Pro Legal

Expect the best, plan for the worst and prepare to be surprised

It is important for every business to have formal Terms of Trade. When comparing large businesses to small, it’s fair to say the larger the business the more likely it will have written Terms of Trade.

While there may be some who have operated for a substantial amount of time without written Terms of Trade and have never had cause to require them, every business should “expect the best, plan for the worst and prepare to be surprised.”

Terms of Trade should set out the conditions and agreements that the business and the customer have made at the commencement of a transaction including the obligations of the business and the customer (if any). This benefits both the business and the customer – the customer enters the relationship with realistic expectations and the business has defined the standards it intends to meet.

Benefits

Well drafted Terms of Trade should assist a business in resolving issues with a customer. For example, the terms can help a business to collect debts, should the need arise, and should also specify:

  • How the price will be determined (if a quote is not given);
  • When and how payment is to be made;
  • Consequence of non-payment, such as penalty interest on unpaid amounts and the ability for the business to recover its costs in collecting the debt from the customer.By recording these matters at the outset, the customer cannot refute them or argue that they do not apply, or they did not agree to them.Tailor-madeWhile it’s possible to download a template form of Terms of Trade, it is advisable for each business to tailor their Terms of Trade to their specific circumstances and requirements.For example, the question of liability should be included in Terms of Trade and “one size” may not fit all. The question of liability will first be dependent on whether it is a “business to business” or a “business to consumer” sale.

Business to Business

The Consumer Guarantees Act 1993 (CGA) will not apply and it is therefore important to specify the businesses potential liability and the extent that liability is to be excluded. For example, a business may wish to exclude liability for losses suffered by a customer that could not be reasonably foreseen. A business may also wish to limit its liability to a specified dollar amount or to exclude liability completely.

Business to Consumer

The CGA will apply where a business (acting in trade) supplies goods or services to a consumer. Where the CGA applies various warranties will automatically be implied into the contract between the business and the customer. Importantly a business cannot contract out of the CGA when dealing with a consumer.

Notwithstanding that the CGA may apply a business may still want to limit its liability for example for “indirect” or “unforeseen losses”. However, if a business does this it must then be determined whether the Terms of Trade are considered a “standard form consumer contract” and whether any of the terms are “unfair contract terms”.

Acceptance of Terms

It is important to be able to evidence that a customer accepted the Terms of Trade. A business may have well drafted Terms of Trade that provide them with all the protections required however this will be of no use if it is unable to show that the customer had agreed to the terms.

For example, a business that prints its terms on the back of an invoice may have difficulty proving that the customer accepted them. The obvious issue here is that a customer may claim that the first time they saw the terms was on receipt of the invoice, after the transaction had essentially been completed and may argue therefore that they never accepted the terms.

Where a business provides quotes, good practice would be to specify that accepting the quote constitutes acceptance of the businesses Terms of Trade, which should be provided with the quote.

The obvious way to evidence acceptance of the Terms of Trade would be to have the customer physically sign those terms prior to commencing work. It is accepted however that this may not always be appropriate however emailed confirmation from the customer accepting the Terms of Trade would also suffice.

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