If you purchase goods and services from a supplier, it is very likely that the supplier will require you to sign a contract and their terms of trade before they make any supply. Unfortunately, a lot of people simply sign terms of trade without reading them and without considering the implications of what they are signing.
This is quite risky and must be avoided. By signing, you are indicating to the supplier that you have agreed to all the terms contained in the terms of trade. It is very difficult to refute that you are bound by the terms of trade when you have signed the terms of trade.
You must therefore read the terms of trade and understand what matters you are agreeing to and the implications of agreeing to those matters before you sign them.
Some key terms to look out for in a terms of trade:
• Price: How will the price be determined and in what circumstances can the supplier increase the price.
• Payment: The terms of payment, such as when the payments will be due, if interest will be charged on outstanding amounts and if so, whether the interest rate is reasonable.
• Debt recovery: Whether the supplier can charge you for collection costs such as debt collection fees and legal fees.
• Personal guarantees: Whether the supplier requires a personal guarantee such as a personal guarantee from a shareholder/director of the customer, if the customer is a company. A personal guarantee is very onerous and you must review all the risks carefully before you agree to become a guarantor.
• Mortgage/caveat/charge: Whether the supplier has the right to lodge a mortgage, caveat or charge over your property or that of the guarantor.
• PPSR charges: The scope of the Personal Properties Securities Register (“PPSR”) charges agreed to. You should check whether the supplier has the right to register a general security agreement (being a security interest in all present and after-acquired property of the customer) or a specific security charge (being a security interest in specific goods). Ideally, suppliers should be registering a charge over the property they supply and the proceeds of such property.
• Returns: Since the Consumer Guarantees Act 1993 does not apply to business to business transactions, you may need to rely on the terms of trade in order to have a right to return defective goods. You should therefore check whether the terms of trade allows you to return defective goods and if it does, then the terms of this.
• Termination: Whether the supplier or customer has a right to terminate the contract and if so, in what circumstances.
• Warranty: Whether the supplier has provided any warranties in respect of its supply and if so, whether the warranties are adequate.
• Limitation of liability: Whether the supplier has removed or reduced the extent of its liability to you.
• Intellectual property: Who owns the intellectual property and whether there are any limits on how you can use intellectual property.
• Dispute Resolution: Whether there is a process to be followed if a dispute arises. The above are only a few things that you must consider before signing a terms of trade. If you are in doubt, please contact your lawyer.
This post was published in the FMCG Business magazine.