Every year businesses spend hours of management time and money on lawyers drafting standard terms and conditions.  Clear terms and conditions can give you a huge amount of protection if properly incorporated into contracts.  However, a recent case involving retailer Mark One has highlighted the importance of ensuring that terms and conditions are tailored for your commercial needs.

Retention of Title Clauses

Retention of title clauses provide that the ownership of the goods supplied stays with the supplier until it has received payment for them.  If the buyer fails to pay then the supplier has the right to go and get the goods supplied rather than waiting for any payment from an insolvency practitioner.

An “all monies” clause provides that the ownership of the goods stays with seller until all outstanding debts are paid. 

However, even if a retention of title clause is incorporated through your standard terms and conditions, it may be ineffective if the way that business is conducted on the ground is inconsistent.

One of the suppliers of Mark One claimed that its all monies clause was applicable.  Mark One had gone into administration and the supplier was trying to enforce its rights against the insolvency practitioner.

However, as the clothing supplied was clearly intended to be sold on to Mark One customers against whom it would be difficult, if not impossible, to enforce the clause, then it equally did not work against the administrator.

Battle of the Forms

It is also critical to ensure that terms are agreed before or shortly after you start to perform the contract.

Standard terms and conditions are key.  They allow you to dictate how the relationship will run (for example, when you get paid).  Also, they can include important enhanced protection, such as limitation of liability.  Without these you could be left exposed to joining the queue when your customer becomes insolvent and could potentially face a substantial and unexpected loss.

In situations where parties have batted their terms and revised versions back and forward but never agreed which would apply to the contract, temptation is to conclude that the last shot wins it. 

The Courts will look at the behaviour of the parties to see whether there was any offer and acceptance.  In a straightforward case the battle may be won by the party, who fires the last shot.  However, in another recent decision involving the supply of defective electronic sensors, the Court determined that neither party’s terms applied.

Instead, the Court held that the contract was governed by the Sale of Goods Act and, therefore, applied the statutory implied term that goods are of satisfactory quality and fit for purpose.  The Court stated that “as must be the case very regularly in commercial discussions, both sides buttoned their lips, or fastened their seatbelts, and hoped that there would never be a problem, or that, if a problem arose, it would be small enough that, with goodwill, it could be settled on a case by case basis.”. 

This left the supplier of the goods facing a large liability.

Conclusion

It is not always possible to agree the terms of a contract before starting to perform the contract, but at the very least do not forget about them.  Otherwise, you have wasted your time and money and could end up being stung.

Further, while retention of title clauses are a key part of your armour, this cannot replace keeping an ear to the ground and making sure that you do not become over exposed to one customer.

 

This article was written by Jane Spiers, an Associate in Waiting in the Commerce and Technology Department and a member of Fox Williams Fashion Law Group.

 

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