Some businesses are beginning to wonder, despite initially showing the best intentions, how generous they really ought to be to customers preferring to hold on to their cash in these uncertain times.

We like to think that we all pull together and help each other out in times of crisis, but there comes a point when people might feel that they need to make a choice between saving their own business or somebody else’s. It is then that they start to examine the small print of their relationships with their customers to work out exactly how and when they are able to enforce payment obligations. This often involves blowing the dust off hitherto-overlooked standard terms and conditions.

The first thing to point out

Solid terms and conditions are always important, not just when a pandemic causes mayhem. They are often not given the focus they deserve, partly because by their very nature they become just part of the wallpaper in the background of a run-of-the-mill transaction when there are enough other things to think about like agreeing a price and supply chain practicalities. Many companies will put a great deal of time and effort into bespoke terms for an individual deal for various reasons, whether based on value, strategic importance, or just awkwardness of the arrangements or other party, yet not consider the terms used for the vast majority of the company’s deals to be particularly worth updating regularly or nailing down as best they can be. Standard terms and conditions, used properly, will apply again and again and again, making for a more attractive return on investment than many realise. Whilst each transaction may be relatively small, in aggregate they will likely exceed any individual deal and cumulatively the potential effect of getting them right or wrong could be massive. Unfortunately, this is what some firms may be finding out at the moment.

It is never too late to address standard terms and conditions

Nor indeed too early to review them to keep them up to date with legal changes and current issues (a year ago it would be rare to find terms which set out specific consequences in the event of a pandemic, but anybody preparing a contract now will at least be thinking whether to address that potential issue). Activity levels will differ from business to business and role to role at the moment, but if some time has been freed up there are worse ways to spend it than looking at standard terms and conditions to get your business in as robust a state as possible for when normal service is resumed.

The importance of having appropriate wording

This goes arm in arm with ensuring that the terms are properly incorporated into an agreement; it is no good having the world’s best terms only to find that when you need them most they do not actually form the basis of the contract. One mistake is to agree to provide the goods or do the work, and then only provide your standard terms and conditions afterwards, such as on an invoice. The contract will have been formed before that point, and you are in effect seeking to vary it unilaterally which the other party can prevent. Sometimes each party will try to incorporate its own terms, such as when one gives a quote stating that the offer in it is subject to the referenced terms and then the other issues a purchase order stating that the purchase is subject to that party’s own terms. Generally speaking, the trick here is to be the last one to put forward your terms before the point at which the contract is said to be finalised. Better still, openly address the situation and get the other party to acknowledge in writing that your terms in fact apply.

Vary specific parts of your terms for any given transaction.

It may well be better to have the bulk of your terms apply with some slight concessions rather than the other party’s or none at all. You should check whether the terms in question set out any requirement for a variation to the terms to be effective, such as being in writing and signed, particularly if you are the one amending the other party’s terms.

So how do terms and conditions help you get your money now?

Well the simple answer is it depends what they say. Each case will turn on its own particular circumstances and the application of contractual wording and underlying laws to them, but typically terms and conditions will stipulate the point in a transaction at which an invoice can be raised, and how long after that it must be paid. They are also likely to have some sort of consequence for non-payment, such as the ability to terminate or suspend an ongoing contract, the right to recover possession of goods, and possibly other implications such as changing future credit terms. The better your terms and conditions, the clearer your rights and the situation generally will be, and the more likely it will be that you receive payment.

There may also be other relevant provisions in the terms and conditions, such as a hire contract expressly addressing the situation where the equipment being hired can no longer be used. Many contracts contain “force majeure” provisions which generally speaking seek to suspend any obligations which cannot be performed for reasons beyond a party’s control, or exclude liability for non-performance in such circumstances. However, the wording of the particular clause would need to be considered carefully; the coronavirus pandemic might prevent one party from performing its obligation to supply goods, but can it be said to be preventing the other from paying for them?

Underlying laws?

There may also be underlying laws which affect the application of the terms and conditions, such as frustration (where basically an obligation has become impossible or at least radically different through nobody’s fault) or supervening illegality (where a law, which may be the law of a different country, prohibits performance). These potentially provide a way out of doing what you agreed to do, which may include or impact on payment obligations, but in line with the general premise that parties should be held to their bargain the threshold for applying them is relatively high.

In the absence of terms and conditions

Or any other formal written contract, all is not lost. Aside from some specific exceptions with formality requirements, contracts do not need to be in writing or any prescribed form. You may have heard that oral contracts are not worth the paper they are written on, but that is not necessarily true, it just might be harder to be sufficiently certain about, and ultimately prove, what the terms of the contract are. There might be enough not disputed or clearly evidenced in some way to set out at least the key terms in question, such as the contract price and when it is payable, even if other potential arguments around issues such as returning goods or terminating the contract might indeed be more problematic.

If the bones of a contract are there

The meat will often be provided by inferring the intention of the parties and/or implying provisions in accordance with legislation. Even where the price for goods being purchased has not been agreed the Sale of Goods Act fills the gap by requiring the buyer to pay “a reasonable price” (whatever that might be). That statute also implies other terms, such as relating to the quality of what is being sold, but is not the only legislation which might help. For example, if it can be shown that a payment is overdue, then often the receiving party will be entitled to apply interest at the rate of 8% above the Bank of England’s base rate and reclaim certain debt recovery costs under the Late Payment of Commercial Debts (Interest) Act. Even if the interest and costs are not ultimately claimed, companies sometimes threaten to claim them but then agree to forego this entitlement in return for payment then being made. That way the paying party is incentivised to pay and the receiving party often does not feel like it is giving anything away because it did not envisage being paid that extra money.

Which leads on to one final point

Always remember that there is a balance to be struck. Whilst you may be entitled to enforce your contractual terms strictly, a little forbearance can go a long way. Not only will you earn commercial goodwill which may be invaluable later, but being too draconian may force your customer into some form of insolvency leaving you unable to recover much if any of your outstanding money and without one of your customers. 

If you would like further information relating to the points raised in this article, or assistance from Lupton Fawcett with your terms and conditions, please contact Ben Clay or any of our commercial team members.

If you are concerned your business has made errors in the uptake and administration of the coronavirus job retention scheme (CJRS) or are facing the prospect of a Furlough Fraud investigation by HMRC, our team of Furlough Fraud Investigation Lawyers can offer you tailored legal advice and specialist representation.

Please note this information is provided by way of example and may not be complete and is certainly not intended to constitute legal advice. You should take bespoke advice for your circumstances.

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