LAYTONS LLP
Making terms and conditions work for you
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Reducing Legal Risk | Making terms and conditions work for you
Making terms and conditions work for you In the ordinary ebb and flow of business, documenting the terms on which deals are struck is not always at the forefront of the minds of those involved: precisely documented terms are, after all, not the main object of the deal and can even be viewed with suspicion (as preventing business, rather than helping it). When business is going well, no one is particularly worried. Then a problem arises: a payment is not made; a product/ service is alleged to be defective; a party does not perform as expected. The types of questions which immediately need to be considered include: •
Was there a contract?
•
If so, is it recorded anywhere?
•
What was each party obliged to do?
•
How do we persuade the other party of its obligations?
An appropriate set of written terms can cut through these difficulties, allow problems to be resolved efficiently and permit business relationships to be preserved, whilst avoiding the cost and management time associated with disputes. Russell Beard Partner russell.beard@laytons.com +44 (0)20 7842 8000
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Reducing Legal Risk | Making terms and conditions work for you
How are contracts formed?
What are the terms of the contract?
Contracts can be formed orally or in writing and via means ranging from the conventional handshake, signature of a written agreement, meetings, telephone discussions, exchanges of emails, SMS, WhatsApp, Facebook and other social media messages and, in our increasingly data-driven world, many other forms of media.
It is easy to form a contract; it is not always easy discern the precise terms of that contract if they are not distilled into writing, particularly where a difference of opinion has already formed. Where there is some disagreement as to a party’s obligations, and there is either no written contract or the written contract is unclear, it becomes necessary to make an objective assessment of what the parties intended, at the outset of the
The three crucial elements are:
relationship, would happen in the circumstances which are now problematic. Where there is a written agreement, that
•
An offer by one party
entails first and foremost attempting to understand what
•
Acceptance of that offer by the other (which may be
was meant by the language used; where there is no written
express – e.g. “I accept” – or implied by that other
agreement, a wider assessment of the parties’ dealings may
party’s conduct)
be necessary.
•
Consideration (i.e. there is some exchange of benefits or value between the parties – one might offer to
By contrast, written terms, carefully tailored to your business
pay for goods whilst the other accepts an obligation
needs, can provide clarity and certainty.
to supply those goods).
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Reducing Legal Risk | Making terms and conditions work for you
Can you use standard terms?
What terms should you include?
Standard terms are convenient for regular transactions of the same type: e.g. routine sales of goods or services. Some transactions require more bespoke negotiation.
A contract will often include the following: •
Definitions of key terms
•
Key obligations (who is doing what for whom)
•
When and how payments are to be made and the consequences of late payment (e.g. whether interest
There is no one-size-fits-all set of standard terms. It is
accrues, whether obligations are suspended, whether
important that standard terms are tailored to reflect the way your business works and what you expect of the other party.
termination by the supplier is permissible) •
They should be kept under review and adapted to changes in
When risk and title pass (if it is a contract for the supply of goods)
your business and the law.
•
One thing to note with standard terms is that – largely
•
Warranties (i.e. promises – for example, that a party holds rights or authorities essential to the contract)
because they are a take-it-or-leave-it option – they are subject
Indemnities (to provide recourse in the event of a breach of certain clauses)
to stricter legal standards in order to be enforceable. This
•
Confidentiality (to protect valuable information)
isn’t a reason not to use them, but businesses must be careful
•
Intellectual property (to make clear when and how
about what goes into a standard set of terms and conditions.
rights can or cannot be used) •
Limitations or exclusions of liability where things go wrong
•
Reporting and auditing rights and obligations
•
Term, and when and how the contract may be terminated
•
What happens after termination
•
How disputes are to be resolved
•
Which country’s law governs the contract and in which country’s courts claims can be brought (vital in the context of international dealings)
•
Other general terms (such where and how notices should be served, how variations are to be handled, and whether or not rights can be assigned, amongst others)
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Reducing Legal Risk | Making terms and conditions work for you
Ensure you contract on your terms
Avoiding common pitfalls
You need to ensure your terms are brought to the other party’s attention and, most importantly, are accepted (ideally by some act which evidences acceptance – e.g. signature, confirmatory email or online check box). Note that if the document is structured as a deed rather than as an ordinary contract, a more formal process of signature is required, and check boxes will not suffice.
To avoid common pitfalls, businesses should: •
Work with their lawyers to produce terms which reflect the way they want to work
•
Stress-test their terms to ensure they identify clearly what will happen where common problems may arise
•
Include their terms and conditions consistently in pre-transaction communications and records (such as quotes, purchase orders or order confirmations) and on sending invoices
•
Ensure they draw attention to their terms, making it
You need to be conscious of attempts by the other party to
clear that these are the only terms on which they are
introduce their own standard terms. Where both parties send
contracting
to one another their standard terms, as is often the case in
•
Read the small print at the bottom of the other
supply contracts, the battle as to whose terms apply is often
party’s documents, such as purchase orders and
(but not always) won by the party which fires the “last shot”,
sales confirmations, where references to the other
i.e. the last party to advance its terms before the transaction is
party’s terms are often buried
concluded.
•
Avoid unintentionally accepting counter-offers – if the other party responds to a purchase order with
Why does it matter? Largely because parties on different
document referencing a conflicting set of terms,
sides of a transaction will produce standard terms which
businesses should expressly reject these (where they
favour their business; for example, suppliers’ terms will look to
have the bargaining power to do so) in favour of the
limit or exclude liability if things go wrong, whilst purchasers’
terms which they have already provided and want to
terms will contain no such limitation on their supplier’s liability (or may contain more onerous provisions, such as a clause requiring payment of an agreed measure of damages). Some businesses prudently produce terms but do not have a consistent means for ensuring those terms are brought to the other party’s attention. The common practice of placing terms on the rear of invoices, for example, rarely works: invoices tend to be sent after the contract has been concluded and completed, which is often too late.
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apply •
Retain the trail of communications and records which evidence the above
Reducing Legal Risk | Making terms and conditions work for you
Disputes
Avoidance, Management & Resolution Our specialist team is experienced in avoiding, managing and resolving claims and disputes in a variety of contexts. Our work involves the identification of legal problems and solving them by effective advice and negotiation. Where necessary we use litigation in a variety of courts and tribunals.
Our Team John Abbott
Simon Foster
Rebekah Parker
Partner john.abbott@laytons.com +44 (0)20 7842 8000
Partner simon.foster@laytons.com +44 (0)20 7842 8000
Associate Partner rebekah.parker@laytons.com +44 (0)20 7842 8000
Luke Arnold
Richard Harrison
Nigel Parnell
Solicitor luke.arnold@laytons.com +44 (0)20 7842 8000
Partner richard.harrison@laytons.com +44 (0)20 7842 8000
Director of Trade Marks nigel.parnell@laytons.com +44 (0)20 7842 8000
Russell Beard
Paddy Kelly
Will Slater
Partner russell.beard@laytons.com +44 (0)20 7842 8000
Partner paddy.kelly@laytons.com +44 (0)20 7842 8000
Consultant will.slater@laytons.com +44 (0)20 7842 8000
Robert Clark
Nicola Khan
Geraint Thomas
Partner robert.clark@laytons.com +44 (0)20 7842 8000
Solicitor nicola.khan@laytons.com +44 (0)20 7842 8000
Partner geraint.thomas@laytons.com +44 (0)20 7842 8000
Sven Clarke
Ben Thorogood
Miriam Giorgioni
Associate Partner sven.clarke@laytons.com +44 (0)20 7842 8000
Solicitor ben.thorogood@laytons.com +44 (0)20 7842 8000
Registered European Lawyer miriam.giorgioni@laytons.com +44 (0)20 7842 8000
Bunmi Oduntan
Pooja Verma
Trainee Solicitor bunmi.oduntan@laytons.com +44 (0)20 7842 8000
Trainee Solicitor pooja.verma@laytons.com +44 (0)20 7842 8000
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Reducing Legal Risk | Making terms and conditions work for you
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This information is offered on the basis that it is a general guide only and not a substitute for legal advice. We cannot accept any responsibility for any liabilities of any kind incurred in reliance on this information.
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Š Laytons LLP which is authorised and regulated by the Solicitors Regulation Authority (SRA Nº 566807). A list of members is available for inspection at the above offices.