THE IMPORTANCE OF TERMS AND CONDITIONS OF TRADE: A GUIDE FOR BUSINESSES
Terms and conditions of trade (“T&Cs”) set out the rights and responsibilities of all the parties involved in a business transaction. They dictate the conditions upon which a customer will be bound when dealing with a business supplying goods and services. T&Cs ensure that a business transaction has protective mechanism in place, and they should cover a range of issues such as:
- Definitions of terms used;
- Price and payment terms;
- Delivery of goods or services;
- Risk, insurance and title to the goods;
- Consequences of default;
- Privacy and credit information;
- Intellectual property;
- Security and charge; and
- Defects, warranties and consumer legislation.
The form of the T&Cs will vary depending on the nature of the business. A sole practitioner may not require T&Cs extending over multiple pages. On the other hand, a company that offers very complex goods or services may require multiple T&Cs to deal with the different contingencies.
Drafting T&Cs are seldom given the critical examination they deserve and unclear or poorly drafted T&Cs can have a detrimental effect on your business. Business T&Cs are crucial in ensuring the smooth operation of your business.
At Boss Lawyers, we are here to help you protect your interests. We will discuss your needs with you and examine important risks to your business. We can draft T&Cs for your business that you can use for every future customer. This has the potential of saving you money in unpaid invoices and avoiding unnecessary litigation.
Please ring us and we’ll be pleased to answer your questions regarding tailoring T&Cs to suit your business needs.
Tel: 1300 267 711.
WHEN DO I ISSUE BUSINESS T&Cs?
Business T&Cs must be given to every customer prior to each transaction. Generally, T&Cs should be provided with any quote or invitation you send out to a customer. A customer is said to have accepted your business T&Cs when they make payment or when they accept your quote or invitation. At this point, a contract has been formed.
COMMON T&C DRAFTING ERRORS
Well drafted T&Cs should resemble a manual or recipe book for doing business and there should be absolute clarity on what should happen in a given situation. Some common T&Cs drafting errors may include:
- Not including the entity you are contracting with;
- References to things, legislation or other clauses that do not exist;
- Confusing or inconsistent terms;
- Incorrect defined terms;
- Including unfair or unconscionable contract terms that potentially void the clause; and/or
- Terms that try to exclude consumer rights.
- Not Identifying the Entity
Failing to include the Australian Company Number (ACN) of an entity described as a company is frequently omitted from many commercial contracts. A company must set out its name, ACN or Australian Business Number (ABN) on all of its public documents and negotiable instruments.[1]
- Reference to Things that Don’t Exist
Any clauses in your T&Cs that reference superseded legislation, incorrect legislation clauses or clauses within the T&Cs that do not actually exist, run the risk of that clause being excluded altogether. This may cause significant detriment to your business depending on the importance of that clause.
- Confusing or Inconsistent Terms
Ambiguity in written T&Cs is something that should be avoided, as it often leads to misunderstandings and you may find yourself on the losing side of the battle. Care must be taken to use accurate words to convey the desired meaning and this is then conveyed correctly throughout the entire document.
There is a presumption that where a confusing or inconsistent term leads to an absurd or unworkable situation, a court will presume that the result was not intended by the parties. The court may supply, omit or correct the terms in order to avoid absurdity or inconsistencies.[2]
- Defined terms
It is common practice to mark any defined term in bold and in some cases in citation marks i.e. “Goods”. Clear defined terms promote and alleviate the need for a court to effectuate the common intentions of the parties. The words of any defined term, must be read into the operative text. In circumstances where words, terms or phrases are not in this form, a court will be entitled to interpret them in accordance with their natural and ordinary meanings.
In the case of Cruize Oz Pty Ltd v AAI Ltd[3], an insurance agreement between a motor dealership (Cruize Oz) and insurer contained non bolded terms and the court was required to interpret the words “your premises” using its natural and ordinary meaning. The motor dealership transported the insured vehicles to a show ground for exhibition and while the vehicles were on display the show ground became flooded. The insurer argued that the insurance agreement only covered damage sustained to the vehicles at the Applicant’s premises and it did not encompass the showgrounds.
The insurance agreement contained an interpretative clause that stated that all words in bold had a definition prescribed under the definition schedule whereas non bold words possessed their natural and ordinary meaning.[4] The phrase “your premises” was not bolded and the insurer stated that the failure to bold was a mistake.[5] The court concluded that the term should take its natural and ordinary meaning and accordingly, the motor dealership was entitled to indemnification for the damage sustained to the vehicles.[6]
- Unfair or Unconscionable Contract Terms
A term of a consumer contract or small business contract is ‘unfair’ if:
- It would cause significant imbalance in the parties’ rights and obligations arising under the contract;
- It is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term; and
- It would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on.[7]
If the contract can operate without the unfair term, the remainder of the contract will still be binding, if a court or tribunal finds that a term is ‘unfair’, the term will be void such that it is no longer binding on the parties and the term will be unenforceable and treated as if it did not exist. However, the contract will continue to bind parties if it is capable of operating without the unfair term or clause.
In the case of ACCC v CLA Trading Pty Ltd (Europcar)[8], Europcar’s terms and conditions of rental were deemed unfair terms and therefore void. The contract contained terms allowing Europcar to impose a damage liability fee of $3,650 even where the customer was not at fault.[9] The contract also made the customer’s liability unlimited in the event of a breach of contract, even when the breach was trivial.[10]
- Consumer Rights
Laws aimed at protecting “consumers”[11] cannot be excluded by any type of exemption clause or disclaimer in a business to consumer contract under the Australian Consumer Law (ACL)[12].
PROBLEMS WITH HAVING NO T&Cs
T&Cs are the most important factor that decide the future of your business because they not only safeguard your business in times of crisis but also help to avoid a dispute.
Without the important aspect of T&Cs, it becomes difficult to manage and resolve disputes.
WHERE TO GO FOR HELP
We hope this article helps you better understand the importance of having comprehensive T&Cs.
We have experienced lawyers ready to lend you a hand, to tailor T&Cs to suit your business needs.
[1] Corporations Act 2001 (Cth) s 153(1), 153(2).
[2] Fitzgerald v Masters [1956] HCA 53, [4].
[3] [2015] QSC 215.
[4] Cruize Oz Pty Ltd v AAI Ltd [2015] QSC 215, [27].
[5] Cruize Oz Pty Ltd v AAI Ltd [2015] QSC 215, [28].
[6] Cruize Oz Pty Ltd v AAI Ltd [2015] QSC 215, [57].
[7] Competition and Consumer Act 2010 (Cth), sch 2, s 24(1).
[8] [2016] FCA 377.
[9] ACCC v CLA Trading Pty Ltd [2016] FCA 377, [186].
[10] ACCC v CLA Trading Pty Ltd [2016] FCA 377, [37].
[11] Competition and Consumer Act 2010 (Cth), Sch 2 (‘Australian Consumer Law (ACL)’) s 3.
[12] Competition and Consumer Act 2010 (Cth), Sch 2 s 18.