Terms of Business
Terms of business – the best form of insurance
Doing business in Australia without effective terms and conditions is like driving a car without being insured. At some stage, there will be a problem which is likely to cost you money – usually many times what it would have cost to get a lawyer to draft terms and conditions when you started.
Effective terms of business will not only protect you when a problem arises but will minimise the chance of a problem occurring in the first place.
Why standard terms and conditions often don’t work
- Various laws in Australia result in terms which you think will protect you being unenforceable e.g. the Australian Consumer Law (ACL) and unfair contracts legislation in different States.
- Terms of business are useless unless they are specifically agreed to by your customer or, at least, adequately brought to their attention before the transaction occurs.
- Most terms and conditions don’t protect you against claims by the other person or company that they were misled.
- Terms and conditions are often inadvertently changed by discussions with the other person.
Remember … you get what you pay for!
How to overcome these problems
- Make sure your lawyer does not think he/she is doing the right thing by drafting terms and conditions which are in your favour but not in the interests of your customer. This can often backfire, particularly when your customer is a consumer. It is important to avoid unfairness, which may be hidden in a legal clause and not obvious to you.
- You not only need to ensure that your terms of business are brought to the attention of your customer, but you need to be able to prove this. In this regard, terms of business on an invoice, or on the reverse of an order form or quotation, or even in small print at the bottom, are often legally ineffective.
- Many standard terms and conditions include a clause which says that the other person/company can only rely on what is in the written agreement. This is not enough to avoid the problems which arise when the other party claims they have been misled. The possibility of this needs to be dealt with specifically in your terms and conditions, but it rarely is.
- If there are any discussions with your customer which are not 100% consistent with your terms of business, make sure that they are confirmed in writing. Email may not be enough depending upon how your agreement is worded.
- Be aware that your online terms and conditions, even if they are ticked (which usually happens without being read), may not adequately protect you.
Avoiding misunderstandings and disagreements
Most lawyers draft terms and conditions to protect you if a legal problem ends in court. While this is important, it ignores something which is far more important … terms which will prevent problems. After all, no one wins if a problem ends in court or a consumer tribunal. More information about this can be found in the article What lawyers don’t tell you about terms of business
Draft your own terms of business or use a template
Copying a competitor’s terms is fraught with risk. For example, they are not customised for your business and you have no idea how good they are (from a legal perspective). Also, if you use their wording, you’re liable for breaching copyright.
Using a template is also fraught with risk. It is simply not possible to adequately customise terms of business for your particular circumstances (which is almost always essential) by completing an online form. By the way, this applies to most legal agreements.
The businesses which provide these online agreements know this which is why they don’t accept liability if the document is inadequate. So it’s usually a waste of money. They even admit that you should obtain independent advice because they are not lawyers, which means you are not protected by a lawyer’s PI insurance (an important reason to use a lawyer!)
If you do decide to draft your own terms of business, or any agreement, contact us and we’ll give you some guidance about what must be included to make the contract binding. In addition, there are dozens of extra things which should be included depending on the type of agreement which we can also help you with.
Advice on other contracts i.e. not your own
It doesn’t matter how smart you are, reviewing a contract presented to you by another business is unlikely to alert you to potential problems unless you have a lot of experience in contract law.
This is partly because what is missing from the contract is often more important for your protection than what is included. Identifying this requires collaboration between the client and an experienced business lawyer.
If your budget is limited, you can save money by limiting the scope of the work done by the lawyer so that you only get legal advice on issues that you are not clear about and on what else you may need in the contract to protect you.
What if the transaction does not follow the written terms and conditions?
It is not uncommon for an agreement which has been negotiated, drafted and signed to be put in the bottom drawer and for the parties to proceed in a way which is different to the written terms. If so, it is important to update the terms and conditions so you have a written record of any changes which have been agreed to. This can sometimes, but not always, be done by email.