A well-drafted set of T&Cs should give you peace of mind.
At Primas Law, our commercial lawyers are experts in handling a range of commercial contracts to help protect your business.
In our “A Guide to” series we take a look at some of these agreements and how they can be used in the business world.
Here, we look at standard terms and conditions, what they are, how they are used, and how to ensure that your terms apply when you do business.
This Guide discusses terms and conditions in a business-to-business context and does not discuss the terms and conditions intended for consumers.
What are standard terms and conditions?
Standard terms, terms of business, T&Cs. Although known by a variety of headings they all refer to the same thing and are essentially the basic provisions under which a company seeks to conduct its business. In this guide, we will refer to them as both T&Cs or Terms.
Almost every business will have their own set of T&Cs and will usually look to contract on these Terms over and above those of its customer or supplier. For the party looking to rely on its own Terms, they can provide certainty over such things as payment provisions, allocation of risk, and the passing of title.
A good set of T&Cs will be specific to your business, reflect your operational practices and appropriately manage any commercial risks and any potential liabilities under the contract.
By using standard T&Cs, companies who rely on them are able to use terms which will work in their favour, in a format which hopefully avoids heavy negotiation. This allows more junior staff to handle the contracts, reducing expense to the firm.
Although there are many benefits of using standard T&Cs, they are not without practical and legal limitations. For example, there can be substantial restrictions on how a company can limit or exclude its liability when using standard terms that have not been negotiated individually. In these circumstances, any limitations or exclusions of liability you wish to include in your standard T&Cs would need to be reasonable to avoid being found partly or completely ineffective.
It is important to bear in mind that while a well-drafted set of T&Cs should give you peace of mind that you have appropriate contractual protections in the event of a dispute, having certain practical measures in place will help you manage your risks commercially as well. This may include effective management of your supply chain to ensure adequate quality controls as well as effective credit control procedures and customer service.
When to use terms and conditions?
There are advantages and disadvantages to using standard T&Cs over a signed contract. The choice of the right format will depend on your circumstances.
A signed contract will typically be tailored to the specific deal and the commercial lawyer drafting it will want to ensure that the contract accurately represents what has been agreed between the parties in principle and that it manages commercial risks appropriately to the deal. The comprehensive nature of a signed contract would likely make it the preferred approach for deals that involve long-term commitments or large values. However, this in turn involves time commitment and legal costs with potentially multiple stakeholders being involved in the process.
Therefore, standard T&Cs are more appropriate for smaller and repeatable transactions. Standard T&Cs provide certainty of terms where parties do not have a signed contract without the need for businesses to invest significant time and expense in drafting up specific terms for each individual transaction.
There may be some confusion in terminology where standard T&Cs refer to a contract. When a contract is being referred to in this context, this is an agreement between the parties to enter into some transaction or a deal which incorporates the standard T&Cs. For example, this could be a short-form signed agreement setting out commercial terms of the deal or an agreement on a purchase order basis for the supply of goods or services, in both cases with Terms attached.
In the above examples, unless the transaction is underpinned by standard T&Cs, there could be a great degree of uncertainty around the terms of the deal, likely to cause disagreements or disputes in the future.
Whilst it is not a legal requirement to have T&C’s, businesses choose to have them in place for certainty, efficiency, cost management, consistency and commercial risk allocation.
How do you make terms and conditions legally binding, and how is this communicated to customers?
Once you have a robust set of terms and conditions prepared, the next step is to ensure that your terms apply and take precedence over any other terms that any other party may want to incorporate.
1. Formation of the company’s contracts
Before we move on to discuss incorporation of terms in more detail, it is useful to understand how a contract is formed under English law. For a contract to form, the following elements need to coincide:
- Intention to create legal relations
- Certainty of terms
In the context of effective incorporation of terms, the most important legal principle to understand is the rule of offer and acceptance, which states that after the formation of the contract (by offer and acceptance), additional contract terms cannot be introduced. This means that as a business you need to make sure that your T&Cs are brought to the other side’s attention before the contract is formed.
2. The incorporation of the standard terms
If the Seller wishes to incorporate their standard terms into a contract with their customers, it is beneficial for the Seller to expressly state during pre-contract correspondence that their standard conditions will apply to increase the chances of doing so successfully. The Seller should then be prepared for some level of negotiation, however, in order to minimise the amount of negotiation for the Seller, they should consider setting out the standard terms in as much pre-contract and contract documentation as possible. This could include setting out the standard terms within its documentation and correspondence, such as quotation forms and order confirmation forms for the Seller. The Buyer will want to ensure that their standard terms are set out on the purchase order.
3. “Battle of the forms”
However, if both parties wish to apply their own set of standard terms, the negotiation that follows is known as the “battle of the forms”.
The “last shot” fired in the battle of the forms will be the final set of terms sent prior to acceptance or performance, which will often prevail.
Remember the rule about offer and acceptance? Well, if you intend to incorporate your terms after the contract is formed, it will likely be too late. As a Buyer, you may be tempted to refer to your T&Cs in the invoice, but if the invoice is issued after the contract was performed, such as the delivery of goods has taken place, this will not be effective incorporation of terms.
Effective controls and procedures will need to be put in place to ensure that your T&Cs are effectively incorporated and to maximise your chances of winning in the battle of the forms. In that regard, we recommend that you conduct an internal review to identify any potential areas of concern and optimise your internal practices relating to procurement and sales process.