Terms and Conditions

Why use Terms and Conditions?

Businesses will use Terms and Conditions for the following main reasons:

• so that they have a consistent set of contractual terms which apply to their business dealings
• to try and avoid or limit negotiation or discussion with customers and clients on contractual terms, including where the contract is concluded without any direct communication at all (for example, online)
• to prevent the other party’s Terms and Conditions from applying to the contract

How to apply Terms and Conditions

Terms and Conditions will only apply to an agreement if they have been incorporated into and form part of the contract.  

Incorporation of Terms and Conditions into the contract means that they have been provided to the other party before the contract was entered into and the other party accepted them (or will be treated has having accepted them).

Depending on the facts and circumstances, incorporation of Terms and Conditions can be achieved in a number of different ways, including:

• by both parties signing a contract which either sets out the Terms and Conditions or which refers to them and where they have been provided or can be located
• by expressly stating in contractual negotiations and discussions that the Terms and Conditions will apply to the contract
• by referring to the Terms and Conditions in contract related documentation and literature, including for example:
  • in sales literature and catalogues
  • in sales quotations
  • on order forms or purchase order confirmations
  • on a website

What is the “battle of the forms”?

The battle of the forms arises where both parties to the contract seek to apply their own Terms and Conditions.  

As an example:

• a seller of goods sends its Terms and Conditions to the buyer with a sales quotation which states that the seller’s Terms and Conditions will apply to the sale
• the buyer has its own Terms and Conditions for the purchase of goods and sends these to the seller along with the buyer’s acceptance of the seller’s sales quotation
• the seller starts making deliveries of goods to the buyer under the contract
• a dispute subsequently arises between them and, as their Terms and Conditions deal with the disputed matter in a different way, the question arises as to which Terms and Conditions apply to the contract.

The answer will generally depend on when the contract was concluded and whose Terms and Conditions had been incorporated into the contract at that stage.  Often, this will be the party which last put forward its Terms and Conditions (assuming the other party had not expressly rejected them).  In this case, the buyer is likely to have made a contractual offer to the seller when the buyer sent its acceptance of the seller’s sales quotation.  This offer was accepted by the seller when it started to perform the contract.

What are implied terms?

“Implied terms” are contractual provisions which will be assumed to have been included in a contract even though they are not expressly written.  Provisions which are expressly written in the contract are “express terms”.

Implied terms can arise for a number of reasons, including:

• terms implied by statute – for example, the Sale of Goods Act 1979 in the case of a B2B sale of goods 
• terms implied by common law
• terms implied by custom or usage, for example of custom or usage of a particular trade
• terms implied by previous contracts and dealings between the same parties
• terms implied to reflect the parties’ intentions but which they did not expressly include

How are terms implied in contracts for the sale of goods or the supply of services?

In the context of Terms and Conditions for the sale of goods or the supply of services on a B2B basis, terms implied by statute are particularly relevant, namely:

• in the case of the sale of goods, the Sale of Goods Act 1979
• in the case of the supply of services, the Supply of Goods and Services Act 1982
• in both cases, the Unfair Contract Terms Act 1977

Terms will be implied by these statutes into B2B contracts for the sale of goods or the supply of services (including into Terms and Conditions).  The statutes also provide where (if at all) these implied terms can be excluded or limited by the express terms of the contract.

The guidance notes which accompany our template Terms and Conditions explain this subject in more detail in the context of the applicable form of template Terms and Conditions.

What are exclusion clauses or liability limitation clauses?

English law, established by a combination of caselaw and statute, provides for the remedies and rights of recovery which a contracting party will have if the other party is in breach of contract.  For example, a right to terminate the contract and/or bring an action for damages for breach of contract.

As explained above, English law also implies certain terms into contracts.

A party to a contract can seek to exclude or restrict its potential liability for breach of contract and the application of implied terms into contracts by the inclusion of express exclusion clauses or liability limitation clauses in the contract.  

What rules govern exclusion clauses?

The inclusion of these clauses is however subject to a number of rules (once again established by a combination of caselaw and statute).  These must be taken into account in determining whether a particular clause has been properly included in the contract, how the clause will be interpreted should a dispute arise and whether there are any rules which will either prohibit or limit its effect.

In summary:

• an exclusion or limitation clause is only effective if it has been properly incorporated into the contract.  In the case of a contract which is in the form of Terms and Conditions, the Terms and Conditions (including any exclusion or limitation clause) must have been fairly and reasonably brought to the other party’s attention and an unusual exclusion clause may fail if it has not been given particular prominence
• the clause must clearly cover the liability in question
• there may be statutory limitations on the effectiveness and scope of the clause 

For example, in the case of commercial (ie B2B) contracts to which the Unfair Contract Terms Act 1977 (“UCTA”) applies:

• the contract cannot exclude or restrict liability for death or personal injury resulting from negligence
• other liability resulting from negligence (property damage or financial loss) can only be excluded or restricted if the clause satisfies what is known as the “UCTA test of reasonableness”
• the contract cannot exclude certain terms which are implied by the Sale of Goods Act 1979.  This includes liability under the warranty implied by the Sale of Goods Act 1979 that the seller has title to the goods being sold 
• other terms implied by the Sale of Goods Act 1979 can be restricted if the clause satisfies the UCTA test of reasonableness.  This includes liability under the warranties implied by the Sale of Goods Act 1979 relating to the quality or fitness of goods sold for a particular purpose

Where the parties are contracting on the basis of one party’s Terms and Conditions, that party cannot:

• include a term which excludes or restricts that party’s liability for breach of contract or
• by reference to that term, claim to be entitled either to render a contractual performance which is substantially different to that reasonably expected or to render no performance at all in respect of all or part of its contractual obligations,

unless the contract terms satisfies the UCTA test of reasonableness.  

The “UCTA test of reasonableness”, amongst other matters, requires regard to be given as to whether the non-breaching party knew or ought reasonably to have known of the existence and the extent of the term (having regard, among other things, to any custom of the trade and any previous course of dealing between the parties).

The guidance notes which accompany our template Terms and Conditions explain this subject in more detail in the context of the applicable form of template Terms and Conditions.