A key tool often neglected
Well-drafted and regularly maintained terms and conditions for your business can provide a simple and efficient resolution to a dispute. In some cases, disputes can be avoided altogether by the operation and effect of your terms and conditions. In other cases, a lack of, or poor terms and conditions, can lead to painful and protracted disputes that often result in stalemates or meaningless victories.
What are terms and conditions?
Terms and conditions or terms of trade is a legally binding document that sets out the rights and obligations between your business and your customer.
Your terms and conditions should include several clauses, including, when and how your customer can pay you, what happens if the customer does not pay and how to settle disputes.
What are the key clauses in terms and conditions?
Charging clauses
A charging clause allows you to register an interest over your customer’s assets if they do not pay your fees. This provides your business with security that you will receive payment from the customer.
These clauses may not be limited to the customer’s assets at the time the terms are signed. Some charging clauses (if drafted properly) extend to any assets gained after the terms are signed.
These sorts of clauses must be drafted with the utmost care, as can be seen in cases such as Adrija Pty Limited v Abdiwahaab Barkhadle Mohamed and Ors [2013] ACTSC 120, where slight changes to a “standard” charging clause rendered the whole clause unenforceable.
Suspension of rights clauses
These clauses generally operate to prevent a party taking action (usually the customer), or defending actions until all monies owed are paid to your business. In essence “suspending the rights” of your customer until you are paid in full.
These clauses will need to be carefully worded and may fail to be effective in certain circumstances based on the facts of the dispute and the drafting of the clause.
These clauses are highly technical in nature and must be carefully drafted and implemented.
PPSR clauses/retention of title clauses
A retention of title clause (“RTC”) is a type of clause that allows the customer to take possession of property, but not allow title in the property to transfer from your business to the customer, until the full price is paid.
In practice this means the customer possesses the goods, but your business continues to hold title to the property. Where this becomes important is in terms of disputes and in light of businesses failing.
This has been further complicated by the Personal Property Securities Act 2009 (Cth). For these clauses to be effective, you must register a security interest on the Personal Property Securities Register. If this is not done properly, you risk losing a substantial asset.
Why are good terms important?
Too often, disputes arise simply due to each party having its own understanding of the bargain struck (often biased toward its own position). Terms provide the clarity needed to avoid this.
Good terms will clearly set out the rights, obligations, requirements and consequences of an agreement between the parties, leaving little to no room for surprise.
Further, good terms will also assist in preventing disputes before they arise.
The benefit of such a position is almost immediately clear, in the form of reduced time, stress and cost in running any litigation or dispute resolution.
Bad terms (or worse, no terms) may result in a costly and time-consuming dispute with your customer. Therefore, terms should be reviewed regularly to stay ahead of changes to the law to protect your business.
Key Takeaways
The key takeaways are that:
- good terms can prevent and resolve issues before they occur;
- good terms can empower your business and protect your interests in powerful ways; and
- poor terms, or a failure to have any can expose your business to risk and loss that is otherwise easily avoided.
If you have any questions or concerns regarding your terms and conditions, please contact one of our experienced solicitors on (07) 3186 8669 or click on the “Book a Consultation” button on our website to book in a free 15 minute consultation with a solicitor so that we can discuss the best way to protect you and your business.
