Terms and Conditions: Are yours in need of reviewing?

Many businesses have “terms and conditions of trade or sale”, being the terms on which those businesses purport to transact business with their customers. Often, these are found printed on the back of standard business documents, such as invoices and quotation forms. Businesses that sell goods or services over the internet may also publish them on their website.

The purpose of terms and conditions is not only to set out clearly the basis on which a business supplies goods or services to its customers, but also to protect the business, such as in instances of defaulting customers or claims by customers for defective goods or services.

Common failings

If your business has standard terms and conditions which it has used for many years, now may be the time to have them reviewed. Common failings with terms and conditions include:

• that they are not binding.  For terms and conditions to be binding, they must form part of the contract between your business and its customers under which your business supplies goods or services to them.  Customers need a reasonable opportunity to accept or reject the terms and conditions (that is, decide whether they are prepared to do business with you on your terms and conditions), so the terms and conditions need to be brought to a customer’s attention before a contract arises between your business and the customer.  For instance, it is too late if the first time a customer sees your terms and conditions is on the back of an invoice you send them for goods and services you have already sold them.  How your terms and conditions can best be brought to customers’ attention and be made binding on them will turn on how you do business.  For instance, the procedure for a business which sells products on-line will be quite different from one for a business which effects counter sales.
• that they do not reflect the way you actually do business.  If your terms and conditions are at odds with your business practices, that will create confusion, and your terms and conditions may actually work against you rather than protect you.  For instance, your terms and conditions may contain a product warranty which is different from a standard product warranty included in your current promotional or advertising material, or the trading terms set out in your terms and conditions may not be the same as printed on your invoices or monthly statements. This sometimes happens because you change the way you do business, but your terms and conditions are not updated in step with those changes.  It might also be that your terms and conditions have been copied or derived from someone else’s terms and conditions without much thought having gone into whether the source terms and conditions were relevant to your business!

Limitations

It is important to recognise that even if your terms and conditions are current and binding on your customers, there are limits in the way they can protect your business. Some of these issues have to do with:

Retention of title provisions. Most terms and conditions contain them. They are designed to prevent ownership of goods supplied by your business passing from you to your customer until the customer has paid for them in full, and to enable the supplier to re-claim goods if the customer fails to pay for them. The effectiveness of such provisions in circumstances where the customer has re-sold the goods, or used them up in a manufacturing process to produce other goods, is limited. Therefore, it would be unwise to rely solely on a retention of title clause in your terms and conditions to protect your business against defaulting customers.

Limitation of liability clauses. Terms and conditions generally try to limit the supplier’s liability for defective goods or services sold by the supplier. A supplier may be liable for such things under separate laws dealing with matters including breach of implied warranties and conditions under the Trade Practices Act 1974 (Commonwealth) and its state and territory counterparts (for instance, the Fair Trading Act 1999 (Vic)), unfair practices in trade or commerce, negligence and manufacturers’ and importers’ liability for defective goods. In most cases, it is not possible to exclude all liability for these matters under your terms and conditions. In fact, it is important that any limitation of liability clause in your terms and conditions operates within the confines of what is legal under Commonwealth, state and territory consumer protection legislation (if it applies to your business).

No matter how good your terms and conditions are, you should have an understanding of their limitations and how those limitations may be able to be overcome, and the extent of your exposure for defective goods and services your business may supply.