We often have businesses come to us with “off-the-shelf” terms and conditions and it is often the case that they simply do not reflect the way the business operates nor do they reflect the risk profile of the business. It is important to ensure that your terms are specifically written for your business as If they do not reflect your business needs, then they may be of limited value.

Please be aware that this article applies to business to business arrangements only. Whilst many of these concepts will also apply to business to consumer arrangements, if you have any questions on either, our qualified lawyers are able to help.

Companies should seriously consider whether it is worth taking the risk of purchasing “off-the-shelf” terms and conditions without being fully aware of the legal and commercial impact this may have on its business. For example, companies should consider whether:

• Its liability has been apportioned appropriately under the contract.
• The off-the-shelf product is up to date and if so, whether it complies with the most recent legal updates under both legislation and common law.
• The terms and conditions reflect its company’s sales and purchase processes.
• There are any company policies which it would expect the other party to comply with.
• The off-the-shelf product fails to include critical clauses including limitation of liability, warranties, termination, and protections from exploitation of any intellectual property which is often the case.
• The terms are relevant to the company’s particular business sector, including whether they include any industry specific laws.
• The terms reflect the “company ethos” of the business.

Suppliers should ensure that their standard terms accurately reflect the sales and contract process. Any gap or divergence between the process envisaged in the standard terms and the actual process may result in difficulties if the clauses are ever to be relied upon.  Standard terms and contract processes should be reviewed regularly to ensure they accurately reflect the way your business works and your required risk allocation in order to maximise their benefit.

What are the main issues?

Limiting or excluding liability is often one of the key issues in any standard form terms and conditions. A limitation of liability clause is one which is often found in commercial contracts which sets out the maximum financial liability of a particular party under the contract and areas where they have no liability. Performance of the contract can give rise to a range of legal liabilities, including for example, breach of contract, negligence, misrepresentation, infringement of intellectual property rights, breach of statutory duty, regulatory offences and defamation. In the absence of an effective limitation of liability clause, there is no financial limit on the damages a counter party can recover. At the very least this could lead to financial pain and in a worst case scenario it could put your company out of business entirely. Given the importance of these terms it is imperative that they are tailored for your business and work for you. This is often something which off-the-shelf terms do not achieve. It is also crucial to ensure that the terms match the requirements of your insurance as some providers have certain requirements when it comes to the terms and conditions and in extreme cases may not provide cover in respect of contracts if they don’t meet the minimum requirements of your insurance provider.

One of the key variables across different businesses is the way the order process works. Different businesses have different ways that orders for goods/services are provided and approved with varying rules about when orders can be varied or cancelled. Some businesses for example require orders to be submitted via a portal whilst others require emailed orders. Again therefore it is extremely important that your terms reflect the way your business operates as if you don’t follow the contractual process, you may find it difficult to rely on the terms at a later date. It is unlikely that off-the-shelf terms will accurately reflect the way your business operates.

Both parties attention will be particularly drawn to the payment clause in the standard terms and conditions. Different businesses will have different payment terms and the payment terms need to reflect the way in which you do business. Key provisions include:

• The length of time to pay invoices.
• When and how invoices are raised.
• The consequences of not paying those invoices within the specified period.
•The rights to dispute invoices and the consequences of doing so.

In the Sale of Goods Act 1979 (SGA), time for payment is not automatically of the essence unless the contract says it is (section 10(1), SGA) so the supplier’s standard terms should specifically make it so in order to give the supplier the right to terminate the contract if the customer fails to pay on time. On the other hand, if the customer is concerned that late payment could lead to termination, its standard terms should expressly forbid termination on that ground.

In many supply of goods and/or services arrangements, there will be considerations involving the intellectual property rights of the parties. Each will want to ensure that their respective IP rights are suitably protected under the contract whilst there also might be a requirement for either party to grant certain rights in their IP to the other in order to allow them to perform their duties or exercise rights under the contract. A further consideration will be whether any intellectual property rights are created during the course of the arrangement and who owns such rights. Each of these points will need to be carefully considered and accurately reflected in your terms and conditions. Again, this is something which off-the-shelf terms do not often adequately address despite intellectual property rights being integral to any business. .

How can we help?

We advise business from a variety of different industries on their standard terms and conditions as well as other forms of contracts. For strategic advice and representation, contact the expert commercial solicitors at Herrington Carmichael LLP as early as possible.

Please contact Mark Chapman on 01276 686222.

This reflects the law at the date of publication and is written as a general guide. It does not contain definitive legal advice, which should be sought as appropriate in relation to a particular matter.