Using Standard Terms & Conditions – key issues to consider

This article provides an overview of the key issues to consider when using Standard Terms & Conditions.

9 December 2015

When a UK business enters into a contract with a customer, they face the risk of uncertainty and potential misunderstandings arising due to important terms of business or legal issues not being correctly addressed in their agreement.  A business can use Standard Terms & Conditions to mitigate such risks and provide a robust legal position for every customer transaction. Standard T&Cs can save both time and money and can also lead to an improvement in service as each customer query can be dealt with having knowledge of the underlying terms.  When producing Standard T&Cs businesses should pay particular attention to the following areas.

Effective Incorporation
When using Standard T&Cs one of the most import things to ensure is that they are actually incorporated into the contract, no matter how well the T&Cs are drafted, they will not be effective if they are not actually incorporated.

Standard T&Cs can be easily incorporated by expressly setting them out within the contract and having the contract signed by both parties.  An alternative is to refer to them either at the beginning of the written contract or in pre-contractual negotiations by stating that the Standard T&Cs will apply to the transaction.

In the event that it is not possible to either set out the Standard T&Cs or refer to them in a written contract then it is necessary to bring them to the customer's attention as soon as possible before the contract is concluded.  This can be achieved by referring to them on the supplier's website, brochures, catalogues or quotes.  As a general rule, they will not be incorporated when they are referred to after the contract is made, such as on the back of an invoice.

If any term is particularly onerous or unusual then that term should be specifically drawn to the customer's attention, also any terms which may vary the contract specific terms should always be cross-referenced.

Customer: Businesses or Consumers?
Whether a customer is a business or a consumer is important because business-to-consumer contracts are afforded a greater degree of protection than business-to-business contracts.  Consumer contracts should comply with the rights implied by legislation such as the Consumer Rights Act 2015 which governs the supply of goods, services and digital content.  For example, this legislation provides consumers with a 30 day right to a refund for faulty goods.  In addition, in consumer contracts all terms other than price must be both fair and reasonable and the contract must be expressed in clear and intelligible language.

All Standard T&Cs should strike a balance between the interests of the business and those of the customer, without being unduly biased in favour of either and will be subject to a general test of reasonableness, but in the case of consumers, businesses must take greater care to ensure they do not fall foul of the additional protections.

An important aspect of managing a transaction for many businesses will be the limitation and exclusion of certain liabilities.  In certain circumstances limitation or exclusion of liability is prohibited.  For example, liability cannot be excluded for death or personal injury resulting from negligence or breach of duty.  When drafting terms that aim to exclude or restrict other forms of liability, particular attention must be paid to ensure that the terms are both fair and reasonable.  Attention should be given to decisive factors such as the bargaining position of the respective parties or whether insurance is available for any particular exclusion.  For example, when using Standard T&Cs which are not subject to negotiation, greater care must be taken to ensure that the terms are reasonable because in most cases the bargaining power of the business is greater than that of the customer.

The courts will generally view a limitation of liability more favourably than an outright exclusion.  A common example is a term which limits the total liability under the contract to the price of the goods paid by the customer.  In general, the broader the exclusion of liability then the more unambiguous the wording should be.  Consideration should be given to whether it would be more appropriate to have separate limitations of liability for specific events as opposed to relying on a blanket cap on liability to cover all events.  For example, a supplier may be able to provide a higher limit of liability to a customer for damage to physical property, as insurance should be easily obtainable for this type of loss.  Where a business is already paying for product insurance then it should pass on that benefit to the customer as the cost is directly borne by the customer in the price charged by the business.

In the event that an insurer is unwilling to cover the higher limits of liability, evidence that the business attempted to secure a higher limit should be in their favour where there is any subsequent challenge by a customer on the reasonableness of the limitation on liability.

Standard T&Cs should be an integral legal document for the majority of supplier based businesses.  Not only can they save the business both time and money, but more importantly they can protect a business by providing a robust legal position in each customer transaction.  Each new customer contract will inevitably incur some element of risk for a business, however, this can be managed effectively by Standard T&Cs which have been:

•    effectively incorporated into the contract;
•    drafted in an intelligible and clear manner;
•    checked to ensure their terms are fair and reasonable; and
•    designed to ensure that any blanket/specific limitation or exclusion of liability is appropriate.