Standard Trading Conditions

downloads and papers“I haven’t anything in writing

- so I haven’t got a contract … have I?”

Not so fast – if you and I are talking and I agree to sell you my car, then we do have a deal, an oral contract, enforceable in a Court. In practice, contrary to what many people think, the only contracts which must be in writing are those which deal with land. However the problem you have with the car contract is one of evidence, not law.  How are you going to prove that we have an agreement?

Get it in writing!

Because of this it is only sensible to make sure that contracts are in writing. When trading regularly with a customer or trading in volume with a large customer base, it becomes impractical to negotiate individual contracts with each customer on each deal and that is where standard conditions come in.

But how?

Standard conditions come in two forms, firstly conditions of sale (the more common) and secondly conditions of purchase. However before dealing with the conditions themselves, it is necessary to appreciate that the most carefully drafted conditions are useless if they are not properly incorporated into contracts. So an explanation of how the paperwork actually works may be useful.

It is of course possible to have a stand-alone contract for a specific deal but which is subject to standard conditions. If this occurs the conditions will be incorporated as agreed terms of the contract.

However the more usual situation is where standard rather than bespoke paperwork is used. This is known as “the battle of the forms”.

The first document likely to be used is a written quotation. If standard conditions of sale are used, they will be set out on the quotation (usually on the reverse side and referred to on the front as being conditions to which the quotation is subject. If the quotation is accepted without comment, or if the goods or services quoted for are provided by the seller to the buyer, then the standard conditions of sale will have been incorporated into the contract.

However often the seller’s quotation is answered by a written order from the buyer on which there are conditions of purchase inconsistent with the seller’s conditions of sale. Where this happens there clearly is no agreement as to the conditions of the contract. The legal status of the order is as a counter-offer to the original offer represented by the quotation. At this stage there will be no contract.

What then conventionally happens is that the seller sends out a further document, a written acknowledgment of order. The acknowledgment will repeat the seller’s standard conditions as conditions to which the acknowledgment is subject. Again there is no agreement as to the conditions of the contract at this stage, the acknowledgment being legally a counter-offer to the counter-offer the order represents.

The contractual paperwork generally comes to an end at this stage and the goods or services are provided to and accepted by the buyer. That acceptance is taken to be on the seller’s conditions which become incorporated into the contract and bind the buyer.

N.B. a word of warning – logically it may well be the case that if the buyer refused to take delivery in the above circumstances, a Court would find that there was no binding contract and so the seller would have no claim. Clearly this is a potentially dangerous situation where bespoke goods are being provided, since if they are refused there may be no ready alternative market for them.

To complete the picture so far as incorporation of conditions of purchase are concerned , these are likely to be incorporated if referred to in a buyer’s order and if no acknowledgment of order is issued by the seller .

Standard conditions of sale often used

Having explained how standard conditions are generally incorporated , we can move on to the various individual standard conditions of sale generally in use :

i. The parties to the contract:

- These should be specified so that the obligations of each party are clear, and so that if necessary, it is clear who should be sued for any breach.

ii. The contract :

- Again it is advisable to define the contract, even if this is open to challenge if the sellers conditions have not been incorporated.

iii. The goods and/or services to be supplied :

- It is vital that these are clearly defined. This is usually by reference to the description given in the narrative of the quotation and/or order acknowledgment.

iv. The price payable :

- Firstly the price needs to be identified. This again is usually by reference to the price (either per unit or overall) specified in the quotation or acknowledgment but on occasion it is by reference to the sellers catalogue or other documentation.

- Secondly there is often provision for price escalation if variable costs are likely to change.

- There may be provision for payment of the price by agreed instalments; these are usually set out in the narrative of the paperwork.

- Provision is sometimes made for carriage and/or packaging costs.

v. Payment of the Price :

- Payment terms are important because among other things they dictate when a seller becomes entitled to sue.
- In addition it is sensible to provide expressly for the consequences of non-payment, such as interest (including interest under the Late Payment etc legislation).

vi. Delivery of Goods :

- This is a necessary commercial term; the parties need to know who is responsible for delivery and where delivery, i.e. handover of the goods, is to take place. In addition this has important legal implications under Sale of Goods legislation since title passes on delivery unless a specific contrary provision is included.

vii. Risk in Goods :

- Legally unless specifically agreed otherwise, risk passes on delivery. It is therefore important to make sure that the parties both know where they stand as to at whose risk the goods are at any one time , so that appropriate insurance can be arranged .

viii. Title to Goods :

- This is a most important area which well-drawn conditions will regulate. The seller will aim to retain title to goods supplied until either those goods have been paid for or all goods supplied by the seller at the time the condition is relied upon have been paid for. Such clauses are known as “retention of title” (R.O.T.) or “Romalpa” clauses.

ix. Liability (i.e. exemption clauses) :

- Together with R.O.T.clauses, exemption clauses are a crucial part of the seller’s armoury to protect himself from the buyer. The general principle remains that parties should be free to agree such terms as they see fit, i.e. “buyer beware”. However so far as exemption clauses are concerned, the legislature has restricted and in some cases outlawed the right to exclude or limit liability.

- Firstly so far as a consumer (i.e. a person not acting in the course of a business) is concerned, the opportunity to exclude/limit liability is very restricted. If trading on standard paperwork substantially with consumers (for example, hire shops) great care is necessary to ensure that the conditions are drafted within the limited areas of exclusion allowed to avoid falling foul of a Court (and possibly one’s insurers) in the event of a claim.

So far as dealings with traders are concerned, the legislation provides:

  • It is simply not possible to avoid liability arising from death or personal injury;
  • It is possible to exclude ( including by way of indemnity ) or limit liability for loss arising from:
  • Negligence;
  • The supply of defective goods or unsatisfactory materials ,

But in each case only where it is reasonable to do so. The legislation provides various indicators for a Judge to take into account in deciding what is reasonable, including:

  • The parties’ relative bargaining power
  • The information available to the parties when contracting
  • Whether the clause excludes or merely limits liability
  • The availability of insurance
  • Whether the terms of the contract were specifically negotiated or in standard form

N.B. It is for the seller to show that the term is reasonable.

It is sensible to try to tie in exclusion clauses with the cover provided by product liability insurance, if obtained .

The position so far as the effectiveness of exclusions in export contracts is concerned is complex and somewhat unsatisfactory. Please feel free to contact us for further advice on exclusion clauses, whether for domestic or export contracts, so as to avoid any avoidable difficulties arising.

x. Intellectual Property :

N.B. This is a specialist topic in its own right and we will be happy to advise.

xi. Arbitration :

Again this is a specialist topic. In summary arbitration is a method of determining a dispute but without reference to the Courts. The arbitrator acts in a judicial capacity and the procedure is generally similar to that followed in court. Decisions are binding and can be enforced, using the Courts’ machinery for doing so if necessary. Arbitration proceedings are private, whereas Court proceedings are generally public. However arbitration can be costly as the services of the arbitrator have to be paid for, as does the room or rooms used during the proceedings. It may be that the benefits of arbitration outweigh its disadvantages. In order to require arbitration of disputes and so oust the jurisdiction of the Courts, it is essential that an effective “arbitration clause” is incorporated into the contract. We will be happy to advise on the detailed pros and cons of arbitration both in the context of standard conditions and bespoke contracts.

xii. Export.

Again this is specialist and if your business is involved in significant export sales we will be happy to draft standard legal documentation for you. However if it is necessary to have some export conditions incorporated in your standard conditions as a safeguard, then the following are probably the minimum:

  • It is necessary to provide for when legal “delivery” takes place. There are various (often abbreviated) commonplaces, such as “ex works” or “free on board” (“f.o.b.”). As risk is tied up with delivery it is essential to define delivery to coincide with your insurance arrangements.
  • The price must be defined with care, to ensure that you are not left with financial obligations (for example for carriage and/or packaging) which you cannot recover from the buyer. Terms such as “c.i.f.” (Cost insurance freight) may be appropriate.
  • Payment may be more likely to be an issue in an export contract. Letters of credit may be involved. Credit insurance may be involved in which case it is essential that the conditions tie up with the cover obtained.

xiii. Jurisdiction.

Under English law it is possible to require by contractual condition that English law shall be the law applicable to the contract which shall be an English contract and that the Courts of England and Wales shall have jurisdiction to decide any disputes. This is helpful in these respects:

  • Your English solicitors who drafted your conditions can assist with any dispute arising (few English solicitors have detailed knowledge of foreign law and legal systems).
  • A judge sitting in an English court will of course be fully familiar with the principles of English contract law.
  • The cost of advising an English judge as to the provisions of foreign law will be avoided.
  • The further cost of litigating in a foreign country will be avoided.

At Cutler Buttery Solicitors, Neil Cutler has 30 years specialist experience of acting for numerous companies, whether PLC or private, in a very wide range of commercial matters and has drafted (and litigated) numerous conditions of trading during that period.

Please contact Neil Cutler for detailed guidance and advice in relation to all aspects of commercial transactions and contracts.