Does your business need standard terms and conditions?

Almost all businesses involve dealing with customers and almost all dealings with customers are based on a contract. It is important that the terms of the contract between the business and the customers are clearly spelt out, to minimise misunderstandings and disputes.

Whenever a business supplies goods or services to a customer that supply is under a contract. Every time you go to a shop and buy anything, or even go to the hairdresser for a haircut, the arrangement between the client and the business is contractual.

Why do businesses need terms and conditions (“Ts & Cs”)?

When anything goes wrong in the relationship between the business and the customer, the starting point is usually to consider the terms of the contract. If there were no written terms and conditions, the parties are left in the difficult position of trying to work out the contractual terms. This involves considering the communications between them, as well as implied terms.

For goods and services supplied to a consumer, the Australian Consumer Law (“ACL”) implies terms into the contract, including the consumer guarantees. For example, if the consumer made known the purpose for which the goods or services were required, the ACL implies a term that those goods or services will fulfil that purpose. However, there is still scope for extensive arguments about other implied terms of the contract.

If anything goes wrong between the business and the consumer, is far better to have clear Ts & Cs setting out the rights of the parties, rather than to have a potential argument about what was said, and what terms are implied into the contract.

Limitation of liability

One of the most important purposes of a business having standard Ts & Cs used to limit the liability of the business owner.

In a contract to supply goods or services to a consumer, the ACL prohibits a total exclusion of liability, but allows some limitations. Importantly, whether the ACL applies or not, the Ts & Cs should exclude claims for loss of profit or other consequential losses.

For example, a software provider may make a mistake which corrupts the client’s system, and leads to financial loss far beyond the amount paid for the services.

Ensuring payment

Another important aspect of Ts & Cs is to assist in ensuring that the business will be paid.

The Ts & Cs should specify how the charges are to be calculated, and when they are paid. However, they should also contain provisions such as interest on unpaid debts. If the client is a company, it is also often a good idea to require a personal guarantee from whoever places the order, to ensure that supplier will be paid, even if the company becomes insolvent.

DIY Ts & Cs

Many businesses simply copy contractual provisions they find on the Internet. Sometimes those Ts & Cs are appropriate, but often they are not, for example, if they were initially drafted for a different jurisdiction. In some cases, inapplicable Ts & Cs do more harm than good. It is far safer to have a lawyer draft the Ts & Cs or, at least, advise you on the terms you have been using.

Conclusion

Any business which deals with customers or clients should have clear terms and conditions, setting out the rights and obligations of each party. They should be carefully drafted or at least vetted by a solicitor.

At Somerville Legal, we have extensive experience in advising on terms and conditions and drafting them in consultation with tour clients.

For more information  contact Tim Somerville  or Andrew Somerville on (02) 9923 2321.