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Avoiding disputes – the art of effective terms and conditions

Disputes can be time consuming, stressful and costly in financial terms. They are also uncertain; they involve inviting a third party in the form of a judge to seek a determination.

How then does a business that is manufacturing a product seek to avoid disputes when it is selling onto its customers? The key is having effective terms and conditions of business.

The first point in relation to terms and conditions is that they must be up-to-date. As a bare minimum, they ought to be reviewed fully by a solicitor every couple of years to make sure they are still legally compliant, and that the terms that they include remain enforceable. There may also be developments elsewhere in the law that enable you to incorporate new innovative terms that protect you better and more effectively.

The second crucial point in relation to terms and conditions is that you make sure they are effectively incorporated as terms of the contract. This involves making sure that you contract on your terms and not on the buyer’s terms, and also that you have given the buying party advance notice of your terms and conditions and that they are effectively incorporated as a part of the pre-contractual negotiations. Far too often you see invoices that say ‘This invoice is raised pursuant to our standard terms and conditions of business’; absent a document giving notice of the terms before the invoice, then that attempt to incorporate the terms and conditions would be ineffective.

Also consider specific terms that might give you better protection. Consider:

  • Clear payment terms – Set out the credit terms that you are prepared to offer customers. By doing so, if they make late payments, you’ll have stronger grounds to recover the debts owed to you.
  • A default interest rate – This is often referable to a statutory provision, such as the Late Payment of Commercial Debts (Interest) Act 1998, which provides for default interest to be charged at a rate over the base rate. You could consider something at a higher rate than that provided under statute; however, such a provision must be reasonable and commercially justifiable so as to avoid being deemed invalid as a punitive provision.
  • Retention of title – In circumstances where you sell a product that won’t necessarily be incorporated into other products, and can easily be identified (for example with reference to serial numbers) it’s advisable to include a specific ‘retention of title provision’. This ensures that you maintain legal ownership of the goods until they are fully paid for. Therefore, if the goods are unpaid or the buyer goes into an insolvency process, you can legitimately recover the goods and potentially re-sell them to other customers. This will have the impact of reducing your exposure to loss in the event that you are not paid.
  • Arbitration clause Given concerns about the current efficiency of the court system, arbitration could be used as an alternative to litigation. In arbitration, a neutral third party provides a binding decision in a private forum. Unlike litigation, which can be time-consuming and subject to external timetables, arbitration allows parties to proceed at their own pace.

Consider, therefore, having a provision that requires arbitration prior to litigation. This will lead to a quicker determination of a dispute, and a determination that is bespoke to your own matter (for example you might choose an arbitrator with a specific industrial background, or particular qualifications to deal with the dispute).

Clarke Willmott’s corporate and commercial team can assist you with the drafting of effective terms and conditions that enable you to protect yourself when you are manufacturing and selling products to your customers. Equally, if you’re looking to enforce the terms of an existing contract then our commercial disputes team can help you bring or defend such claims.


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