Insider Media Limited

As business owners across the West Midlands gear up for what they hope will be a busier year than last, the legal sector is predicting that 2011 will bring an increase in litigation with it. The increase in VAT and ongoing economic uncertainties are likely to result in delayed or non-payment and litigation over breaches of terms and conditions is expected to rise. Against this backdrop, prudent businesses will need to ensure that the terms on which they do business are set out clearly and effectively if they are to be ready to face these challenges head on.

No matter how carefully drafted, terms are ineffective unless they are properly incorporated into the contract made with your customer. The basic requirements of a contract are that there is ‘a meeting of the minds’; offer and acceptance and that valuable consideration (usually money in exchange for goods and services) passes between the contracting parties. For there to be a ‘meeting of the minds’ both parties need to know what is expected of them.

Terms cannot be introduced after the contract has been established unless both parties agree and they may not be effective if they are only provided on the back of an invoice or delivery note. By then it is likely that the contract between the two parties has already been made before these documents are generated, although an exception is where businesses can demonstrate a consistent course of dealings where the terms may have been incorporated over time. However, this is less than ideal as the party seeking to rely upon the terms would have to prove, perhaps to a court, that the terms applied. It is far better to save time and costs by ensuring that there is no doubt as to the terms that apply.

Many businesses make the mistake of keeping old versions of their terms and conditions on some documents so that inconsistent terms appear. Entrusting a competent member of the organisation with the responsibility of removing old unused contractual documents is a simple way to avoid this; a historical example of old documents should be kept on a separate file in case they need to be referred back to.

Terms should be contained in a signed document as the implication of signature is that the signatory has read, understood and accepted anything they have signed. It is essential that the person signing has the authority to bind the party that they are signing on behalf of. Terms should be easy to read and to understand. One practical solution is to ensure that staff are trained to draw the company’s terms to their customers’ attention before the contract is formed.

Terms should be reviewed regularly by a competent lawyer to ensure that they are effective, compliant with current law and regulations and consistent across the company’s contractual documentation. Considerations such as whether the business charges interest or reserves the right to uplift the goods supplied if the customer fails to pay must be taken into account.

Another important consideration is whether insurance can cover any liabilities that cannot be excluded, such as liability for death and personal injury. Business owners should discuss the company’s proposed terms with their insurance brokers in case they require approval from liability insurers.

It is generally accepted that suppliers introduce terms but in some cases, customers may try to impose their own terms. If this situation arises, the general rule is that the last set of terms before performance of the contract will prevail but it is better to address any doubts when they come up before it is too late.

Damian Cadman-Jones is a solicitor in the commercial dispute resolution team at law firm Weightmans