I have been asked a few times recently by businesses to review their terms of sale and advise on whether they are enforceable. It is a good question which has lead me to set out these brief general observations on the subject.
Incorporation of Terms
First and foremost, for terms of sale to be enforceable, they must be properly incorporated into the contract with the customer. At a minimum, the terms must be brought to the customer’s attention before or at the time the contract is formed. They should also accurately reflect the business’s actual trading practices, particularly in relation to order acceptance, and be consistent with other contractual documents such as quotations, order acknowledgements, and confirmations.
Careful drafting is required to minimise the risk of the supplier’s terms being displaced by the customer’s terms of purchase—a risk that commonly arises in so‑called “battle of the forms” scenarios. The same considerations apply, in reverse, to terms of purchase used by customers.
Consumer and Business Contracts
The nature of the customer is highly significant. Terms governing sales to consumers are subject to far greater statutory regulation than those applicable to business‑to‑business contracts. Under the Consumer Rights Act 2015, consumer terms must be fair and transparent. Additional requirements apply to distance and online contracts, including obligations to provide the customer with extensive information
If consumer contracts include prohibited terms, or omit mandatory provisions required by consumer protection legislation, those terms may be unenforceable and, in some cases, expose the business to regulatory action.
Limitations and Exclusions of Liability
Even in business‑to‑business contracts, certain terms remain subject to statutory controls. Under the Unfair Contract Terms Act 1977, the enforceability of provisions that seek to exclude or limit liability—whether directly or indirectly—is often subject to a test of reasonableness.
What is “reasonable” depends on all the circumstances of the case, including factors such as bargaining power, availability of alternatives, and whether the customer knew or ought reasonably to have known of the term. This can make enforceability difficult to assess in advance, particularly where standard terms are used across a wide customer base.
Restrictive and Competition‑Related Clauses
Certain contractual provisions, such as restrictive covenants designed to prevent competition, solicitation of customers, suppliers, or staff, may raise issues under competition law. If such clauses go beyond what is reasonably necessary to protect legitimate business interests, they risk being void or unenforceable and, in some cases, unlawful.
Implied Terms
Contracts may also be subject to terms implied by law. Common examples include statutory implied terms under the Sale of Goods Act 1979 relating to the quality and fitness of goods. Unusually for contracts under English law in the case of agency and partnership agreements, duties of good faith are implied.
If express contractual terms fail to address, or are inconsistent with, terms implied by operation of law, this may undermine their intended effect.
Consistency Within the Contract
Internal consistency is another critical factor. Inconsistencies between clauses within the main body of the contract, schedules, or ancillary documents can create uncertainty and may render provisions unenforceable.
In export contracts, where Incoterms® are used, it is essential that the remainder of the contract accurately reflects and aligns with the chosen Incoterm.
Clarity and Certainty
Finally, as a general principle, contractual terms must be drafted clearly and precisely. Ambiguity or uncertainty as to the meaning or effect of provision can lead a court to refuse enforcement or to interpret the clause in a way the drafting party did not intend.
If you need contractual terms drafted by expert solicitors, contact Julian Milan at julian.milan@mfgsolicitors.com or call 0121 2367388.
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