Challenge to terms of business

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Gannons resolved an issue relating to a company’s generic terms of business. We resolved the dispute and updated our client’s terms to better protect them in the future.

Our client, a business which out-sourced IT services business, was in dispute with one of its customers. This customer was threatening legal proceedings, claiming our client had provided an inappropriate standard of service. Our client disputed this. We stepped in to resolve the dispute.

How we addressed the issue

On behalf of our client, we ensured the claim was dismissed with immediate effect. Following the dismissal of the claim, we drafted new terms and conditions for use. Those terms protected our client in the event that a similar dispute arose in the future.

Finally we advised on forming a new management process for the business model. This new 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. Additionally proceedings would take place 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 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 their liability.

Unfair Contract Terms Act 1977 – exclusion clauses

We knew our client’s 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.

Additionally, 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 death or personal injury, and fraud or 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 deem a contract which has a clause excluding a party’s liability for breach of all its contractual obligations to not be a contract. 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.

Terms and conditions for use in business

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.

We first ensured we understood our client’s business, then drafted two sets of terms of business: for our client’s individual and business customers. The protections for individuals are greater than for businesses. The terms remained favourable to our client. However, we changed the terms to limit, rather than exclude, liability for business customers. There was no limitation for consumers.

New order management process

We re-engineered our client’s order management process. This left no doubt as to the incorporation of the new terms into the contract. This included which forms they used and when the terms would be included. We then added the new terms to their website and ensured that our client effectively communicated the new terms through other channels as well.

Conclusion

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 need updating to better cover risks and align with the specific business model. Please do get in touch with John if we can be of assistance.

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