Spotlight on terms and conditions of sale - are yours enforceable?

Sydney Mitchell LLP

Most business owners understand how vital it is to have terms and conditions of sale in place to cover their sales of products or services to customers.

Having well drafted and appropriate terms of sale benefits and protects a business in numerous respects, but this will only be the case if the terms are enforceable so it is important also to be aware of factors which can affect the enforceability of your terms.

Will the terms apply to the contract?

To be enforceable, terms need to have been successfully incorporated into a contract. As a minimum this means that the terms need to have been brought to the customer’s attention before the contract was made.

If the customer has terms of purchase, it is necessary also to avoid the risk that their terms will apply instead of the terms of sale. In order to ensure this, the terms of sale need to include appropriate wording. The terms will also need to be consistent with the order processing procedures and other contractual documentation used by the business.

Are the terms appropriate for the customers and methods of selling of the business?

Some businesses sell only to other businesses, some only to consumers and some to both. The law applying to sales to businesses and sales to consumers is different. There is greater freedom as to what can be included in terms of sale to businesses and more protections which need to be reflected in terms of sale to consumers.

Failure to include provisions which are required in order to comply with the relevant laws or the inclusion of terms which do not comply with the law, is likely to mean that terms may be unenforceable or illegal.

Do the terms effectively limit the business’s liability?

Some of the most important provisions in a seller’s terms of sale are those which seek to limit the seller’s liability to the customer in the event that something goes wrong.

Again, the law provides more protection to consumers, but also in the case of sales to businesses, the ability to exclude or limit liability is significantly restricted.

The law in this area is complex and its effect will depend on a number of factors. Provisions which seek to limit liability for certain types of damage, for example injury or death resulting from negligence, will be completely ineffective.

Provisions seeking to restrict liability for other types of damage may be ineffective or may be effective only to the extent that they are reasonable. What is reasonable will depend on all of the circumstances and facts of the case which will differ from business to business and perhaps from order to order.

A clause which provides that a business will have no or very little liability to a customer may seem very reassuring but, if found by a court to be unreasonable, will be unenforceable so that any protection which it seems to offer will be illusory.

The law applies not only to those provisions which directly and obviously seek to limit liability, but also to those which indirectly have this effect. This means that it can apply to many other types of clause which are commonly included in terms.

Other considerations

This is only a summary of a few issues to bear in mind in relation to the enforceability of a business’s terms of sale. There are numerous other issues in relation to the terms which may need to be considered.

If you would like assistance in reviewing the appropriateness of your business’s terms of sale or putting in place new terms of sale or purchase, please contact Julian Milan or a member of the Corporate and Commercial Team for advice on 08081668827.