Fixing Fineprint – How good are your business’ standard terms?
Most businesses will have some kind of contract that they provide to their customers which sets out the terms that apply to the supply of goods or services. Particularly with small businesses, these contracts often contain standard terms that neither party really reads or cares about, that is until something goes wrong.
Here are some of the key clauses and issues that businesses often fail to cover off on in their standard term contracts.
Payment Terms
Despite being the most critical aspect of a transaction, businesses often fail to properly document how customers are to pay them and what happens if they don’t. Contracts should detail the specifics of how much is to be paid, when it is to be paid by, how invoices are issued, what payment method is acceptable and in what circumstances payment terms can be changed. Standard terms should also provide a business with some form of security or leverage over their customers to ensure that debts are paid on time. This may include a registered security interest over the customers’ assets, the ability to suspend services or withhold goods until an account is brought up to date or the right to charge interest on late payments.
Liability
Good contract drafting requires a bit of fortune telling; when assessing risk a business should try to foresee everything that can (and perhaps in the past, has,) gone wrong, who would be to blame, who could be liable, who should be liable, and document this accordingly. For example, if a business is relying on a customer to provide them with accurate or timely information in order to meet that customer’s expectations or deadlines, then the business should ensure the customer is responsible for what happens if that requirement is not met. This could include a disclaimer of liability clause and, if there is a risk of loss, damage or costs for the business, an indemnity clause which requires the customer to ‘step into the business’ shoes’ and meet those costs.
However, businesses should also ensure that their liability clauses recognise that legislation such as the Australian Consumer Law can place its own limits on just how much liability can be excluded.
Intellectual Property
The inclusion of a clause dealing with intellectual property (IP) is particularly important for businesses which create new property for customers such as documents or software, but should also be considered by any business who has developed its own unique templates, designs, methods or inventions and needs to be able to re-use that IP as part of its ‘tools of trade’. By default, an independent contractor will own any IP they create and it may be implied that the customer has a licence to use that IP. In some circumstances, customers will not be happy if they eventually find out they don’t actually own what they paid for. Accordingly, your contract should deal very specifically with who owns what IP, who has a licence to use that IP and what for, upfront.
Parties & Execution
All the wise words in the world won’t help if your contract hasn’t been executed properly (or at all), by the relevant parties. Businesses should be careful to note on the contract who the actual customer is (i.e. an individual, a corporation or a trust), and ensure that the contract is properly signed by that party using the appropriate execution clauses. For example, ideally an individual’s signature should be witnessed by an independent third party and, for corporate entities, specific rules under section 127 of the Corporations Act 2001 (Cth) about how many directors’ signatures are needed to bind a company, should be followed. Note also to avoid a common trap – a registered business name is not an actual legal entity and cannot enter into a contract.
Improper execution can throw the validity of a contract in question and may ultimately lead to it being unenforceable. From here, parties can become embroiled in a ‘he said she said’ battle to determine what was actually agreed upon; wasting everyone’s time, money and often ending the working relationship.
Unfair Contracts Regime
As of 12 November 2016, the unfair contracts regime of the Competition and Consumer Act 2010 applies to standard term contracts between small businesses. This means that clauses of applicable contracts which are deemed to be unfair can be made void by the courts and damages could potentially be payable for loss because of the unfair clause. Whether or not the terms of a contract are unnecessarily oppressive, easily accessible or easy to read are just some of the factors which may impact on a fairness determination.
Having a clear, plainly worded contract in place before any services are rendered is critical for both protecting your business and minimising the risk of disputes with your customers by establishing a transparent working relationship upfront.
We’ve seen enough dodgy contract templates lifted from the internet to know that they will do more harm than good!
Come speak to us at New Era Lawyers for an obligation free assessment of your business’ standard terms.
Email: [email protected]
Phone: (07) 5478 3990
