if you receive Terms and Conditions from a customer then send (or re-send) your Terms and Conditions to them before supplying the goods so that you can (at least) argue that your terms apply. In circumstances such as this there is a risk that a court may say that neither set of terms apply. It is best to address matters at the outset and seek an express agreement rather than ‘playing games’.
1) Not sending Terms and Conditions out at all
Many businesses have Terms and Conditions but do not have them printed on or referred to in their contractual documentation. This is the equivalent of simply leaving them in a desk drawer. They will not provide the intended benefits and/or protection.
2) Sending terms after the Formation Point
As set out earlier, if you send your Terms and Conditions after the Formation Point, then they do not form part of the contract: unless you can rely on previous dealings with the other party.
By way of an example, if a customer contacts you by telephone and makes an offer to you during that telephone call and you accept that offer during the call, then the Formation Point is during the telephone call and the only expressly agreed terms will be those agreed during the telephone call. Often people will agree a contract on the telephone and then follow the telephone call by sending the Terms and Conditions. If it is not agreed during the telephone call that your Terms and Conditions are to apply then the Terms and Conditions will not be included in the contract (unless the party can rely on previous dealings).
In this context, a common error is to seek to rely on Terms and Conditions set out on the back of an invoice. An invoice is usually a post-contractual document: i.e. it is only created and sent after a contract has been formed so that their Terms and Conditions will not be incorporated and the party seeking to rely on them will have to hope that their Terms and Conditions can be incorporated on the basis of previous dealings between the parties.
3) Being unable to show what has been agreed
In business it is commonly the case that parties reach oral agreements. Most of the time the parties keep their promises and no problems ensue. In those cases where there is a dispute, the party seeking to rely on their Terms and Conditions will have to prove (on the balance of probabilities) that their Terms and Conditions were incorporated. We would suggest that you consider making a contemporaneous internal record of the agreement reached (e.g. a file note); promptly record the agreement reached in writing (e.g. by sending an email/letter); possibly consider recording the conversation (to use if the customer denies it was agreed that the Terms and Conditions were incorporated) and consider making the agreement conditional on the other party providing written confirmation that your Terms and Conditions are agreed.
Would you give away your first born child for free WI-FI?
In a recent experiment, many people agreed to a term that they would give away their first born child for free Wi-Fi and it was concluded (or perhaps hoped) that they did not read the Terms and Conditions.
The fact that people do not always read Terms and Conditions means it is tempting to put in terms which are onerous (e.g. a clause seeking to totally exclude all liability under a contract).
In this context it is important to appreciate that even if your Terms and Conditions are incorporated into your contract, if you wish for the other party to be bound by an onerous or unusual clause then you will have to show that you fairly and reasonably brought it to their attention. The more onerous the term, the more it has to be drawn to the other party’s attention.
In a leading case where someone tried to rely on an onerous clause, the Court of Appeal said that in order for the other party to be bound by it:
“it would need to be printed in red ink with a red hand pointing to it or something equally as startling”.
Each case will turn on its own facts and a court would take account of all the relevant circumstances. For example, terms common in an industry are less likely to be thought ‘onerous’ and a term may not be onerous where the other party is aware that terms of that type are, or are likely to be, present.
If you intend to include an onerous term in your Terms and Conditions then you should ensure that you bring it to the attention of the party with whom you are dealing.
In summary, there are three key practical points to take away from this article:
1) Provide your Terms and Conditions prior to the Formation Point and (where possible) have it expressly agreed in writing that they will apply to all of your dealings with that customer.
2) Always record in any agreement reached that your Terms and Conditions are to apply.
3) If you are seeking to rely on an onerous or unusual term then ensure that it is fairly and reasonably brought to the attention of the other party prior to entering into the contract.
If you have any issues in relation to incorporation of terms, then please contact our Dispute Resolution Department on 0800 0284 396.