Commercial lawyer Jo Tall looks at the importance of terms and conditions and shares the recipe for success.
If there is one thing that truly gets me down as a lawyer, it is people running businesses without proper terms and conditions in place or worse still, blindly signing up to terms without even reading them! You may be thinking to yourself “of course I would never do a thing like that!” However, in the heat of the moment, strange things happen.
Take for example, a multi-million pound company who was so thrilled by the prospect of the orders streaming in, that they didn’t check the terms and conditions and just signed the contract presented to them. Then the market for their goods changed and they found they were locked into accepting orders at a price that meant they made a loss on every order. I was called in to the rescue and imagine their faces when I had to report that the contract had no termination clause and they were locked in forever!
Then there was the case recently of an on-line company that deliberately put a term in their contract that by placing the order the customer thereby sold their soul to the company! This was simply to test whether customers actually read their terms. Surprise, surprise: no one noticed these rather unusual terms and conditions and orders kept streaming in!
SO, please add terms and conditions to your new year’s resolutions and, in particular, only sign up to terms you have read and that you understand.
Are terms and conditions legally binding?
This is a vast topic, but in a nutshell, terms and conditions are legally binding as long as they have been provided to the party concerned BEFORE they agree to the deal or pay. You can do this by providing a tick box with words along the lines of: “I confirm I have read and understood the [Terms of Business]” and provide a link to the actual terms. It is also important to provide a further copy of your terms and conditions in your order confirmation, so that the customer is left in no doubt as to what the terms are.
Here are a few pointers to key provisions you will need as a minimum for your terms and conditions:
What is the term of the contract?
How long do you want to provide your goods or services for? Do you need a minimum term when both parties are locked in? Will the contract renew automatically, if you don’t let the other side know you want out?
How can the contract be terminated?
Usually, contracts set out four types of circumstances:
- No fault termination: Where neither party is at fault and you simply want to end the relationship. In this case, check how much notice both parties need to give and that the period is long enough to enable you to deal with the change. This is particularly so if you are the supplier and you need to give notice up the supply chain to your own suppliers.
- Termination for breach: Where there is a breach-this is a huge subject in itself, but my simplest advice is to think through all the possible scenarios of what could possibly go wrong and spell out what should happen in that instance. Do not leave it to assumptions. Say what you expect the other side to do to remedy the situation and how much time they have to do so. Are there any breaches which are so serious, that you can terminate instantly? If so, spell out those instances too.
- Change of circumstances: Where there is a change in status e.g. one party goes into liquidation, commits a criminal offence or simply gets ill or dies-often this entitles a party to immediately terminate the contract.
- Force Majeure or ‘Act of God’: this is where something happens that is beyond the control of either party and means that one party is not be able to perform its obligations under the contract. The ash cloud is such an example or even the pandemic in some circumstances. If the situation persists for a certain amount of time-usually 30 days- either party can terminate without being in breach.
What are the payment terms?
If services are involved, customers may ask to pay in stages on completion of certain milestones. In that case, you will need to provide what constitutes acceptance or achievement of the milestone. You also need to state how payment is to be made and what happens if it is late? Is interest chargeable, can either party walk away for breach and/or demand goods back or down tools?
Don’t forget extras such as delivery costs & VAT – These cannot be added without warning beforehand. If dealing with business customers, you need to state the VAT separately.
When does ‘risk’ in the goods pass?
Whilst you may be happy to continue to own the goods you supply until you receive payment from the customer, you may wish for the ‘risk’ ( i.e. the legal responsibility in the goods) to pass to the customer the moment they leave the factory. This needs to be clearly pointed out so that they can take out appropriate insurance. Sometimes risk will pass at a later stage e.g. when loaded onto a ship or given to a courier. You may need to consider the internationally recognised INCOTERMS which are a shorthand for different freight situations and determine when risk passes.
What is each party’s liability if there is a breach?
Most contracts envisage a financial cap and only allow the other side to recover ‘direct losses’ and not ‘consequential losses’. Again, don’t just use these terms on their own; spell out what you consider to be direct loss and what is excluded. There are so many possibilities. Remember also, that you cannot exclude your liability for injury or death as a result of your negligence or for fraud. You may have seen contracts that attempt to do this, but theses clauses are illegal and have no legal standing.
The importance of a terms and conditions lawyer
This article has only touched on a few of the issues with terms and conditions and already you will have seen how many further questions these produce in turn.
It’s important to find a terms and conditions lawyer at the outset of your business dealings rather than when things go wrong. As a commercial lawyer, I often find myself dealing with terms and conditions. Even if you are dealing with a large corporation and it’s a ‘take it or leave it’ situation, I can help point out any red flags so that you know what you are agreeing to. It’s an area I know lots about, so do get in touch if I can help.
A well drafted contract with clear sections for the different stages of the customer journey, should become a handy tool to refer to for you and your staff-just like a recipe book. You may not leaf through your terms and conditions with your mouth watering, but at least you will sleep well:)
