Update your Terms and Conditions to avoid exposure to liability
NRG Synergy Newsletter 11 27 Oct 04
Ineffective and outdated terms and conditions (Ts and Cs) in commercial contracts leave thousands of businesses exposed, unprotected, and at risk from corporate or personal liability, says Euler Hermes UK, part of the largest credit insurance group in the world.
The survey revealed that nearly all of the companies that took part in a review had at least three of the ten most commonly found weaknesses in their Ts and Cs.
Tony Bushell, Managing Director of Euler Hermes Collections UK Ltd, said: ‘The law is evolving and constantly changing. If your business's commercial standard terms and conditions were drafted more than two or three years ago, these may need to be reviewed and amended to include any developments in the law.
‘Aside from the positive benefits of having water-tight Ts and Cs - for example, in relation to retention of title, or in giving you the right potentially to recover an increased rate of interest from your debtors - there is also that risk that if something goes wrong, and if you expect to rely on them in court, you must be confident that they are clear in their construction and meaning and you don’t find yourself personally liable.’
Tony cites two recent cases: one involved a business that had to write off £150,000 of a debt because their terms and conditions contained a single ambiguous word. In another example, a client lost £40,000 as a result of drafting their own retention of title clause without legal advice and using the wrong word that gave the clause a very different construction.
The top 10 most common weaknesses are:
1. Entering into oral agreements where the terms and conditions are not evidenced in writing (eg having no written Ts and Cs at all, or terms which do not contain the key elements of an agreement);
2. Not being able to reclaim goods if a customer decides not to pay for these goods (eg having an unenforceable retention of title clause);
3. Not limiting the extent of liability in a breach of contract and/or negligence claim, and, in some cases, even running the risk of being prosecuted (eg clauses which may make the contract void or illegal, or clauses which do not limit or exclude liability clauses);
4. Having Ts and Cs that cannot be relied on in court (eg lack of documentation to support order handling, and documentation which may not even apply to sales transactions);
5. Not being able to reclaim your goods if your customer does not pay for all outstanding debts (eg having a retention of title clause which is not an ‘all monies’ clause);
6. Having terms which could run the risk of being challenged by the Office of Fair Trading (eg standard terms and conditions imposed on commercial sales may not be lawful in a business sale to individual consumers and which are not written in plain English or are potentially unfair to consumers);
7. Missing out on any contractual right to claim interest at a higher rate on late payment debts, or not being able to claim at all (eg imposing an interest rate which is too high so as to be unreasonable and enforceable against a customer, or applying a rate that is not as high as it could be under legislation);
8. Not getting your customer to pay a contribution towards any legal costs you incur in recovering a debt (eg the absence of a clause which prevents your business from making a claim for costs incurred through actions taken to collect unpaid or overdue invoices);
9. Copying other businesses’ Ts and Cs, often from those in a completely different industry, and then relying on these Ts and Cs in court, which invariably fail.
10. Wasting precious credit control time in arguing when payment was due (eg unclear and undefined payment terms).