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Contracts: Back to Basics

  • Posted: 08-02-2019
  • Commercial/Business

With Brexit dominating the headlines, businesses are facing a period of uncertainty, no matter what the outcome of the next few months. One of the ways to reduce some of that uncertainty is to be very clear about what arrangements your business has with those it deals with, and those it relies on.

What are some of the common pitfalls?

Simple steps such as ensuring that you are clear who your client is, who you are invoicing or charging and who you expect to recover your charges from, are essential. It seems almost too obvious to mention, but we routinely deal with clients who think they have contracted with Mr X, only to find they have (or should have) contracted with Mr X’s company – or vice versa.

Other basic considerations include being very clear what the price is and what you are delivering in return. This is more of an issue with the delivery of services, which can often be subject to “mission creep”. If you quoted for a particular piece of work, but during the course of that it becomes clear that something more, or something different, is needed, do your terms (and your commercial processes) ensure that you pick up and deal with this work as a “change”, so that you can charge accordingly?

You should also make sure that your terms contain clear triggers for when you are entitled to raise invoices, and when those invoices are due to be paid.

How do we make sure our contract terms apply?

If (as we would hope and advise) you have invested your time and money in making sure that your terms are up to date, and that they reflect what arrangements your business wants and needs to have in place, then you will want to pay some attention to the mechanism and process that you use to communicate those terms.

For most businesses, ensuring terms are incorporated into the contract comes down to ensuring that they appear on the website in a way that is accessible and linked to in a suitably logical and transparent way, for example, online contact forms and order forms. There should be a discussion with your website designer to discuss the pathway that a user takes on their journey through your site, to ensure that they are required to confirm they have read and agree to any relevant terms at the appropriate point in the process.

Does it matter what our terms look like?

Where there are any terms that are particularly unusual or onerous, particular care should be taken to ensure that they are drawn to the other party’s attention. These are sometimes referred to as “red hand” clauses, after the following comment by Lord Justice Denning in the case of J Spurling Ltd v Bradshaw: “… the more unreasonable a clause is, the greater the notice which must be given of it. Some clauses which I have seen would need to be printed in red ink in the face of the document with a red hand pointing to it…”
In the digital age, red ink might not be required, but a red or other striking colour might be. Or a business could look at other design tools such as font size or boldness, or layout tools, such as boxes and spacing.
A typical example of this type of clause is a clause that is included to exclude or limit the liability of the party setting out their terms.
To keep with the colour theme, contracts might also be subject to the blue pencil test. This refers to the ability of the court to use its “blue pencil” to delete any parts of a clause that are invalid, but to leave in place the rest of the clause.
Both the wording and the layout of the contract terms need to take into account the potential for the blue pencil to be wielded, and to separate out elements of a clause if they might need to be considered in isolation from each other. Again this is an issue most commonly faced when dealing with exclusion or limitation of liability clauses.

It’s about the whole picture…whatever the colour

You can have the most relevant, most beautifully drafted terms, but you need to think about your interaction with potential customers from the first point of engagement. If they never see (or get directed to) those terms, then that isn’t going to help you in enforcing them if there is any dispute.

If you would like to discuss any of the above issues with our commercial team, please contact Matt Cook: matt.cook@brightllp.co.uk