Podcast – Future-proof your business: Terms and conditions

Welcome to the With You All the Way podcast, brought to you by Brachers providing legal support to families and businesses since 1895.

Welcome to our podcast. Today we’re going to be talking about terms and conditions and wise litigation lawyers. They are so important to us. Hi, my name is Michael Oatham. I head up the commercial litigation team at Brachers and I deal with commercial contract disputes amongst other matters. Hello, I’m Lacey Kerner. I’m a partner in the commercial Disputes team with Mike, and I also deal with commercial contract disputes as well.

And hello, I am Paul Abdey. I am a partner in the commercial litigation team with Mike and Lacey, and I deal specifically with debt and insolvency matters. So today we’re going to be talking about terms and conditions, pitfalls, what should be included, what to look out for if you’re signing them. And then when contracts go wrong how to enforce that.

So Paul, can you tell us what are the common pitfalls, things you find most, that raise issues in people trying to enforce their debts under their terms and conditions? Yes, I can. So if we look at the beginning of an instruction from a client for most important elements we will be looking for is whether the terms and conditions that they have drafted have been incorporated into the agreement they have with their customer, in this case, a debtor.

What do I mean by this? I mean that no matter how sparkly and wonderful your terms and conditions are, and how much they try to cover you in a debt position, if they haven’t been incorporated into the agreement I brought to the customer’s attention. When you contracts with them, then you won’t be able to rely on them and they won’t be enforceable.

And I’m sure that’s probably similar issues you experience when you get a commercial litigation case and you’re looking to maybe not enforce a debt, but enforce another term which which a client would have issues with. Yes, I think that’s right. And here’s one that, has I’ve seen from time to time is terms and conditions being put on the back of an invoice, which is too late, isn’t it?

When should actually go. Well, it really needs to be, at the point of of contracting with, with the customer service point. The agreement is reached. You don’t even need to give the terms and conditions to your customer, or bring their attention to where the terms and conditions can be located, a website, for example. It’s too late once you’ve started working with them and as Mike said, raised an invoice.

At that point that’s too late and no good. I would also tack on to that because I’ve seen this come up before as well. If you are not, send necessarily sending out the terms and conditions at the outset of the relationship, but referring in, an initial email or a set of emails to where they can be located on your website.

It’s important to make sure that that website is accessible and those terms and conditions are up to date. And crucially, if they change during the course of their relationship, that’s also going to cause a complication and a problem. If you start out, if it’s say, contract for services and you’ve pinpointed the service user to terms and conditions on your website at the outset of the relationship, and then at some point, those terms change before the end date, and you don’t no longer have a record of them, which can happen, and it seems unlikely but can happen.

And it’s something we have seen happen then that will cause you a problem as well. So I think while it’s obviously fine to to to point people to where they can find your terms and conditions, ideally if you want to rely on them, you should be sending them out and have a clear record of what they are and obviously only seek to enforce the terms that you bound that person to and not any changes unless you’ve updated them as to a change in their terms and conditions as well.

So if we received a new case, for example, we we’d ideally have all the evidence about the terms and conditions that were provided or were brought to the attention and, and and like you said, any changes were subsequently brought to the attention of the customer, because otherwise you’re unlikely to be able to rely on those terms. Okay.

So when companies putting together that terms and conditions, what do we think they should be crucially looking to include? Yes. So starting from the top pretty. It may seem pretty obvious, but sometimes it’s it’s not always it doesn’t always come out that way. Who is actually supplying the the goods or services in the contract? Who are you supplying to.

What are you supplying and on what terms are you supplying? So just dealing with the who are you supplying? We have over the years received many instructions where the client isn’t 100% sure who the debtor is. So they have terms and conditions signed up, for example, John Smith. But is that John Smith? And as an individual, John Smith as a limited company, John Smith trading as and the experience is that the sales person is very happy to get the contract signed up, but less so happy to deal with the exact detail to help.

In worst case scenario, help the client when obtaining payment. And obviously that does become a big issue when you’re looking for payment. Absolutely. And actually we see that more often than you might think. Or anyone listening to this might think, you know, this seems like a really basic, obvious starting point. You know, obviously, you know, the contract is going to be all the terms and conditions are going to be relevant to the person you’re contracting with.

But actually this happens way more commonly than anybody would realize. And but it’s so easily preventable at the outset. Just ensure that you know who you’re dealing with. And that your contract is, as you say, made out to the right person. Otherwise just as you said earlier, Paul, with the, you know, if they’re not incorporated properly, they’re not usable.

If it’s not with the right party, then you’re not going to be able to rely on them. It could be the best set of terms and conditions in the world, but if it’s not relevant to their individual entity, then they’re they’re not going to be much good. From a risk point of view, once you know who your customer is, you can then run credit checks to make sure you want to contract with them in the first place.

You know, if you get that wrong, then you could be providing goods to somebody that’s never going to pay you. And you would know that if you had that correct at the first place. I think it’s also, obviously again, seems obvious, but but not always. We often find there are gaps here. Exactly what goods or services are being contracted for, if we’re looking in particular at goods and services, contracts and terms, which often we do, setting that out clearly, a avoids or minimizes the risk of any interpretation disputes as to what exactly is part II is going to be supplying or and what party we can expect to

receive. So that’s always, helpful to ensure, essential to ensure really and again, something that we see time and again isn’t as clear as, as, as it maybe should be. Yeah. I’m back to your point, Paul, about credit checks. Very good idea to do it. And that may influence, how you decide to price the contract and cover the payment terms in the contract.

Obviously, the higher the risk, the more you may want to, cover it, by payment in advance, for example. Indeed. And just on the risk point, of course, once you’ve supplied the goods, does your terms and conditions allow you to retain title until payment is made? Looking at retention of title clauses within contracts whereby if you don’t get paid, then you have the ability to go and pick up those items and return them so you’re not out of pocket.

Essentially, you have the items back to sell. Now that does come with some pitfalls, doesn’t it? Mike. Yes, Paul. Yeah, you’re right. You need to have retention of title provisions in your contract. If that’s something that you’re looking to cover off, they need to be properly drafted. Because there are there is a lot of law around what is an effective retention of title provision and what is not.

But it’s it’s a very important one that that is often overlooked. And it’s not uncommon for clients to come to us and say, we want to uplift goods. And the response is, well, I’m afraid you can’t because you haven’t actually covered this in your contract. And just having that extra, you know, cut covering off as many, options, for yourself like that.

If you’re, if you’re, if you’re the person or the entity drafting these terms, if these are what you’re putting out to the world, this is how your contracts with us. You’re going to want to give yourself as many options as possible if things go wrong. In that sense. But on terms that you might think are fairly obvious to put in.

But often there is some, interpretation issues, clear payment terms as well. Having that in there is, is going to be crucial because if you have if you set out exactly what you expect from the other party in terms of payment or, you know, consideration, then, there can be limited dispute over when those terms have been breached and when you can then move on to the next stage, which would be to come to you.

Indeed. So I would very much agree with that. And then just linking that topic back to incorporation of the terms, sometimes we’ve seen certainly with, with the larger debtors out there, the PLC’s and sometimes that come across our desk, there happens of the incorporation of the terms, an additional stage called battle of the forms I the larger corporations will have their own terms and conditions, their own payment terms, and there can be an argument as to whose terms and conditions apply.

Now we’re very general rule in that instances, whoever’s terms and conditions that have been provided last will be the ones that apply. So provided last before contracting. But of course, sometimes the larger companies won’t contract unless their terms apply. And you need to be aware of that certainly in relation to, to payment terms, because yours may well be payment within, end of month, whereas fees might be payment within three, four, five, six months.

So that’s something just to be, acutely aware of out of the contracting stage. And I think what a lot of people will come to us, for a lot of companies who will say, right, we supplied goods, always supplied services, and we weren’t paid in accordance with our terms and conditions. Therefore, we we’ve sent an invoice, for example, we want to go through, a debt collection procedure essentially.

So we’ll come to you, Paul, because that’s going to be the most straightforward way for them to recover what they’re owed. What are you crucially looking for to see whether or not this is something that can be, you know, to see that the invoice on its own as a standalone invoice can be sued on just as it is, or when you’re going to be passing that over to to me and Mike.

Because it’s not so clear cut. Well, the main point there is, is there any dispute in is that dispute, a real dispute or is it just been raised to try and avoid payment? You can generally tell sometimes you get a dispute in a response to a letter before action, which just says they didn’t do the work or something like that, which is clearly not obvious.

So what we’re beginning, we would need the client to provide a copy invoice, copy contract, an evidence that those contractual terms have been incorporated. And also, of course, evidence of work has been undertaken, services provided over like so long as we can tick all those boxes. And when there is a dispute, then that could still stay as a debt collection, debt collection case, simply because the dispute isn’t relevant and isn’t going to go anywhere.

If, however, there’s, a lack of paperwork, so there’s no evidence that the goods or services have been provided, there’s no evidence that the contractual terms have been incorporated. And there is a dispute which you can see is a large dispute which needs needs further investigation. Then at that point, that’s not a debt collection matter that will pass over to Mike and Lacey as a real, a real dispute issue, which needs further work.

And so just flipping back then a step to the types of terms that, that, individuals or entities were putting into their, their terms and conditions, dispute clauses. Now, these are going to be hugely helpful to have, in certain circumstances. But then there are there is a really good argument to say they’re not appropriate for all sets of terms and conditions and all types of contracts.

And what are your what are your thoughts on that? Mike? Depends on the on the the kind of contract that we’re talking about. Lacey. That a particular in my view, the, the size of the of the, of the contracted works or whatever it happens to be. It’s a cam in in the case of larger contracts, be very useful to have, for example, an arbitration clause, because, there are there are rules available that allow for disputes to be resolved privately and reasonably quickly, without need for the court system, which can sometimes be quite time consuming and, offputting for for commercial clients.

However, in the case of arbitration, if you have an arbitration clause in the contract, you are bound by it. In other words, if you, if you say you have a debt that you’re looking to recover, but there’s an arbitration clause in your contract, you’d have to follow an arbitration process to, deal with the debt recovery, which is probably not what you’re looking for.

In that instance, you’d be looking to get a county court judgment as soon as possible. And go for it for for enforcement. So it’s it’s very much a horses for courses thing. And something that, colleagues in our commercial team would, would, would no doubt be able to help clients. And this also just reinforces, the point that when it comes to limitations, one size never fits all.

Absolutely. It’s going to, you know, the best thing you can do for your businesses is, is spend the time, spend the money, and have those terms properly drafted. Really think about what’s appropriate for, your business, the type of service or goods your, your offering, and be alive to the fact that it may be you need multiple times and conditions for different you know, if you’re offering services or goods at a different, as you say, different sizes, different prices, different levels, then you know, something you’re selling for, say 5,000 pounds.

Is is the terms and conditions you’re going to want for that are going to be vastly different really, than for something with a much, much higher value. And crucially, in respect of those, dispute provisions. And when you’re, you’re thinking about that, also when you’re thinking about the types of limitations or exclusion clauses you put in as well.

Yeah, absolutely. Limit limitation exclusions. And I would say risk as well for passing of risk in the contract. Probably take them out of term and start start with that one. So much so much is done on the internet now because goods can be ordered somewhere else in the country. And we have delivery and logistics to think about.

Do you the supplier wants to take the risk of, being responsible for those, goods during the, the delivery process, or do you want to make sure that risk is, is passed on to the customer from the moment they’ve, they’ve paid for the, for the goods. That’s another one that needs to be thought about carefully. Yeah, we would stress that the terms and conditions are there in a worst case scenario.

Hopefully in the vast majority of your cases, you won’t need to rely on the protective provisions. But of course there’s always about 1 or 2, those 1 or 2 cases which go wrong where you will need to rely on them. So it’s it’s it’s as Lacey said, it’s very good to have those in place just in case. Yes.

And we also need to pick up on why exclusion and limitation clauses are so important. Yes. That’s right. I think if you’re putting together your terms and conditions and in particular for the contracts on the larger side, these are you’re going to definitely want to consider what exclusions and limitations you’re going to want to include in there.

If obviously if you don’t do that then potentially any breaches could be huge. In terms of, damages, costs, losses, you know, loss of profits, cost of completing a job that’s been affected by the, the contractual breach, the numbers could start getting very large if you don’t have appropriate limitation clauses. When we’re looking at, key clauses to, to go into terms and conditions, Paul, interest is an important one as well.

It is indeed, that you really should be looking at including an interest provision on unpaid debt so you can maximize your recoveries. If and when it comes to a point where you do need to recover a debt, you don’t, of course, have to rely on those terms if some clients are late paying. But you know those and you’re friendly with those, you don’t have to enforce the terms, but it’s useful to have the terms there in terms of what interest you can claim.

If it’s a commercial debt, you can claim interest pursuant to the, Late Payment to Commercial Debts Interest Act, which allows interest to be recovered at a rate of 8% above the Bank of England base rates. So at the moment, it it’s a 12.75%, as is the Bank of England base rate is 4.75%. If you’re going to rely on that and it is a relevant contract or a commercial contract, not a consumer contract, you don’t, in fact have to reference that in your terms and conditions, because it will be automatically applied, but you can reference it in your terms and conditions.

If you have an alternative interest rate in your terms and conditions, then you have to claim that rate. So if, for example, you choose to claim interest at 5%, then you’re stuck with 5%. The late payment legislation also allows compensation to be recovered per invoice, and it’s on a sliding scale up to 1,000 pound, I believe it’s 40 pound.

A thousand 10,000 is 70 pound and and 10,000 above is 100 pounds. And the legislation also allows you to claim reasonable costs of recovery, which are otherwise not covered by the compensation. So the legislation is quite all encompassing and allows you to cover your cost. But as I say, you don’t have to rely on legislation on a on a commercial contract.

You can choose your own rate of interest. And if you do that, then your terms and conditions should also cover the ability to recover legal costs. If and when you have to push for button and go legal on an unpaid debt. If you do get into a, a dispute, or if you do get into a position where you are actually looking to rely on those currencies and, and what you don’t want to be left with is a situation where but one way or another, it’s actually costing you money to.

Well, indeed. So indeed so. And is one of, the client’s main issues where, where they essentially see they’re having to spend money to recover their debt, whereas if their terms and conditions were covering with position in the first place, then those costs wouldn’t be incurred. Thank you for listening. We hope you found this episode helpful. If you do require any personalised advice, please reach out to us by visiting our website and contacting the Commercial Litigation Team.

Thank you.