Standard terms and conditions are dull.
They are dull for businessmen and lawyers – or so you might think. I can offer another perspective for you.
Would £325,000 make you take notice? That is the figure lost by one of my clients because of inadequate standard terms and conditions.
In the following scenario the names and characters are fictitious!
Setting the Scene
Goldie Locks owned a well-run and profitable business. She made teddy bears. She bought teddy bear material from Jack A. Nory. Her business sold teddy bears and made good profits.
One day she bought some material from her usual (and normally reliable) supplier. The bears she made from the material fell apart after she had sold them to her best customers all over the world. The customers did not pay.
Ms Locks was puzzled as to why the bears had fallen apart and brought in the services of a well-known scientist to test the material. The scientist confirmed that the material was defective. Ms Locks sued Jack A. Nory. She won and Mr Nory also paid her legal costs.
So what was the problem and where does £325,000 fit in?
The Contract
Unfortunately for Ms Locks she did not think that she needed to worry about Jack A. Nory. She had dealt with him for many years. He was a hard businessman but his material was usually very good.
She did not have any standard terms and conditions of purchase and she did not worry too much about the basis upon which she was dealing with Mr Nory, so long as the price of the material was right.
Mr Nory, however, used his terms and conditions of sale very carefully – and they had teeth. He was not liable for any loss of profit or other losses in any amount more than the value of the goods supplied.
Goldie Locks had lost £450,000 as a result of the defective material. In her action against Jack A. Nory she recovered only £125,000. That was little more than the value of the material she had purchased.
The Midas Touch
If Ms Locks had used some straightforward standard terms and conditions and a little more care, she would now be much better off. She would have been able to argue that because Mr Nory's material had given rise to her losses and she could prove that the material was defective, she would have recovered a large part of the £450,000.
The Cure
Standard terms and conditions are an important business tool in apportioning liability for losses. Used properly liability can be limited or excluded in various scenarios.
If Goldie Locks had used some standard form conditions of purchase for her material or had negotiated the contract for the raw materials with more thought, she would not have been prepared or been obliged to accept Jack A. Nory’s exclusions of liability for loss of profit. Sadly she had simply not appreciated that her supplier was excluding his liability and that exclusions were likely to be upheld by a Court.
Even worse, Jack was insured and so it was his insurer who made the saving and Ms Locks who suffered the loss.
The Moral of the Tale
Reviewing standard terms and conditions on a regular basis is an important part of buying and selling of both goods or services. In addition, train your buyers and sales force to alert the people they’re dealing with to your terms and conditions – if they understand their importance you could be saved time, trouble and, in some circumstances, part of your hard earned profit!
For further information please contact Richard Lane
This article first appeared in NewsBrief Summer 2006
