Gardner Leader

Business Magazine Article

Gardner Leader Business Magazine article - Thames Valley Edition June 2007

Certainty of Terms!

Chris Felton, Dispute Resolution Partner at Newbury-based Gardner Leader Solicitors, focuses on a specific ‘everyday’ business situation and provides advice relating to the Terms & Conditions of sale and purchase.

My software company has just invested substantial capital in new equipment. Unfortunately, the equipment doesn't work properly but the supplier refuses to acknowledge this. What can I do?

Your first action must be to establish what the contract between you and the supplier says. Were the goods ordered subject to your terms and conditions?

We don't have any terms for this kind of procurement.

That is a shame as having your own terms enables you to protect yourself. Usual provisions can require the supplier to remedy defective goods within a short period of time, failing which you should be entitled to a full refund of your money. You can specify exactly what the goods should do, set service levels and provide that you are entitled to damages for any losses or disruption to your business.

Does the supplier have standard conditions of supply?

Yes - on the back of its sales order there is a lot of "small print" but I didn't have time to read it.

You may be stuck with the supplier's terms, which are sure to be drafted in its favour. They may include provisions limiting the time in which you can make a complaint; limiting the amount you can claim (e.g to exclude loss of profit). There may also be provisions to allow the supplier to take his equipment back if it has not been paid for.

This seems very unfair as my business is relying on having this equipment. Are standard terms always so one-sided?

Generally courts are reluctant to interfere where two businesses have negotiated commercial terms. However, there are certain occasions where terms which seek to exclude or limit liability have been deemed by the courts to be unreasonable. These situations are governed by the Unfair Contract Terms Act ( ) which gives power to strike out unreasonable exclusion or limitation clauses.

Reasonableness depends on:

• the parties' respective bargaining positions
• whether the goods were negotiated by way of an inducement (e.g. low price)
• the parties' financial resources

In practical terms it is often difficult to get a supplier to accept that its terms are unreasonable without the involvement of the court as it will usually have supplied on the same terms to many other customers.

What if the Supplier didn't have any terms?

If there are no express terms then certain conditions that are so fundamental are implied by statute. The most important ones are those set out in sections 12-14 of the Sale of Goods Act 1979 (as amended).

Section 12 requires the supplier to own goods before he sells them on. This can be relevant if the goods are bought on hire purchase. Section 13 confirms that sale goods must correspond with any description.

Section 14 provides that goods supplied must be of satisfactory quality and fit for the purpose for which they were intended. These provisions should give you a good chance at arguing breach of contract.

So if I have got a claim for breach of contract, what will I be entitled to?

Generally you would be entitled to reject the goods and/or seek damages for the cost of the equipment (if already paid) together with any damages for disruption to your business/loss of profit.

I'm a bit worried as I have an ongoing business relationship with this supplier

Carefully weigh up the cost and disruption to your business of litigation. Try to mediate any dispute in the first instance by setting out the nature of your complaint against the supplier, your legal position and your remedies and invite them to try to discuss the problem sensibly.

Details: Chris Felton

Gardner Leader Solicitors

Tel: 01635 508080

www.gardner-leader.co.uk

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