Why now is a good time to review your terms & conditions

The onset of the recent recession and continuing difficulties in the economic climate highlight numerous risks when entering into new business relationships.

A number of recent cases have brought to light the need for businesses to ensure their terms & conditions are reviewed on a regular basis to ensure that they remain fit for purpose and provide the necessary protection if things go wrong.

For example, earlier this year the High Court held that the adverse change in economical market circumstances caused by the collapse of the financial markets, did not amount to an event of force majeure or frustration in contract law and, if a party wanted to get out of an unprofitable contract on the grounds of economic hardship, there needed to be an express agreement to that affect. As a result, the purchaser could not escape liability for payment of the balance due on a multi-million pound contract.

This illustrates the risk of relying on standard terms, which may not be fit for purpose, and the need to ensure that the contractual terms meet the requirements of the particular circumstances.

Even if the terms & conditions are appropriate, they are of absolutely no use whatsoever if they are not properly incorporated into the end contract. This again has been the subject of recent High Court consideration.

The case involved a “battle of the forms” where each party purported to rely on their own standard terms & conditions. On the facts, the Court held that neither party’s standard terms & conditions had been incorporated into the contract. As a result the contract between them was governed by and incorporated the implied terms of the Sale of Goods Act 1979. This meant that the supplier’s standard limitation of liability clause was rendered ineffective and the supplier faced unlimited liability.

These recent cases demonstrate that care needs to be taken when using standard terms & conditions to ensure that they are up-to-date, enforceable and appropriate for their intended use, and if a party wishes to rely on standard terms & conditions that they are properly incorporated into any contract at the outset.