Are your standard terms and conditions of business effective?
29 July 2021
Most businesses use standard terms and conditions (Ts&Cs) to set out the key commercial terms that apply to the sale of their goods and services to their customers. Not only do these help the parties to understand their duties, rights, roles and responsibilities under a contract for the sale and purchase of goods and services, but most importantly they protect a businesses’ liability in the event that something goes wrong with the contract.
But are your current terms effective?
The English High Court in the case of Phoenix Interior Design Ltd v Henley Homes plc and another has recently held that an exclusion of liability clause in a supplier’s standard business to business Ts&Cs was ineffective as it failed the reasonableness requirement under the Unfair Contract Terms Act 1977 (UCTA).
UCTA is the main statute affecting limitation of liability clauses in business to business contracts and under section 3 any limitation on liability in a supplier’s standard Ts&Cs will only be valid if it is reasonable.
The clause in question in the Phoenix case effectively stated that the supplier would have no liability under the warranty terms in its Ts&Cs if the total price of the goods was not paid by the customer by the due date for payment.
On the facts, the judge found this exclusion of liability to be ineffective because it was an unusual clause tucked away in the undergrowth of the Ts&Cs which was not highlighted to the customer. It was also exorbitant as the consequences of a slight delay or deduction in payment would bar all rights of redress against the supplier and there was a lack of clarity over what the "due date" for payment meant.
Whilst important to note that this does not create any new law and is specific to the facts of the case it does emphasise the importance of regularly reviewing your standard Ts&Cs and highlights certain practical points for consideration.
- Don’t just use standard Ts&Cs you have found on the internet for a similar business. Make sure you get your standard Ts&Cs drafted or reviewed by a professional who will be able to tailor them to your business and look at any exclusions or limitations on liability you may want to include in light of the UCTA reasonableness test and advise you accordingly.
- Ensure that harsh or unusual exclusions and limitations of liability are visible and well-signposted to your customers and avoid hiding them in small print which can often be a temptation. You are likely to have a stronger case on reasonableness under UCTA if exclusion or limitation clauses are clearly visible and have been drawn to your customers’ attention.
- Make it easy for your customers to find your standard Ts&Cs. In the Phoenix case there was a dispute over whether the Ts&Cs (which contained the exclusion clause in question) were actually incorporated into the contract. This was because they were not provided "overleaf" as stated in pre-contract proposal documents but instead were supplied separately to the customer in hard copy and email format. So just as it is important to take advice on the contents of your standard Ts&Cs it’s also equally important to take advice on the best and most appropriate way to incorporate them into your contracts with customers to ensure they are effective.
The commercial team at Carson McDowell has a wealth of experience in drafting and advising on standard Ts&Cs across a multitude of industry sectors. Please don’t hesitate to get in contact with us if you would like further advice in this area or a review of the effectiveness of your current Ts&Cs.