Business / Commercial

Are your Terms of Trade up to scratch?

Your terms of trade (also called your terms and conditions or terms of supply) ("Terms") are one of the most important if not the most important document you give your customers. Well drafted and well thought out terms of trade can be the difference between getting paid in a reasonable amount of time or not or even worse not getting paid at all. They can also effectively limit your liability in certain situations. Brookfields Lawyers regularly help business owners ensure that their terms of trade provide them with the protection they need.

Here are some of the main issues your Terms should cover or at least should be considered when your Terms are being drafted. Of course every business will have its own needs and here may be additional issues that need to be covered.

  • The Customer – it is important that the customer is named correctly so that the business knows exactly who they are contracting with and who they can make a claim against if something goes wrong.
  • In writing – a business must able to establish that a customer received written terms of trade prior to the supply of any products or services. If a business cannot do this they run the risk that the customer will not be bound by the provisions in their Terms.
  • Liability – most businesses want to limit their liability to customers. This can be achieved by a limitation of liability clause and/or contracting out of various legislation such as the Consumer Guarantees Act 1993 and the Fair Trading Act 1986 (where possible). Contracting out of the Consumer Guarantees Act 1993 is vital for business to business transactions to avoid the risk of being liable for consequential losses. Directors can have personal liability under the Fair Trading Act 1986 and this can be contracted out of for business to business transactions in certain situations. It is essential that any limitation clauses are drafted in the correct manner to ensure that they achieve the limitation of liability which is desired by the business owner.
  • Price – the parties should be clear on exactly what the price is and whether or not the price is a quote or an estimate. If it is a quote – how long is the quote open for acceptance? If it is an estimate how will the actual price be calculated? In what circumstances can the estimate be withdrawn or amended?
  • Payment – one of the main reasons for having terms of trade is so that each party knows exactly what payments are required and when. Well drafted Terms will contain provisions which provide the business with rights if there is a non-payment, for instance; the ability to charge interest and to be able to recover any costs associated with any debt recovery action.
  • Privacy – the Privacy Act 1993 requires businesses to disclose certain information if they collect and use personal information about an individual and provide details on what the personal information will be used for. The terms of trade can contain this information - this is especially important if businesses are going to use that personal information for the purpose of marketing their products and services in the future.
  • Security – having a reservation of title clause is no longer enough to ensure that a business continues to own a product until payment is actually received. Businesses need to ensure that they take a security interest in the products to protect the goods from the claims of other creditors. This security interest must be registered on the Personal Properties Securities Register within certain time frames. The terms of trade will need to contain certain provisions to provide for the security interest and registration on the PPSR.
  • Risk - if the product needs to be delivered to the customer then each party should know exactly when they take responsibility for the product to cover situations where the products are lost or damaged or stolen during or prior to delivery to the customer. Is it when it leaves the business or when it arrives at the customer's premises? Or at some other place?
  • Guarantees – if the customer is a company then where possible it is recommended that personal guarantees are obtained from the directors and/or shareholders of the customer. This is so the business can make a claim against the guarantors if the company is unable to pay amounts owed.
  • Breach and cancellation – if the supply is ongoing over a period or time, it is important that the terms set out when and how the business can cancel the contract.
  • Indemnity – an indemnity clause is recommended where the business incurs a loss or a cost as a result of any acts or omissions or breach of the customer.

If you need assistance drafting or reviewing terms of trade, your key contacts are:

 

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The contents of this publication are general in nature and are not intended to serve as a substitute for legal advice on a specific matter. In the absence of such advice no responsibility is accepted by Brookfields for reliance on any of the information provided in this publication.

 

 

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