Which Terms & Conditions do You Use?

A look at small business' term and conditions options and responsibilities

Which Terms & Conditions do You Use?

Businesses commonly trade and rely on their standard terms and conditions to protect them in the event of a contractual dispute. A business’ standard contracting procedure should undergo periodical review in order to ensure that such protection is reliably achieved. When was the last time your business reviewed its contracting process?

In the recent case of Allen Fabrications Limited v ASD Limited(PDF), the High Court provided an update on the incorporation of standard terms into contracts between two parties. The case involved a claim for negligence and breach of contract due to ASD’s failure to comply with its obligations contained within the terms of its contract with Allen Fabrications. ASD’s standard terms and conditions limited ASD’s liability for breach of contract to the price of the goods supplied. The question considered by the High Court was whether ASD’s standard terms and conditions had been incorporated into its contract with Allen Fabrications.

The Court found that ASD’s standard terms had in fact been incorporated into its contract with Allen Fabrications, because ASD’s standard contracting procedure demonstrated that without a signed document expressly incorporating ASD’s standard terms, no goods or services would be supplied to its customer(s). Neither party could actually produce a copy of a signed document, however the facts of the case pointed towards the fact that such a document must have existed.

The Court also considered whether ASD’s limitation of liability clause was unusual or onerous enough to require ASD to bring it to Allen Fabrications’ attention. Past case law has suggested that limitation of liability clauses are commonly classified as being unusual and/or onerous and must, therefore, be brought to the attention of the other party during the contracting process. In this instance, however, the Court held that limitations of liability clauses are not always onerous, and that much will depend on the circumstances and context of the matter in question.

The Court decided that when parties to a contract are commercial organisations who have a history of dealing with each other, an awareness of the contents of the other’s standard terms (including limitation of liability clauses) and their contracting procedure is expected. In this case, the Court deemed that Allen Fabrications was aware of ASD’s standard contracting process and, therefore, that the signed documentation must have existed even though it was not in either party’s possession.

The case highlights three practical points to consider and action if you are a business looking to trade on your standard terms:

  1. Choose a method of incorporating your standard terms and conditions and apply this approach consistently when agreeing new contracts;
  2. Make your customers aware of your standard contracting process and the content of your standard terms; and
  3. Keep copies of all signed contracts, even after contractual obligations have been completed, in order to evidence which terms and conditions were used if a dispute should ever arise.

Written by Grant Esterhuizen, partner at Lester Aldridge LLP

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