Making terms and conditions work for you

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.

LAYTONS

LLP

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Manchester

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2 More London Riverside London SE1 2AP +44 (0)20 7842 8000 london@laytons.com

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www.laytons.com

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.