The terms and conditions used by a business could be said to form the cornerstone of its supply, as they create the basis upon which its contracts are formed.
A well-drafted set of terms and conditions will take into account the manner in which a business operates, and what it hopes to achieve. We will take the time to understand your business to ensure that your contracts achieve what you want them to.
What are Terms and Conditions?
The incorporation of terms and conditions into business contracts is to seek protection. A business should ensure that its terms are incorporated into its contracts. To achieve this, terms and conditions should be provided to a potential buyer (or seller as the case may be) as soon as possible. This may be achieved by including the terms in brochures, with quotations, on a website, or in other pre-contract documentation.
Generally, a business that relies upon printing their terms on delivery notes or invoices (post-contractual documentation) runs the risk that it will not be able to rely upon those terms should a dispute arise as the contract may have been created before the terms were supplied. As such, the protection that certain clauses were designed to provide may be lost. A good example is the inclusion of a cap on a seller's liability – if not properly incorporated liability will be unlimited which is a risk that could easily be avoided.
Businesses that do not have defined procedures governing their order processes should consider what steps are required to protect themselves going forward. This may be achieved by consultation with its advisors then by the implementation of set, defined procedures internally through the training and development of its employees. Often, simple changes can go a long way.
Why Use Standard Terms and Conditions?
The advantages of standard terms and conditions are well known to most businesses. By removing the need to negotiate all of the contractual terms, substantial savings in transaction costs can be achieved. In addition, well-drafted standard terms provide businesses with contractual rights that do not exist as a matter of general law. Typical examples are retention of title clauses (allowing a seller to take back goods in the event of a buyer's failure to pay) or clauses that limit liability for breach of contract.
Furthermore, terms and conditions can be used to provide essential, prescribed, information relating to the sale of goods in certain circumstances. For example, in distance sales to a consumer, a seller is required to provide information relating to who it is, what delivery arrangements are in place, and, significantly, a consumer’s right to cancel.
A well-drafted contract will not only contain those clauses that are pertinent to the supply that they are to protect, but will also take into account the internal processes of the user, and be tailored to a particular business. A business selling widgets, for example, will have different requirements to that selling software or IT services. It is not always the case that one size fits all.
It is because standard terms are often of crucial importance when things go wrong that those involved in selling goods and services need to have a clear understanding of the importance of their business's standard terms, and the potential consequences if they cannot be relied upon.
Standard terms are by no means a "cure all" - it is important that they are well drafted, kept up to date and reflect not only changes in the legal landscape, but also working practices. However, their relevance to managing the commercial risks that go with any venture cannot be understated. Understanding what standard terms are designed to achieve and the issues that impact upon their validity and incorporation, particularly in the e-commerce area, should be central to the effective management of any business that seeks to rely on them.
Negotiating a Contract
Almost the first task any lawyer will undertake when faced with a commercial dispute is to identify what and whose contractual terms apply. If there are standard terms, the next question will invariably be whether it can be shown that those terms are validly incorporated into the contract. A good way for a business that uses standard terms to check its prospects of successfully incorporating those terms is to ask itself a series of questions:
- Do we provide copies of or refer to our standard terms before or at the time the contract is entered into?
- Do we have a signed document containing or referring to the terms? Alternatively, can we show we took reasonable and sufficient steps to bring our standard terms to the other side's attention?
- Do we refer to standard terms in our quotes and do we issue sales/purchase orders that also refer to the standard terms?
- Do we understand what is meant by the "Battle of the Forms" and what steps we should take if standard terms are received from the other side?
A business that maintains good records and can answer these questions in the affirmative will have gone a long way to being able to demonstrate the incorporation of its terms. A business that relies upon printing their terms on delivery notes or invoices (post-contractual documentation) runs the risk that it will not be able to rely upon those terms if there’s a dispute.
Consider including a “prevail clause” in your terms and conditions, stating, for example, that your standard terms and conditions are incorporated into the contract to the exclusion of any other party's terms and conditions and that your standard terms prevail. This won’t necessarily succeed alone, for example, where the other side makes a counter-offer, your standard terms and conditions, including the prevail clause, will be by-passed and won’t form part of the contract. This is because your terms and conditions will have effectively been rejected by your counterpart and replaced by their counter-offer.
Prevail clauses are still used as a means to pressurise the other side into taking the line of least resistance and accepting the standard terms as a fait accompli. However, a belt and braces approach is safer. Where the other side aims to rely on such a clause it is perfectly reasonable to reply by reiterating that your terms and conditions apply. Other important things to remember with negotiations, includes:
- Keeping written records of all contract negotiations. Ideally, minutes of meetings should be signed by all present
- Emphasising that no contract can be agreed until any disputed terms are ratified. Stipulate which terms are outstanding
- Allowing a contract to be concluded verbally. Ensure that any meetings or telephone calls are confirmed as being conducted on the basis of your company’s terms and conditions or “subject to contract” to prevent any agreement before a written contract is signed
How to Include Terms and Conditions in a Contract
Below is a series of other practical steps that could be considered to gain the advantage, the key theme being that parties must be clear about the terms of which they are doing business. Although these steps won’t guarantee your company's standard terms and conditions prevail, they may give you an advantage. There is no single overriding rule that trumps all in battle of the forms cases, but the following should help:
- Always send the other side a clear and legible copy of your term and conditions together with your order/acknowledgment/supply forms and state clearly on the face of your order/acknowledgment that you rely on those terms and conditions.
- When writing to the other side to agree an order, include a copy of your terms and conditions with the letter or email. Stipulate that you are offering to contract on those terms.
- Don’t take for granted that your terms and conditions apply. Although you may have been doing business with the other side for several years, don’t assume that a court will accept it’s on notice of your standard terms and conditions. Whenever you enter into a contract, ensure that your terms and conditions are included.
- If you send a purchase order/invoice electronically, make sure you don’t omit the back page setting out your standard terms and conditions. Ideally, attach a copy of your terms and conditions as a separate document.
- Actively bring the counterparty’s attention to your standard terms and conditions.
- Alert the other party on the front page of your pro forma documents, such as purchase order/invoices, email or letter footers, to your standard terms and conditions and where they are found, for example, on your website and/or as attached.
- Clarify in writing that your terms and conditions are the only terms upon which you are prepared to do business.
- Avoid a battle of the forms. If the other side responds with their terms and conditions, clarify by return firstly that you don’t accept their terms and secondly, your terms and conditions represent the only contractual provisions on which you will proceed. Respond to/reject counter-offers.
- If the counterparty replies to your offer ambiguously or doesn’t accept your offer, the court may later treat their communication as a counter-offer, which if it is treated as the last shot, could prevail.
- Contracts can be concluded by performance. Avoid premature acceptance of the other side’s terms and conditions by conduct. For example, terms of a contract can be finalised by one side unintentionally accepting the terms of a draft agreement before formal approval or signature. This could be by supplying or paying for the goods or services, accepting delivery of goods, or acting otherwise in line with the terms of the counterparty’s draft contract.
- Be aware that if one side proceeds without a clear written agreement and performs the contract, they risk a deemed acceptance of the other party's terms.
- Fire the last shot in the “battle”. The other side’s terms and conditions could prevail if they were the last shot, or where they were sent to you and, they weren’t rejected, answered with a counter offer, or where the contract was performed without more.
- A tactic that worked in B.R.S v Arthur V. Crutchley Ltd was where the supplier delivered whisky to the buyer’s warehouse. The delivery note set out the supplier’s T&Cs. However, the buyer’s warehouseman stamped it “Received under [the buyer’s] conditions”. The Court’s decision was that the warehouseman’s rubber stamp constituted the last shot of the battle. The buyer’s T&Cs prevailed. The stamp represented a counter-offer that the supplier was taken to have accepted by its performance in handing over the goods.
- The safest policy is to identify and resolve any dispute about term and conditions directly in negotiations with the other side. However, there may be the temptation not to jeopardise a prospective deal or future custom by risking controversy. This involves what may be a greater risk down the line of the terms and conditions being unclear, with an argument as to whose apply, or whether neither applies.
- Specifically negotiating the terms avoids the uncertainty of putting this off. If the seller’s terms and conditions are accepted, then agreed variations can be set out in a side letter. On the upside, when an agreement is reached in this way, everyone knows where they stand legally. The downside is that negotiating the contractual terms may be costly and time-consuming.
A well-drafted set of terms and conditions will take into account the manner in which a business operates, and what it hopes to achieve. Your legal adviser should take the time to understand your business to ensure that your contracts achieve what you want them to. Advice at the beginning can avoid pitfalls down the line, which could be expensive and involve court proceedings.
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