Tech company's terms of business
- Helen Curtis
- Updated: Fri, 9th Dec 2016
Our client, an IT out sourced services business, was in dispute with one of its customers. Our client’s customer was threatening legal proceedings, claiming our client had provided an inappropriate standard of service. Our client disputed this. We stepped in.
How we addressed the issue
On behalf of our client, we:
- Ensured the claim was dismissed with immediate effect.
- Drafted new terms and conditions for use. Those terms protected our client in the event that a similar dispute arose in the future.
- Advised a new management process for the business model. That model reduced any scope for customers claiming that our client’s terms had not been made known to them, or incorporated into the contract.
Avoiding expensive litigation
First we avoided expensive litigation. Our client faced a claim valued at £40,000. Proceedings would be brought in the County Court, over 150 miles from our client. The claimant had its own in house legal department. Thus the claimant could run the claim, at least until trial, without paying external lawyers. We settled the case with a small payment to the claimant. Our ability to settle saved the client thousands in legal costs, as well as significant uncertainty.
New terms of business
We then drafted more robust terms. These reduced our client’s future risks in its dealing with customers. Our client’s terms of business sought to exclude its liability.
Unfair Contract Terms Act 1977 – exclusion clauses
We knew our clients terms of business were unlikely to succeed, because:
- It was questionable whether the terms of business had been properly incorporated into the contract. Our client had not sent the customer the terms during the pre-contractual communications;
- Even if the terms of business had been incorporated into the contract, the term which sought to exclude liability would probably not stand up in court. Under the Unfair Contract Terms Act 1977, a business cannot exclude liability for e.g.
- Death/personal injury,
- Fraud/fraudulent misrepresentation.
Sale of Good Act 1979 – reasonable standards
There is a reasonableness test for the exclusion of liability for negligence, other than where death or personal injury is caused.
Exclusion of liability clauses
Exclusions for negligence breaches the statutory implied conditions in sections 13, 14 and 15 of the Sale of Goods Act 1979, as these conditions include the implied term of satisfactory quality. The reasonableness test also includes breach of contract for misrepresentation.
A court might say “this is not a contract”, if there is a clause which excludes a party’s liability for breach of all its contractual obligations. The court would say the effect is merely a declaration of intent by the seller. If an exclusion clause is found to be unreasonable, it will be wholly unenforceable. The result is the seller is liable for all the customer’s loss.
New order management process
Many businesses use “standard” terms of business, which are also known as “terms and conditions” or “T&C’s”. Businesses don’t negotiate these terms for each new order to save time and expense. However, businesses should ensure these terms are suitable for their needs, but not too aggressive or one sided.
Terms and conditions for use in business
We first ensured we understood our client’s business, then drafted two sets of terms of business: for individual and business customers. The protections for individuals are greater than for businesses. The terms remained favourable to our client. However, the terms were changed to limit, rather than exclude, liability for business customers. There was no limitation for consumers .
We also re-engineered our client’s order management process, so there was no doubt as to whether the terms were incorporated into the contract. This included:
- Forms used;
- When the terms would be included;
- Adding terms to website;
- Referencing terms in communications.
Thus we mitigated the risk of challenge to our client’s terms. If our client’s service levels declined, there would probably be disputes. Nevertheless, the terms of businesses gave our client the best possible protection.
John Deane is a partner in the commercial team. The majority of businesses standard terms of conditions are open to challenge. Terms should be updated to cover off risks and match with the business model. Please do get in touch with John if we can be of assistance.