Get your terms & conditions right

By Adam Bernstein, Monday 27 November 2017

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Commercial law is extremely complicated and drawing up sufficiently precise set of T&Cs is both essential and difficult. Ensure yours are right.

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Few ever feel the need for a written set of terms and conditions when business is going well. After all, what can go wrong? But the second a relationship turns sour the need for documentation becomes apparent. And just like insurance policies, contractual terms and conditions are only ever read in times of crisis.

So, consider a hypothetical situation outlined by Nicola Langley, a commercial solicitor and head of legal at the BPIF: “A customer is a marketing agency and their customer is an art gallery. The agency asks you to print and mail invitations for an exhibition at the gallery.

The print cost is £2,000 and postage is £10,000. The job is delayed following mechanical breakdown and so the invitations are posted late and arrive after the exhibition. Your customer claims the date for posting was a term of the contract, you are breach of contract and therefore liable for costs including consequential loss.”

In this scenario,” says Langley, “you don’t get paid, have to reimburse the postage and cover the marketing agency’s loss of profit and possibly even the cost of the exhibition.”
Philippa Dempster, a commercial and disputes partner in Freeths, considers terms and conditions as essential to prevent disputes arising while capping liability. She says that “they are a handy suit of armour with a shield as well as a sword... and they can be used to set out roles and responsibilities and to allocate risk.” Louise Hebborn, a partner and commercial solicitor at Stephensons, agrees. From her perspective, terms are a record “of what your business agreed to provide and how and when your customer agreed to recompense you”.

With terms and conditions each party knows their rights and obligations in the relationship. Further, without terms it will not always be clear where any responsibilities lie – with the customer, the printer or a third party. This is why Dempster says that “being able to point to a paragraph in your terms and conditions to show you are not responsible can be very powerful”.

She adds: “The most important aspect, however, is that without terms and conditions general law applies and liability will be uncapped.” A point bluntly echoed by Langley: “Without being able to rely on standard terms and conditions, a printer may find that they have unlimited liability for losses caused to the customer by any breach of contract.” This could be more than the initial value of the job as illustrated in the example above.

Hebborn looks at it from another angle – provability. “It is possible to operate without terms because an oral agreement is as enforceable as a written agreement. But when legal action is required a lack of paperwork will not help a court identify what was originally agreed.” Here courts have to decide on whose argument is the more persuasive.

The importance of having terms properly written cannot be overemphasised by Dave Mullett, credit control manager at paper supplier Elliott Baxter (EBB). He’s learned from bitter experience the need to have correct terms. He says: “I cannot recommend any business publish theirs without having had them read and approved, or ideally written by, a competent commercial lawyer... our terms will not let us down in any given situation”.

Terms to include
Printers need terms that are appropriate for their customers. As Langley says, “if your customers are consumers, then they will have lots of statutory rights that you cannot circumvent by what you put in your contract, especially if they are buying from you over the internet, the telephone or by post.”

She adds that business customers also have rights – any exclusion or limitation of your liability in terms is reasonable if it follows the Unfair Contract Terms Act.

Looking at the most obvious first – non-payment – Dempster says firms need to reserve the right not to print if they haven’t been paid for a previous job or if the customer is insolvent. She adds that it surprises many to know that despite a contract being in place, a failure to pay on time is not a good enough reason to put a client account on stop – only a contract gives this right. “Also,” says Dempster, “reservation of title means you still own the printed goods after delivery. This could be a very useful bargaining chip, if the worst happens, when dealing with an insolvency practitioner.” She explains that general law offers little protection; only terms give leverage to ensure payment. Similarly, she suggests adding the right to a ‘lien’ – the right to hold on to the goods until paid for. Practically speaking, Mullett says that insolvency practitioners will “generally not allow access to an insolvent business in order to exercise retention of title clauses without agreeing the validity of the terms and conditions”.

Terms must also address the method and timing of payment, any deductions and set off that may apply. Hebborn says that getting this wrong can leave a business “without any option but to absorb the loss and the cost of legal assistance which could be more than the invoice for which you originally demanded payment.”

Printers should also look at claiming any additional costs, for example, if the paper provided is of poor quality causing web breaks or the tip-ons aren’t suitable – having a specification and/or restrictions on numbers of enclosures could prove very useful too. There should also be a right to claim standing time and other costs if delays occur.

Liability is a huge concern for Dempster, especially for damage to property as well as the printing itself when delivering finished items. Here she advises printers to not be too clever by excluding liability altogether as this is unlikely to be enforceable. But where liability is to be accepted, printers need to give thought as to what they are prepared to be liable for: “Is repair of copy or reprint something you are prepared to pick up? But what about loss of profit or damage to goodwill? And who carries the risk for customer’s materials such as paper or tip ons?”

Remarkably, limitation of liability and exclusion clauses are often overlooked. Says Dempster:“If I had a pound for every time a businessman said ‘I don’t have any liability because there is nothing in the contract about it’, I would be very rich.”

And then there are considerations for anyone involved in design work such as who is responsible for checking the accuracy of the copy and images; and when copy is required and where it’s late, that the printer cannot be held accountable for timely delivery.

“But what about ownership of any copyright? You may wish to include something on this,” says Langley. Allied to this she asks what happens to source material supplied: “Where a printer receives electronic files from their customer and there is no term of the contract dealing with what happens to files once the job is finished. A clause should be included to specify whether it is to be returned, stored or destroyed.”

Dempster says printers also need to give thought to those situations where they are unable to perform following events beyond their control. “This,” she says, “is known as ‘force majeure’ and covers the obvious such as fire, flood and terrorist attack as well as less obvious such as interruption in power supply or utilities.”

There’s also the question of which law applies and how any dispute is to be resolved. This is often forgotten about and while it isn’t a problem where both parties are based in England and the goods are being delivered in England, any foreign element to the deal can cause complications and extra cost. Brexit risks are real concern to many.

Lastly, and important to Hebborn, terms need to address a multitude of minor issues: how are notices to be served on either party; how clauses found to be unlawful and removed will leave the agreement enforceable; that changes to the agreement must be made in writing; that no statements or representations made by either side prior to the contract will apply; and that third parties to the contract claiming any rights have those rights restricted.

It’s no understatement when Hebborn says: “There have been lengthy books written on contract law and it’s a minefield for the uninitiated.”

But when drafted properly terms are invariably accepted. As Mullett points out: “It is very rare for a client to question our terms. Even then, generally the only question would be over payment terms as we stipulate payment on the last working day of the month following the month of invoice.”

Enforcing terms
Having terms is one thing, but enforcing them is quite another. As any lawyer worth their salt knows, for terms to be enforced they must form part of the contract. This means that they must be known by the customer at the time of the contract being formed and must be accepted either expressly or by conduct. Dempster says that it’s possible to incorporate terms into the contract if they appear only on the invoice. “However, unless the invoice is proforma and sent when the contract is made, just having terms on invoices can often mean that the customer does not know about them. For a court to decide that the terms and conditions apply you would have to show many invoices have been sent on a regular basis with the terms and without any objections or counter terms being received.”

The best solution is to have customers agree to terms as part of any credit approval.

Alternatively, they should be sent with all estimates or quotations and when acknowledging orders. EBB, for example, takes both of these steps. Mullett explains: “Our terms are presented when a formal application to supply is made. And upon signing the application the potential customer is confirming receipt and acceptance of our terms. Should the client be successful in obtaining a credit account, a further copy of our terms is despatched with a welcome letter.” EBB then refers to its terms on every invoice with an indication of the web address to use in order to view them in detail. They are also printed on each price list supplied to customers.

But there is a potential problem, which Dempster, Langley and Hebborn collectively term as the ‘battle of the forms’. The general rule is that the terms delivered last before the contract is made, win out. So, if a printer gets a customer’s order with their terms on them, before the printer accepts the order it must rebuff those terms.

But while proper documentation is one part of the equation, actual enforcement is the other. Here Hebborn advises against inaction “to avoid any argument that specific rights and obligations have been waived by inaction”. Of course, how they should be enforced will depend on the specific circumstances and the view the printer takes to commercial relationship.

To end
Not having good T&Cs of business is a fundamental schoolboy error that so many make. As Mullett comments: “The pain and cost involved initially with regards solicitors drafting terms will usually be repaid by the money saved on occasions when they are called upon to resolve disputes.” Investing in a strong set of T&Cs makes economic sense – “in fact,” says Dempster, “it could be the most valuable piece of paper that a printer could ever have.”

 

TERMS & CONDITIONS: Getting the basics right

Sources of advice
●    The BPIF offers all Gold and Platinum members telephone and email advice on any commercial contract dispute. Further, the BPIF has a ‘Model Standard Terms and Conditions’ available to members that can be downloaded from its website together with guidance notes for later use.
●    If you need to find a good solicitor, apart from seeking recommendations from colleagues (and rivals), you could also look at the Law Society’s own website -
solicitors.lawsociety.org.uk. This is applicable for any matter, personal or commercial. Selections can be made according to practice area, location, whether you’re after a given individual or firm, and whether you want someone specialising in more than one practice area.

Constructing a set of terms and conditions
●    Keep it simple. The prime motor for being in business is to create profit and wealth and many lose sight of the fact that all documentation, including the contract, is part of the sales process. While commercial considerations are by their nature different from those for consumers, contracts should be written in plain English so that they are clear and understandable by everyone. Remember, not all in business are able to decipher ‘legalese’ and it can look as though the business has something to hide. If terms cannot be understood they’re more likely to be sent to a lawyer for decoding and that may not end well.
●    Lawyers charge for their time and so it’s far more cost-effective to think about what terms you want in a set of terms and conditions before talking the matter through with a lawyer. Research via the internet and reading terms you have received will give you a greater idea of what you will be wanting to talk about without the unnecessary cost of walking through the basics with an expensive lawyer.
●    Terms should be written by a lawyer who has taken the time to get to know and understand your business – on all levels. This will undoubtedly mean them spending time with several departments from finance to sales to understand their perspectives. It’s important that the finalised terms chime with the message that the business puts out generally about its standards and principles.
●    Be on brand. Just as firms have a corporate identity, so that identity should be conveyed through their terms and conditions. Some take a formal line, others are simpler and couched in plainer English. That said, no matter which tone is used, terms and conditions are a serious matter and they need to attack all of the points of concern.
●    Terms do more than protect a business, buyer or seller, they also help to build trust. While some terms are blunt, others may well have a benefit to the other side so explain them if necessary. For example: “We will not trade with a company that has been through a pre-pack insolvency unless certain conditions are fulfilled. This is to ensure that we minimise losses and keep costs down for all customers.”
●    Terms should be easy to read. While a commercial contract will take a different approach to that for a consumer, and all contracts need to be properly incorporated, printing them in a small font with a light grey ink on a coloured background won’t make it easy for the other side to digest the contents. Similarly, consider breaking the text up so that it both leads the eye and makes it less of a chore to read. Remember that you’re setting out the relationship and not trying to create the impression of trying to mislead the customer. Where your terms are being read online, bear in mind that readers are more likely to skim looking for key words. Also, keep in mind that the terms may be read on smartphones and tablets.
●    The advance of the web is altering the propagation of terms and conditions and there is a growing practice of putting them on a website. Generally, this won’t incorporate them unless there is a clear reference to the terms and their website location when placing the order - which customers must see before the contract is accepted. A solution is for the reference to be prominent and not just buried at the bottom of the email or in the footer.
●    There is a danger that staff may use the standard terms without reference to the company’s legal department for transactions for which they are not appropriate. As a safeguard against this, companies can, for example, establish procedures whereby proposed contracts over a certain value using the company’s standard terms are seen by the legal department before they are issued.
●    It’s important to keep in mind that the use of standard terms cannot be relied on in place of commercial measures such as the maintenance of good credit or quality control procedures: they should be in addition to, rather than in substitution for, such measures. Relying on terms and conditions can be likened to locking the stable door after the horse has bolted as you’ll have chase the monies with a threat of legal action. It’s much better to trade only with those you can trust.
●    Apply thought to how you will actively pursue breaches of a contract. Will you go to law or could alternative dispute resolution and mediation work better? It’s entirely possible that there is a genuine fault at your end which isn’t being communicated. Talking the issue through via a neutral third party may lead to both resolution and the preservation of the commercial relationship. Lawyers can help here.

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