Terms and conditions go hand-in-hand with owning a business
Over the years, many clients have admitted that they have never read their terms and conditions (often buried somewhere on their website) or have “borrowed” them from a website or from a competing business. This is disastrous, especially when it comes time to rely upon those terms to recover payment for your goods or services provided.
Many businesses that supply goods or services rely heavily on their terms and conditions as the first port of call when things go wrong with a customer. Having a well drafted set of terms and conditions in place from the outset can save you significant amounts on legal fees (and time!) incurred trying to resolve disagreements with your customers down the track.
Some of the common pitfalls we see in poorly drafted terms and conditions include:
1. The terms and conditions are not specific to your business
Terms and conditions for a variety of businesses are readily accessible over the internet. We have seen many businesses trying to “borrow” bits and pieces from other businesses contract documents and stitch them together to make their own set of terms and conditions.
The consequences of doing this are that the terms and conditions most likely include practises that do not apply to your business, work to your business’ detriment or could in fact be unlawful. For example, a business that relies on weekly invoicing for cashflow might have inadvertently incorporated some terms that result in monthly payment terms.
Inconsistent terms are also common in self-drafted terms and conditions. For example, in one part of the document it might require the customer to perform certain obligations (eg take out certain insurances) and then later in the document, it has contrary provisions. This type of uncertainty is bound to cause a dispute and can cause difficulties when trying to argue your position, particularly before a Court, given your documentation was entirely inconsistent!
These issues may go unnoticed until a dispute arises with a customer. When such a dispute does arise, you will have difficulty enforcing payment from a customer if you cannot rely on the terms of your own documentation.
2. The terms and conditions contravene the Australian Consumer Law
Unfair Contract Terms
The Australian Consumer Law protects small businesses and consumers from unfair terms in contracts. Your terms and conditions may be unenforceable or void if you include terms which you see as protecting your business, but may be seen by a Court as unfair.
For example, you own an engineering workshop and your terms and conditions state that you are not liable for any damage to your customers equipment even if it is caused by your own negligence. This term is likely to be deemed unfair because there is a clear imbalance of the parties’ rights and obligations arising from the agreement, the result of which, is a clear disadvantage to the customer.
Therefore, whilst you may consider that copying and pasting the ‘scariest’ clauses into your terms are going to protect you from any type of claim possible by a customer, you are wrong! Any unfair contract terms may be struck out and be unenforceable by you.
Excluding guarantees
The Australian Consumer Law contains automatic guarantees that cannot be lawfully excluded from contracts. Many terms and conditions we see contravene these laws by restricting the consumer’s rights in relation to the goods and services and protecting the business’ liability.
An example of this is where a customer purchases faulty electrical goods from a business and the relevant terms and conditions of purchase state that there are no refunds, even in the case of faulty goods. Under the Australian Consumer Law, the customer has a right to ask for a repair, replacement or refund of faulty goods. Therefore, your terms and conditions will be unenforceable.
Terms and conditions can be drafted appropriately to ensure that you limit your liability as far as possible without contravening the Australian Consumer Law.
3. Terms and conditions are overly complex and inaccessible
You might ask ‘will anyone actually read my terms and conditions?’ Certainly not for fun, but when a dispute arises or clarification is required on a key term of the agreement, it will be the first document you and your customers will reach for to find the answers!
Therefore, it is important that such terms are clear as to the parties respective obligations to minimise the chance of a legal dispute.It is important that the language and terms used are clear and that the customer receives a complete copy of the terms (including any attachments referred to within it). We have commonly seen terms that refer to additional terms in a separate document that was never supplied to the customer and no where to be found!
What should I include in my terms and conditions?
Your terms and conditions should be clear as to the following:
the nature of the relationship between your business and your customer;
the term/length of the agreement and any other critical dates;
the scope of works or goods and services being provided (including the agreed price/rates);
payment and invoicing arrangements;
any special conditions or terms specific to the job;
protection for payment – eg. requesting personal guarantees for corporate customers or retention or other security (where applicable);
a dispute resolution procedure to follow in the event of a dispute; and
risk, liability and indemnity provisions (including lawful limitation of liability)
Drafting your terms and conditions in a user-friendly way will ensure that everyone is on the same page in relation to their obligations, which can go a long way in avoiding disputes. Finally, after reviewing your terms and conditions to ensure they are both current and enforceable, don’t forget to have them signed by your customer!
Dannielle Sanderson
Senior Associate
dsanderson@mckayslaw.com
07 4968 5431